Psychological Factors Are The Biggest Drag On The Market
Some housing bubble news from Wall Street and Washington. “Reflecting further housing troubles, sales of existing homes fell in May to the lowest level in four years while the median home price dropped for a record 10th consecutive month. The National Association of Realtors reported Monday that sales of existing single-family homes and condominiums dropped to 5.99 million units in May, the slowest sales pace since June of 2003.”
“The median price of a home sold last month dropped to $223,700, down 2.1 percent from a year ago. It marked the 10th straight price decline compared with a year ago, the longest stretch of weakness on record.”
“In a troubling sign for the future, the inventory of unsold homes rose by 5 percent to 4.43 million units in May, a level that would take 8.9 months to clear out at the May sales pace. That is the highest inventory level since the last deep slump in housing in 1992.”
“The current slump in housing is the worst since the 1989-92 downturn. It is occurring after a prolonged boom that saw sales of new and existing homes set new records for five consecutive years.”
From CNN Money. “Even the Realtors’ statement conceded the weakness in the current housing market.”
“‘The market is underperforming when you consider positive fundamentals such as the strength in job creation, economic growth, favorable mortgage interest rates and flat home prices,’ said Lawrence Yun, the Realtors’ senior economist, in the report. ‘It appears some buyers are simply waiting for more signs of stability before they get serious about getting into the market.’”
“The glut of homes for sale on the market rose 5 percent from April to 4.4 million homes. The number of homes for sale is now 23 percent above year-ago levels, and the inventory, is nearly 40 percent above a year year earlier.”
From MarketWatch. “The inventory figure compared with 8.4 months in April and 7.4 months in March. Inventories of homes on the market rose to a record 4.43 million. That’s the biggest overhang of inventory since June 1992, at the tail end of the last housing bust.”
“‘Psychological factors are currently the biggest drag on the housing market, in addition to a disruption from tighter credit for subprime borrowers,’ said Lawrence Yun, senior economist for the realtors group.”
From USA Today. “The Realtors are predicting that the median home price will decline 1.3% this year while sales are forecast to drop 4.6%. It would be the first annual price decline in four decades of record-keeping.”
“‘Household formation has slowed dramatically since late 2006, implying that many people are doubling-up,’ adding roommates or moving in with parents, said Yun.”
“Regionally, existing-home sales in the Northeast are 3.5 percent lower than May 2006. Existing-home sales in the Midwest are 6.6 percent below a year ago. Existing-home sales in the West are 16.3 percent below May 2006. Existing-home sales in the South are 11.9 percent below a year ago.”
The New York Times. “The American housing market, as measured by home-building activity, is falling at the most rapid rate in decades, underscoring the pain felt by builders who were far too optimistic about the state of the market.”
“Even with the plunge, however, starts have been very high relative to the number of homes that builders are trying to sell, a fact that could indicate the weakness will last while builders seek to sell homes they have already built.”
“The rapid fall clearly caught builders by surprise, in part because many of them had never seen anything like it. During the period covered by the charts, going back to 1990, the fastest fall had been in 1991, when the pace fell 18 percent during a recession.”
“There have been such rapid declines before, but not in the memory of most current builders. In 1975, amid the most severe recession since the Great Depression, the decline was 37 percent, the highest recorded since the government started collecting the statistics in 1963. There was also a large drop in 1982, during a recession that came when interest rates were extraordinarily high.”
“The inventory of new homes for sale rose to the highest level ever last summer, at 573,000 homes in July, and has since begun to fall, going down to 538,000 in April.”
“But that figure was equal to 40 percent of the home starts in the previous year, the highest level ever.”
The Wall Street Journal. “Bond investors will keep one eye on the Federal Reserve and the other on the mortgage market this week, as they wait for the next installment of the drama surrounding two troubled Bear Stearns Cos. hedge funds that bet heavily on the subprime-mortgage market.”
“‘The crisis will continue to loom large,’ said T.J. Marta, fixed-income strategist at RBC Capital Markets. While the situation seems to be under control for now, ‘that could turn on a dime.’”
“Michael Cheah, portfolio manager at AIG SunAmerica Asset Management, said the Bear funds were most probably not alone in the bets they made on the subprime-mortgage market. ‘A lot of people have got that trade on,’ he said. ‘I would be shocked if they were the only one…and the story ends here. It’s not over.’”
“Late Friday the riskiest, triple-B-minus, tranche of the benchmark derivative index based on subprime mortgages hit a new low of 58 cents on the dollar, according to Alex Pritchartt, a trader at UBS.”
“The latest version of the ABX, which is renewed every six months, references loans originated in the second half of 2006, a year noteworthy for its loose lending standards.”
From Bloomberg. “Bear Stearns’s enhanced fund and the Bear Stearns High- Grade Structured Credit Fund, a similar pool that wasn’t as highly leveraged, speculated mostly in collateralized debt obligations, securities that hold pieces of junk-rated corporate bonds, mortgage bonds, high-interest loans, derivatives or even other CDOs.”
“Sales of CDOs skyrocketed to $503 billion in 2006, according to estimates from Morgan Stanley. Ralph Cioffi, the funds’ manager at Bear Stearns, was among the biggest buyers of CDOs backed by subprime mortgages.”
“While some layers of CDOs are designed to earn higher credit ratings than their underlying investments, the securities are hard to value and can decline precipitously. That’s what happened earlier this year as defaults on subprime loans accelerated.”
“Then an additional bet Cioffi had made to protect his investors, using derivative contracts on ABX indexes to hedge against a decline in the subprime market, also went bad. By the end of April, the enhanced Bear Stearns fund was down more than 20 percent for the year.”
“‘They looked at these high yields, this growing market, and they forgot the basic concept of risk and return,’ Sanders said. ‘They got caught drinking their own Kool-Aid.’”
“As creditors began asking the funds to post more collateral to back the loans in mid-June, Cioffi sold about $4 billion of the funds’ holdings to stave off a cash crunch.”
“The gambit failed. Lenders led by New York-based Merrill, the third-largest U.S. securities firm by market value, threatened to declare the funds in default of repo agreements and seize investments.”
“JPMorgan, Goldman Sachs Group Inc. and Bank of America Corp. reached agreements with Bear Stearns Asset Management that involved settling the difference between repo debts and money the funds were owed from hedging contracts, according to people who were briefed on the dealings or heard them described on conference calls.”
“At about 3 p.m. (on June 21), Bear Stearns offered an unconditional bailout for the high-grade fund. The bailout of the Bear Stearns fund is the largest since Long-Term Capital Management, which received more than $3.6 billion in 1998.”
National Mortgage News. “Bear has not filed any type of SEC statement regarding these funds, has it? Bear is a public company. The hedge funds are not. We know this: Merrill Lynch, which does not screw around with deadbeat borrowers, told Bear on Wednesday enough is enough: you either post more collateral or we’re seizing the assets collateralizing our loan. Guess what? Bear said go ahead. Merrill said fine.”
“By the way, here’s the first few sentences from our February story on Merrill’s margin calls: Merrill Lynch, which has been stung by three high-profile subprime bankruptcies in six weeks, is conducting margin calls on certain B&C originators that receive financing through the firm’s warehouse group.”
“One secondary market official, requesting anonymity, said Merrill is the ‘main culprit’ in the current buyback plague sweeping the subprime industry. He added, ‘Merrill is making originators pay dearly.’”
“The margin calls, which require that these lenders post additional capital, were confirmed by two mortgage bankers and a spokesman for Merrill.”
“On Thursday, six ’scratch and dent’ deals hit the secondary market, one trader told NMN. He said the offerings of delinquent residential mortgages range from $2.8 million to $34 million. ‘It’s pretty much your standard day,’ he added.”
“Queen’s Walk Investment Ltd., a fund investing in the riskiest portions of bonds backed by mortgages, reported a net loss caused by the slump in the U.S. subprime market and fewer U.K. borrowers paying penalty charges.” “The fund said it lost $91 million in the year ending March 31. Queen’s Walk sold most of its holdings in the U.S. mortgage market in the first three months of the year, it said today in a statement.”
“‘We are disappointed with the performance,’ Stuart Fiertz, a founder of hedge-fund manager Cheyne Capital, said in a phone interview.”
“Queen’s Walk is the second U.K.-listed fund to report losses because of rising delinquencies in the U.S. mortgage market, after London-based Caliber Global Investment Ltd. last month said it lost $8.8 million. Bank of America Corp. last week said hedge fund losses at Bear Stearns Cos. may be the ‘tipping point of a broader fallout’ from the subprime market.”
“The losses were caused by ’significant developments’ in the U.S. and U.K. mortgage markets, the statement today said. Queen’s Walk increased forecasts of losses on its U.S. assets because of ‘weaker housing market fundamentals,’ according to the fund’s statement.”
The Telegraph. “The Bank for International Settlements has warned that years of loose monetary policy has fuelled a dangerous credit bubble, leaving the global economy more vulnerable to another 1930s-style slump than generally understood.”
“‘Virtually nobody foresaw the Great Depression of the 1930s, or the crises which affected Japan and Southeast Asia in the early and late 1990s. In fact, each downturn was preceded by a period of non-inflationary growth exuberant enough to lead many commentators to suggest that a ‘new era’ had arrived,’ said the bank.”
“In a thinly-veiled rebuke to the US Federal Reserve, the BIS said central banks were starting to doubt the wisdom of letting asset bubbles build up on the assumption that they could safely be ‘cleaned up’ afterwards, which was more or less the strategy pursued by former Fed chief Alan Greenspan after the dotcom bust.”
“It said this approach had failed in the US in 1930 and in Japan in 1991 because excess debt and investment build up in the boom years had suffocating effects. While cutting interest rates in such a crisis may help, it has the effect of transferring wealth from creditors to debtors and ’sowing the seeds for more serious problems further ahead.’”
“The BIS said last year’s record issuance of $470bn in collateralized debt obligations (CDO), and a further $524bn in ’synthetic’ CDOs had effectively opened the lending taps even further. ‘Mortgage credit has become more available and on easier terms to borrowers almost everywhere. Only in recent months has the downside become more apparent,’ it said.”
“‘Sooner or later the credit cycle will turn and default rates will begin to rise,’ said the bank.”
“…leaving the global economy more vulnerable to another 1930s-style slump than generally understood.”
But other than than, everything’s just peachy.
More camouflage on the hole, please!
http://www.cnn.com/2007/SHOWBIZ/books/06/25/books.thesecret.ap/index.html
Positive thinking will bring back 20% appreciation per year… for eternity!!!
SO F******* NOT!!!!!!
Idiots!
Positive thinking will bring back 20% appreciation per year… for eternity!
Ain’t workin’
from Drudge AM
http://biz.yahoo.com/ap/070625/economy.html?.v=4
Pessimists: It’s so bad and we’re so much in s*** it can’t get worst
Optimists: Yes it can! yes it can!
Those who cannot handle reality, acquire a sever case of cheerleader syndrome, and loose anyway.
??
When the Greater Depression comes, politicians and the starving masses will say no one warned them, or they will make scapegoats of the ones who did warn them.
“they will make scapegoats of the ones who did warn them.”
Five stages of a project:
Wild enthusiasm
Unmitigated disaster
Search for the guilty
Persection of the innocent
Honor and Glory for the uninvolved
“PersecUtion”. Sheesh, spell much, palmetto?
Personally, I like it…’persection’…sounds like a bloody and obscure medical term practiced on the unwilling.
ROTFLMAO! It does, indeed…
Yes, I agree. When we dissected a dog in first year vet school, the dog carcass was called a prosection.
Persection does sound quite apropo
“…sounds like a bloody and obscure medical term practiced on the unwilling.”
Like trephining
That statement should be amended to say …than generally understood by those who don’t read The Housing Bubble Blog.
psychological factors….gotta love it, when the housing market goes up it’s based on “strong fundamentals”, when it does down it’s from “psychological factors”…..suprised that they don’t blame it on global warming.
Just wait.
That’s right. The San Diego UT showed a map of what coastal San Diego would look like if the sea-level rose. A lot of Del Mar, PB and La Jolla would be ocean front++. Imagine taking out a 50y mortgage on a property there. A new meaning to being underwater….
Antlantdiego
nothing new there … unless politics finds a real solution to global warming, most of the Netherlands will be under water within 50-100 years (and I don’t mean just below sea level …). People are still taking out 30-year or even generation mortgages there, and banks are more than happy to lend them the money at about the most idiot price levels anywhere in the world. If banks don’t care about mortgages that are under water, they won’t care about collateral that is under water either I guess …
Who cares about the Dutch? Any country where the Army ‘VOTES’ for or against their sergeants and officers is toast (or will be).
pismoclam: not sure what you are referring to, but a country that goes to war against the will of the vast majority of their own citizens, to help out some stupid foreign power or corporate interests is doomed anyway.
real nice, nhz - one critical one-sentence comment from one poster and you throw your own anti-US temper tantrum.
Hey, nhz is right!
Second that. NHZ has very good reason to say what he does.
I’m very “American” but have no illusions about the wrongs we have committed both within our borders and globally.
mind you: I was talking about the Netherlands going to war, not the US. If a US poster can say something negative about the Dutch, why wouldn’t I be allowed to say something about the US (especially with my disgust with US foreign policy being shared by around 90% of the world population; for those who support Bush and his cronies that is something to keep in mind for future times, when the US is no longer the centre of the universe).
True, he didn’t name names–he could have been talking about 19th century Belgium.
It’s an old, old story. It’s why we got rid of kings. It’s why I refused to vote for any President’s son. Btw, have you talked to any rich frat boys or sorority girls lately? When did we collectively start to reward inherited money over actual achievement?
Heck, I sound like an ad for Ross Perot.
Life imitates comics . . .
————————-
Sub Diego is the fictional home city of the second Aquagirl, and was recently used as a base of operations by Aquaman. It was formed when part of the city of San Diego submerged in an artificially generated earthquake, the result of a plan which changed part of the surviving population into subaquatic beings.
http://en.wikipedia.org/wiki/Sub_Diego
Whatever happened to Aqualad? I guess he wouldn’t really fit with the “new” Arrr-Matey Aquaman.
I like the old goofy fruity Aquaman. He was a dork, but you always rooted for him anyway.
I suspect RA will be waiting around the corners in open houses with hammers now trying to lay into buyers frontal lobe, to get them to be psychologically ready to buy.
Psychological factors, like implosion of the subprime lending industry, tightening credit qualification standards, bond market crash, rising mortgage interest rates, etc.
i try to remember that the herd doesn’t yet see things in the same light and do not (or cannot) connect the dots.
The train has an enormous amount of inertia and it may be a while before it come to a full stop and begins to roll backwards.
More ‘psychology’ (from the NYTs article):
“Even with the plunge, however, starts have been very high relative to the number of homes that builders are trying to sell, a fact that could indicate the weakness will last while builders seek to sell homes they have already built.”
Psychological factors…Wow Scary
Fear of RE Ripoffs and Ponzi schemes..Aversion to RE Fraud..Startle Effect to overpriced POS.. Flashbacks to 1999 prices..and various other NAR induced symptoms..
Yikes ..were liable to be listed in the Diagnostic and Statistical Manual of Mental Disorders - Fourth Edition (DSM-IV),… ABNORMAL ?
Here’s you psychology right here: http://en.wikipedia.org/wiki/Daniel_Kahneman
you -> your
Unreal, isn’t it? These blind eel psychologists have their fingers in everything, they’re the modern day “high priests”.
“psychological factors”…LOL….how about the fact that asking prices are 50% too high and based on past fraud and scam loans instead of fundamentals.
right, psychology is affecting the market… I can’t psychologically make myself overpay for a stucco $hitbox, or overinflated converted chickencoop on Sonoma’s East side.
Totally the opposite. The logical people are to blame. Persection them, then when you’re done, presecting them, persecute them.
“Persection them, then when you’re done, presecting them, persecute them.”
LOL! George C posted this morning that we here on the blog have a bearish persection of the market and it through this persection that we filter everything.
I assume that “psychological factors” means that sellers don’t want to sell for less than they paid, even if they paid way too much. My family went through a foreclosure 13 years ago, after my parents divorced, so I have some insight on the “psychological factors”. It’s hard to watch a dream die, whether that dream is homeownership or a happy marriage. No one wants to feel or look like a fool.
In case you’re wondering, my parents don’t read this blog.
I think that’s why you can expect that those that bought in 2003-2006 will be the LAST to face current market conditions. They will have an admit to a poor decision (or at least, bad timing) before they can sell. Sellers who bought before the big run-up only have to let go of the idea of big windfalls (which were only ever theoretical, anyway).
Those will bought at the peak will go kicking and screaming.
“Those will bought at the peak will go kicking and screaming.”
Not only those that bought at the peak but those who bought new because the price could never ever go lower than what they paid. Gotta love those poor bastards.
“Those will bought at the peak will go kicking and screaming.”
I wouldn’t be surprised if that would take place off of a lot of condo balconies in downtown San Diego.
My family went through a foreclosure 13 years ago, after my parents divorced, so I have some insight on the “psychological factors”. It’s hard to watch a dream die, whether that dream is homeownership or a happy marriage. No one wants to feel or look like a fool.
Given a 48% divorce rate in this society now built around dual incomes, I simply cannot understand HTF it functions.
That 48% is the aggregate rate, not the rate for first marriages.
It also varies by region.
Wealthier regions have much lower divorce rates. Poorer regions–and here early age of first marriage seems to be a risk factor–tend to have higher rates. I’ve seen this first hand moving from Massachusetts to Florida. It really IS different here, at least in terms of sexual behavior. (Multiple partners, out-of-wedlock children from casual relationships, dating multiple people, then marrying one under parental pressure, then divorcing 15 years later and trying again, and again. In Mass. young people date one person at a time, at most two in the demimonde and that is frowned upon by everyone, live together when they’re serious, and wait to get married.)
If two people in the US enter a first marriage, are of similar education levels and economic status, and similar cultural or ethnic background (for example, both are Catholic, or both are Black), the rate of divorce is pretty low.
Btw, the logical conclusion from the above is that divorced persons who remarry have a worse than 50% chance of a second divorce.
We all know the people on marriage four or five. They’re screwing up the stats for the rest of us. T_T
Yeah..I love it too, the long lost equation of the lemminings is about to be rediscovered.
common sense + stark reality = psychological factors
5.99 million is still dang high
especially when you consider 99% of them will be underwater for a long time
I am consistently amazed by the NAR’s failure to really discuss core issues of affordabilty. Perhaps it’s because any such conversation would include the role of NAR’s legions in developing and profitting from the current problem. But then again, I guess that the belief that a house is way overpriced is a psychological factor… so LY is right there.
The best part, those who reduce 15-25% now will make money and the RA will make money depending on when they bought. Those like the morons across from my Mom’s house, who bought their house for 25k in the 60’s and took it off the market because it wouldn’t fetch the 700k they asked for are stupid. Sell it for 590k you dinks, you will move it and have plenty of money, keep waiting and it will not move for $390k! The true value of that house is around 290-350k with historical values in effect, but who cares about that! The appraiser said this, that other house sold that that, blah blah blah.
THOSE are the people that irritate me the most. That’s pure greed.
THOSE are the people that irritate me the most. That’s pure greed.
Or is it just smart thinking, “If we don’t get that huge chunk of change for this old house, we might as well stay, our payments are $57.00/month”
But they can’t price it at 590k. That would screw up the comps, and breach their fiduciary responsibility to their neighbors!!
sarcasm off/
The people with the 100% equity, like your mom’s neighbors, are often oldsters looking to net whatever they can from their primary asset as a means for securing their future. My folks were like that - and ended up selling in the early 90s for less than 50% of what their place would likely have sold for during the preceding market boom. Probably could have gotten 75% had they listed lower earlier.
You see…the problem is that these financial geniuses have taken tons if not all, of the equity out of their homes. They can’t reduce it much or they will be in credit hell. Thats the whole problem now. HA!
It’s called separation anxiety and it’s worse with houses because of the dollar cost.
People do it with material goods too. A friend had a car he was certain was worth $3400. It sat in the driveway for 6 months because no one would pay more than $2200. He finally let his gf drive it for another year and traded it in for $400 (basically free), when he would have been much further ahead by selling at $2200.
Same effect with furniture and houses. People will hang on all the way until they can’t keep it anymore and then sell due to the anxiety of getting less than desired for it. This problem would be completely mitigated if people would set prices that the market will bear.
Navie people don’t ask or question. They put their “trust” in the hands of others. Do you think the NAR or even the masters of the game, the Wall St Boys are going to be true in their actions? Perhaps the SEC is there to watching too. No yellow/red flags raised until the scams were in place, money spent and the speed of the crash is all there is left. Crash into the fence or into the cars ahead, it makes no differance.
Fantastically interesting. This blog is now an official
reason behind the housing bust.
We’re famous. Pour some champagne!
Now about those overpriced cars. . . .
Please on battle at a time. We can only do so much!
I think we should tackle cancer next.
Not to worry. Just think about all the 3-4 yr old high end bmw’s/hummers you name it that will be selling for pennies on the dollar in the near future. A graph of used cars\boats on craigslist by quantity and month would be an interesting indicator going forward.
I wouldn’t hold my breath for BMW’s, but I’ll put a bundle on being able to pick up a 2 year old Z71 Silverado crew cab or Z71 Tahoe for well below blue book value. Matter of fact, I’m thinking of selling my Silverado (bought from FB) with the hopes of investing the $$ and being able to buy a nearly-new one next summer.
Yup, a $5,000 like new 2 year old Silverado with all the fixin’s is “real good,” except that gas prices could go to $7.00 per gallon.
I love Silverado’s and had one myself. I miss it (sold it in 2003 and bought a 31 MPG Toyota that March). But if I ever get another one again I will do the math and see how much depreciation I can really afford, along with high fuel prices when the largest Saudi oil field shuts down and is capped for good.
Just by reading the articles on HBB you can see that nothing is ‘contained’. News articles have morphed from Aunt Millie’s condo flip to threats of global credit meltdown, Shanghai market implosion, etc. What will we be discussing in another year; food riots and gas rationing? Will Hank Paulson still be calling the bottom in housing and Bernanke discussing the hypotheticals of Chinese sovereign wealth funds? The disconnect between the interests of our government and the concerns of its’ citizens has reached absurdity.
“The disconnect between the interests of our government and the concerns of its’ citizens has reached absurdity.”
Whew, TESTIFY! I was just listening to a segment on the involvement of the US in torture practices. If Congress can stand by and let that horrendous issue slide, does anyone really think that anything will be done about the financial plundering of the US? I am disgusted to the puke-point with the Demublican or Republicrat party, whatever you want to call it.
Palmetto, it is just all one party…the money party and it is being used as a weapon against the peoples of this planet and this country.
I think Barry Goldwater or was it George Wallace, on the subject of Donks and Elephants “Not a dimes worth of difference!”
Yep, Crapburner, forget red state/blue state. It’s all about the LONG GREEN states and I’m not referring to the environment here.
“I am disgusted to the puke-point with the Demublican or Republicrat party, whatever you want to call it.”
Then maybe you could get Zell Miller to come out of retirement and run as an independent.
Or have Ron Paul win.
Nah, we will have a housing meltdown with a couple generations being scarred, but to have a great depression II is just not likely (possible, but not plausible), IMO.
We’ll also see deflation in material good prices (cars, fancy SUVs, boats) and any other goods bought with housing bubble $$, with a spillover in a certain retail segment (Home Depot, *cough cough*), but to think that the economy will go to hell because of a loss of 5% directly and another 5-7% indirectly is nonsense.
You all talking about ‘dis deflation make me very happy to own savings bonds, treasuries, municipal bonds, and a money market fund outside my aggressive growth tax deferral plans.
I could be the 54 year old beachcomber in 6 years down in Brazil. Maybe I’ll get a website “Bill’s Apartment…”
“pyschological factors”???
Yeah…I’m not crazy.
And here’s the biggest psychological factor:
“‘They looked at these high yields, this growing market, and they forgot the basic concept of risk and return,’ Sanders said. ‘They got caught drinking their own Kool-Aid.’”
Drinking their own Kool-Aid.
At this late stage, one wonders in how many financial markets globally this contagion has spread.
At this late stage, one wonders in how many financial markets globally this contagion has spread.
I find it much easier to talk about those it hasn’t yet effected.
The sad thing is, most of the REIC (I include Wall street investment banks, bond dealers, etc.) will expend their capital trying to make this go away instead of recovering from the crisis.
Got popcorn?
Neil
“Lawrence Yun, the Realtors’ senior economist, in the report. ‘It appears some buyers are simply waiting for more signs of stability before they get serious about getting into the market.”
Larry, you tool, I *AM* serious about ‘getting back into the market’ (for a primary residence). I am *NOT* serious about paying these prices. Or are you only considered “serious” when you close on a house.
Larry, tell the rank and file of the NAR that they need to get “serious” on getting prices back in line with incomes.
Sorry for the rant, and calling Larry a “tool” isn’t my best form, but that was a totally silly comment he made.
Some Realtors are getting it. I have a friend who is trying to sell a home in coastal San Diego. Four Realtors refused the listing because they said my obstinate friend’s price was too high. She did finally find someone who now has the listing.
Wow. Good to hear it!
Prices are always a lot stickier on the way down than on the way up. This is exactly why I keep preaching that a 9 year old bubble won’t be corrected in 18 months (like the NAR and media cheerleaders say). My guess is it will take 9 years to properly fix the bubble, with a stronger correction than deemed necessary at a point along the way.
Of course, we could all speed this process along by selling things at the market price but people aren’t willing to accept the truth and denial is so much easier.
“Bear Stearns may dissolve the second fund after more than $600 million of investors’ money dwindled to less than $200 million.”
Uh-oh, wouldn’t liquidation result in repricing the “assets” to “market value”, instead of “fantasy value”? What does this mean for other hedge funds and CDO holders. Would the ratings agencies be “forced” to finally revise ratings on similar product? Could this get scary?
It will mean a cascade of margin calls, and more repricings, etc. They all looked into the abyss and stepped back. But the inevitable repricing is coming. Then the S**t will hit the fan.
I would also expect more and more investors to start pulling out their “money”, forcing funds to sell off holding, again leading the inevitable mark to market. THen when other fund holders see the fund value drop significantly THEY will pull their money out, forcing further sales, mark to market, etc…
“Sales of CDOs skyrocketed to $503 billion in 2006, according to estimates from Morgan Stanley. Ralph Cioffi, the funds’ manager at Bear Stearns, was among the biggest buyers of CDOs backed by subprime mortgages.”
Weren’t these CDOs supposed to have been sold to the Chinese?
“‘Psychological factors are currently the biggest drag on the housing market, in addition to a disruption from tighter credit for subprime borrowers,’ said Lawrence Yun, senior economist for the realtors group.”
Those pesky psychological factors. Maybe if the RE shills just keep cheerleading then people’s psychology will change and prices will go up forever and we’ll all live in 2 million dollar homes. I like how he throws in “tighter credit” as another reason, as an afterthought.
“Maybe if the RE shills just keep cheerleading then people’s psychology will change and prices will go up forever and we’ll all live in 2 million dollar homes.”
I was just wondering at what point do financial, political and RE shills realize their kool aid isn’t going down and how they feel about it? Do they get frustrated or angry? Or do they just shrug it off and tell themselves it was good while it lasted? Do they panic when some bogus shell game isn’t producing the desired result? I wish I was a fly on some boardroom/conference room walls.
Palmetto,
You may not read this, as it is late in the thread, but I work in commercial real estate development in the Inland Empire in SoCal. I am very much aware of what is in store for my area, and sometimes, when a meeting breaks up and most of the players have left the room, someone will make a comment about the state of the market.
I carefully listen to what they are saying, and then bring up some of the more innocuous data floated on this blog (although I am a serious believer in the inevitable and quickly approaching end to the RE bubble). The general feeling I get from these conversations is that things are bad, and these people can’t let themselves believe the worst. Or else, they fully understand, but can’t let their actual feelings be known, since they still have contracts they are working under and fear their pessimistic views will get back to their benefactors.
“‘Household formation has slowed dramatically since late 2006, implying that many people are doubling-up,’ adding roommates or moving in with parents, said Yun.”
In other words, specuvestors have stopped buying 3, 5, or 12 houses.
NAR sockpuppet Yun is going to sound increasingly disconnected from reality as this debacle unfolds.
In other words, “you have to live somewhere”, but it doesn’t have to be a place you own and you don’t have to have a mansion to yourself. Many houses are so big nowdays that there’s room to spare. It seems the housing “shortage” wasn’t real after all.
In Sacramento, I’m seeing more and more ads on CL for roommates in these McMansions. $1850 for a 3500 sqft 5/3 place, split that between 2 people and that’s not half bad. Sure beats that crappy little 1br you’d normally get for $900. I don’t know if the landlords around realize what is coming their way.
Someone brought this up earlier and I still wonder when we’ll see these mega houses split into duplexes similar to the dividing up mansions in the 30’s. HOAs are supposed to stop this from happening but when do the HOA capitulate and decide to left the lots go R2 instead of having squatters next door?
Rents are dropping. Its going to be a very deflationary market.
Also, nothing stopping R1 from being shared by multiple families. We’re seeing that more and more… get a few families together in a 4700 ft^2 McMansion… they’re happy. Maybe not the neighbors, but they’re happy. Perhaps multi-generational?
I see it like the 1930’s… homes will be split. BK HOA’s will be dissolved.
I still predict recession (not depression), but it will be ugly.
What will be the key point to get people to walk? It could be an interesting sping (people will forgo payments, but ride out through Christmas/New years).
Got popcorn?
Neil
When does a recession become a depression?
When does a recession become a depression?
When does a recession become a depression?
A recession is when your neighbor loses his/her job.
It’s a depression when you lose yours.
A recession is when your neighbor is unemployed and a Depression is when You are unemployed.
Depression or recession - who knows? What is certain is that this will be the first major test of this hyper-consumptive service economy. Several posters have already pointed out that the industrial/agricultural economy of 1930 hardly resembles the present situation - where so much depends on the simply whether or not the masses can continue to shop.
Get some plywood or particleboard and divide the house into quarters or eighths or sixteenths. Send a message to T.J. for your tenants.
There has been many postings here about single guys buying 3 4 bedroom McMansions and whining about the payments…well DUH you could rent out the other rooms….
“well DUH you could rent out the other rooms”
And when it comes down to losing the house, or renting rooms…they’ll rent the rooms.
‘In other words, specuvestors have stopped buying 3, 5, or 12 houses.’
That is known as the ‘Casey Syndrome.’
He had to come up with an excuse other than the weather. Still wrong answer Yun. It’s The Price Stupid!
“[CDO] Equity investors will not know the ultimate impact of the subprime market problems until the slow-motion train wreck of rising mortgage delinquencies and defaults is played out over the rest of this year,” Hintz, who works in New York, said in a June 21 report.”
Uh, looking at the Credit Suisse ARM reset chart, don’t you mean “played out over the next 3 - 6 years”? Talk about a slow motion train wreck…
The 1st Fundamentals Church
Lawrence Yun, pastor
“‘The market is underperforming when you consider positive fundamentals such as the strength in job creation, economic growth, favorable mortgage interest rates and flat home prices,’ said Lawrence Yun, the Realtors’ senior economist, in the report. ‘It appears some buyers are simply waiting for more signs of stability before they get serious about getting into the market.’”
L.Y ‘er doubles up on excuses…
“‘Household formation has slowed dramatically since late 2006, implying that many people are doubling-up,’ adding roommates or moving in with parents, said Yun.”
Is he talking about Mexican strawberry pickers living four families per McMansion?
Excatly what should happen with the number of people who are priced out of buying houses right now. The only way to save for a downpayment at today’s inflated prices are to live together and save (and be miserable) or forgo the idea of owning altogether.
Pricing to market value - a good idea both for the junk in the hedge funds and the junk that Realtors are trying to sell!
Since nothing is selling, the word is that they are pursuing a strategy of “pricing to model.” What a joke.
“Bear Stearns raised almost $2 billion from investors for the two funds and borrowed more than $10 billion against that equity to make bigger bets and earn higher returns.”
Hmmm, over inflated asset used to borrow even more money to buy more over inflated assets. Like a Realtor that helocs his/her houses in order to buy still more houses.
This can’t end good.
“In a thinly-veiled rebuke to the US Federal Reserve, the BIS said central banks were starting to doubt the wisdom of letting asset bubbles build up on the assumption that they could safely be ‘cleaned up’ afterwards, which was more or less the strategy pursued by former Fed chief Alan Greenspan after the dotcom bust.”
Glad to hear the BIS agrees with the consensus view on this blog. This whole situation becomes more surreal by the day.
of course they knew this years ago and could have spoken out a bit earlier … I think the BIS is covering just like the other rats.
besides that, nobody who could still do something is listening. In Europe the easy credit party is still in full swing. Thanks to the internet it takes more than a year now before buyer psychology arrives at the other side of the pond …
“surreal” funny that you should use that word as I think it was coined aroung 1930 in a similar arena.
I am sorry gentlefolks, pessimistic as I am, I do not believe a word that
Ambrose Evans-Pritchard writes.
Yes I believe that the BIS just released its 77th annual report and that some of Mr. Evans-Pritchard’s comments come from the report, but when taking a hypothesis of one of many potential problems as fact is just wrong.
Bureau of International Settlements Annual Report
June 24, 2007
http://www.bis.org/publ/arpdf/ar2007e.htm
good point; after reading some of the material I’m sure it is nothing more than covering their a** just in case things go really wrong in the finance economy. They still seem upbeat about the prospects of further growth. The report is mostly suggestions, presumptions and some very general directions for better financial policies.
“The Bank for International Settlements has warned that years of loose monetary policy has fuelled a dangerous credit bubble, leaving the global economy more vulnerable to another 1930s-style slump than generally understood.”
What does it mean when statements like this originate from the financial industry not housing bubble bloggers/posters? The BIS is saying there is a credit bubble that may usher in a 1930’s like fallout. That’s a huge development!
“The BIS is saying there is a credit bubble that may usher in a 1930’s like fallout. That’s a huge development!”
Yep, where were they a few years ago?
Seeing as how they recognize it they should have a few good suggestions as to handle it all, just clean the whole thing up by diving into a world economic collapse, followed up with soup kitchens and inflationist work programs coupled with out in left field radical politics, and wrap the whole thing up with a world war. They probably have the notes on it all as to how handle it all in a timely fashion.
Infrastructure projects are already being talked about and frankly we could use a few.
This time we need to build infrastructure that matters–key bridges, repair of old RR freight lines, pax rail tunnels, modern factories to rival Taiwan, etc. Projects that will help generate wealth and save money and energy.
No more “Big Pig” projects that have politicians talking about “engineering marvels” but which suck up resources for no true gain. Everyone hated the Central Artery, but rebuilding it as a highway deck would have been a lot more responsible.
“The BIS is saying there is a credit bubble that may usher in a 1930’s like fallout. That’s a huge development! ”
Well, we have been hearing statements like this from the IMF and certain assorted Asian officials since I started reading the blog in Feb 06.
Yet it seems no matter how much sabre rattling is made from the international money men, it usually appears to leave the money handlers unphased. IMHO, its gonna take more than words for the speakers to be taken seriously…a few assorted sales perhaps?
“‘Sooner or later the credit cycle will turn and default rates will begin to rise,’ said the bank.”
Sooner or later…
———————————————————————————-
U.S. Home Foreclosures Jumped 90 Percent in May: Prime Time to Invest in Foreclosures
…
(PRWEB) June 25, 2007 — According to a recent Reuters report, “U.S. home foreclosures in May jumped 90 percent from a year earlier, reflecting a poor spring housing market and foreshadowing even higher levels later in 2007.” The bursting housing bubble and rising default rates on mortgage loans have sparked an upsurge in the number of foreclosures across the country.
http://www.prweb.com/releases/2007/6/prweb535310.htm
Primetime to invest in foreclosures, provided you don’t mind the paying the $150,000 worth of leins (that you don’t know about til you buy it) on that $250,000 steal of a McMansion. You probably won’t get the jet skis, SUVs, Cruises and Disney vacations or the plasma TVs either. Maybe the pool, but that’s about it.
At least everyone seems to have accepted that there did exist a housing bubble afterall.
Now the argument is how long it will take to correct.
Now the argument is how long it will take to correct.
A decade (plus)
Ya see, I don’t care how long it will take to correct. I buy for value, but I have a strict definition of when I will buy my house: 1) it’s my dream home and 2) the loan + principle is 1/6 of my net worth. If I rent another 20 years from here, fine.
“‘Sooner or later the credit cycle will turn and default rates will begin to rise,’ said the bank.”
Sooner or later…”
Yahooooooo! The future has arrived! “Meet George Jetson…da da da da…His boy Elroy..da da da da”
Give me a “way-back” machine..
Jane! Stop this crazy thing!!!!!!!!
Astro: “Ruh-roh!”
Care to describe what the “repo man” would look like, on this caper?
And how do you hotwire a Korporation?
“JPMorgan, Goldman Sachs Group Inc. and Bank of America Corp. reached agreements with Bear Stearns Asset Management that involved settling the difference between repo debts and money the funds were owed from hedging contracts, according to people who were briefed on the dealings or heard them described on conference calls.”
I just want to articulate my thought this morning that most everything predicted on this blog long ago is clearly, undeniably, irrefutably coming to pass.
I’m happy to see the vindication of the analysis, insights and foresight of the posters here (including myself, of course). I’m even more happy to think that some people have been spared financial losses, perhaps disaster, by the accurate information and advice provided here.
Kudos to Ben, and in the spirit of the ‘fund raising week’, I just made a donation to his continued maintenance of this site–which (if I may momentarily indulge in metaphor) is an oasis of common sense that I can always turn to for solace after long sojourn in the intellectually dessicated media & public landscapes.
I just made a donation as well. Thank you Ben, and all contributors. Been a loyal reader for a year, and now feel “educated enough” to post.
-The Judge
Betamax,
Agreed, sent money to Ben too. Have more fun reading this blog than going to the movies. Lie having a front row seat while it all slides into the ocean.
Sent $50 in April, now $50 in June. Tax deductible against investment income…..except I get the AMT recapture of that deduction.
Hear, hear!
Thank you, Ben! (& another donation for the fundraising)
More fire misery in California (and maybe NV). A good part of South Lake Tahoe having a wildfire. 220 homes and counting lost, and many really high priced ones. I took this one personally as a dear friend has a small resort property (her livelihood) there. So far, she is fortunate that the fire is a good distance from her property. This will definitely put in crimp in the SLT market (no more - it’s different here).
http://news.yahoo.com/s/ap/20070625/ap_on_re_us/wildfires
I was truthfully thinking about high sierra real estate to get away from global warming and hot desert real estate in case they were 180% wrong. Tahoe and June Lakes were on my list. I’m sorry about Tahoe.
In 1964 my family lived in the Sierra nevada. There was a fire in our area. My folks’ house had a nonobstructed view of the big mountain that was burned. I was 5 years old. I’m not sure if my parents were concerned. I don’t even remember the fire. But this is a bummer of a possibility when you consider buying in the high country to escape the heat or smog.
Read up on the current climate models. Most are looking at a period of instability, which means that high temperatures could be followed by a sudden precipitous drop.
Previous climate changes have been heralded by rapid swings in global mean temperature.
One suggestion is that warm, wet conditions and atmospheric CO2 could lead to rapid growth in foliage, reducing CO2 and leading to a sudden temperature drop.
The rate of desertification, however, makes me doubt this model somewhat.
“The Bank for International Settlements has warned that years of loose monetary policy has fuelled a dangerous credit bubble, leaving the global economy more vulnerable to another 1930s-style slump than generally understood.”
If the BIS is saying this publicly, there’s a good chance we’re already in the first stages of a 1930-style slump. On the one hand, they wouldn’t want to start a panic (until they get to panic first) and on the other hand, they wouldn’t want it to look like they were asleep at the wheel.
‘If the BIS is saying this publicly, there’s a good chance we’re already in the first stages of a 1930-style slump.’
Bingo — lots of rear-view-mirror prediction is going on these days.
They are positioning themselves. It is all very predictable. They will be the head lobbying group to call for an abolishment/nuetering of the FED and a plan to fix the dollar dilemma with the replacement of a coalition currency (the amero). The BIS is THE head of the serpent, make no mistake about it (runner up goes to the city of london where many of the orders/power originate). It is the central banker to the central banks.
The Telegraph. “The Bank for International Settlements has warned that years of loose monetary policy has fuelled a dangerous credit bubble, leaving the global economy more vulnerable to another 1930s-style slump than generally understood.”
Not to worry. Ben B is on it like stink on sh$t. He’s a smarty pants and studied the Great Depression. Even though it’s damned if you do, damned if you don’t at this point, he’ll single-handedly pull us through this one because he’s a learn-ed smarty pants with a degree from Princeton. We’re fine. LOL
And he’s got a high-falutin’ beard. Give him a pipe and a suit jacket with patches on the elbows, and by golly he’d look just like a professor.
– The Judge
Wasn’t Ben a prof at Princeton before he took his current job?
Yes.
A professor is better than a toadying bootlicker to money wing power mongers and Ayn Rand.
“‘Psychological factors are currently the biggest drag on the housing market, in addition to a disruption from tighter credit for subprime borrowers,’ said Lawrence Yun, senior economist for the realtors group.”
Without the rest of the quote, I can’t tell if he means the psychology of first time buyers unwilling to buy homes that, based on their prices and their incomes, they cannot possibly afford, or lenders who are suddenly unwilling to lend them money they cannot possibly pay back.
Maybe he can just hold his breath til he turns blue in the face to get these slacker buyers and banks back on the straight and narrow.
Actually, I think he means that under the current conditions, nobody in their right mind would buy a home today, knowing that it will be worth 20% less in a year. Unless you believe whatever spin he happens to be pushing today.
The hubby just forwarded this to me from Salon.com…classic!
No One Wants To Buy A Home. Whose Fault Is It?
At the end of May, 4.43 million “existing homes” were available for sale in the United States . That’s the largest such number ever recorded. At May’s existing home sales rate, it would take 8.9 months to burn off the excess inventory. That’s the highest figure for “months of supply” since 1992, at the tail end of the last big housing downturn.
The immediate import of the numbers is unarguable. The median sales price for existing homes has declined for ten straight months and will continue to do so. This is good news for buyers still waiting in the wings, but may not be the best tidings for the larger economy.
But what about those would-be buyers, cautiously watching the carnage from the sideline?
Lawrence Yun, the staff economist for the National Association of Realtors who has replaced our favorite whipping boy, David Lereah, as the Man Who Must Be Quoted in all stories about the real estate market, complained that the housing market was “under performing,” given what he considered the general overall health of the economy.
“Psychological factors,” he said, explained buyer reluctance to jump into the market at the present time.
How Yun and his ilk are able to cite “psychological factors” as the reason for anything is an exercise in tautological meaninglessness that continues to baffle How the World Works. If you’re going to blame consumer psychology when the market is headed down, then in all fairness you should blame it when the market is going up. But, back in the go-go days, we never heard anyone from the National Association of Realtors say anything along the lines of: “The real estate market over performed this month, as home buyers, irrationally convinced that home prices would continue to appreciate beyond all rhyme or reason, stepped up their splurging on new and existing homes, rashly confident that they would be able to sell their purchases at a 25 percent markup in just one year.”
Psychological factors are always in play, whether a market is going up or down. We’ve been giving Yun a chance to establish some street cred, but with each whine about buyer psychology, our willingness to give him the benefit of the doubt takes another hit.
– Andrew Leonard, Salon.com
Great article!!! Thanks for posting it!
What drag on the market? Consumers: “What Housing Bust?”
http://realtytimes.com/rtcpages/20070625_housingbust.htm
OK, get out the barf-bag. Unfold it. Ready?
“What’s got residential real estate consumers so confident about the housing market?”
“Why are most housing consumers so upbeat?
James M. Weichert, president of founder of one of the nation’s largest privately-held real estate companies, Weichert Realtors, says it’s just a matter of perspective.
“Much of the attention real estate is getting today continues to be based on comparisons to the past thanks to the record-breaking years we had earlier this decade,” he said.
“But if you take a more forward-thinking approach, you see real estate is set for an upswing based on indicators such as home supply, interest rates and employment. Not only has it never been easier to find and afford that dream home than right now, but real estate remains one of the best long-term investments options.”
Apparently, he’s on to something.
Fifty-five percent of Americans say their home would sell for more money now than it would have a year ago. That’s down from 59 percent last summer, but still a majority, according to a recently released survey by Michaels Opinion Research, Inc. conducted for the Boston Consulting Group.
The survey said 74 percent of homeowners were confident they could sell their home within the next six months at a price they think it’s worth.
But the confidence is not just about selling homes for an asking price.
Consumers are confident because housing generated a great deal of wealth during the last boom market and, for many it’s the cushion they need until happy days are here again.
Boston Consulting’s survey reports 76 percent of Americans said the current real estate market has no impact on how they’re spending now, even as 16 percent say they’re cutting back because of a perception of lower residential real estate values.
Also, most homeowners, 69 percent, said they’re likely to make renovations or improvements to their home in the next 12 months, a smart equity protection move in a soft market.
Another 27 percent said they’re likely to purchase a better home over the next five years.
Americans also exude market confidence because they’ve come to understand the long-term benefits of homeownership.
Eighty-five percent of Americans believe their house will be worth more five years from now than it is today. A majority, 63 percent, said they believe real estate is a good or excellent investment.”
….Notice how the homeowners are called “residential real estate consumers”. Are they going to buy more houses? Or just more plasma TVs, Hummers and Cruises?
uh oh…
$524 Billion in “synthetic” CDO’s…
Definition of synthetic, in terms of financial instruments…
from investopedia:
A financial instrument that is created artificially by simulating another instrument with the combined features of a collection of other assets.
Investopedia Says: For example, you can create a synthetic stock by purchasing a call option and simultaneously selling a put option on the same stock. The synthetic stock would have the same capital-gain potential as the underlying security.
“The BIS said last year’s record issuance of $470bn in collateralized debt obligations (CDO), and a further $524bn in ’synthetic’ CDOs had effectively opened the lending taps even further. ‘Mortgage credit has become more available and on easier terms to borrowers almost everywhere. Only in recent months has the downside become more apparent,’ it said.”
A $524 Billion Clone of a $470 Billion CDO?
LOL, That is the beauty of the system, derivatives on derivatives. When one falls the rest go in domino fashion and a new record is set. Soon 8 Trillion dominoes to fall.
How to feed the alligator. Free advice from Realty-Times:
http://realtytimes.com/rtcpages/20070622_monthlygain.htm
You gotta read the whole article, but heres’ the start:
“I received an email from a reader in Santa Barbara County, Calif., regarding the sale of her house that, once selling fees and closing costs are paid out, she would have to come to the table with a check to get out of the property.
“Right now, I believe my house to be worth around $550,000. I need to move, and cannot decide whether selling at a loss, or leasing out for a couple years is the best move,” she writes. “There are still many properties on the market in my town. I will only be able to recoup a little more than half of my [monthly] payment in rent each month.”
And here’s part of the advice:
“I would bet you don’t look at your 401K in that fashion, do you? Most of us are more than willing to put in hundreds of dollars a month into that fund as a means of preparing for the gain at the time that you are going to retire. It’s not a “negative” is it? It’s an “investment.”
But for some reason, many believe that if they are putting money into a real estate investment each month (collecting $1000 in rent, but paying out $2000 per month) that for some reason, I’m now taking a “loss” each month — to the tune of $12,000 per year.
Consider this. If the market is turning around nationally (like I believe it is) and your property is about to increase in value each year over the next several years, then wouldn’t it be prudent to put out that “negative” for a couple years if you could walk away with a huge gain later?”
Stunning. Just beautifully stunning. Just how long can people continue to believe that housing appreciation will forever outpace inflation and other assets?
Now that sounds like good advice. Let us know how it works out for you.
The public’s failure to consider opportunity cost (and inflation) make me wonder if this “downturn” will last at least a decade.
It’ll last forever if they can find a way to stay solvent that long. But there’s no danger of that…
Oh dear.
I just got the following message from a young couple I know in Edinburgh who are expeting a baby and just bought a duplex (they are recently graduated teachers with big student loans) in the frothy UK bubble:
“It is amazing that you can buy something with absolutely no money, nothing like a 100% 25 year mortgage hanging over our heads. I guess the beauty of the UK is there is limited space so it has to go up in value so when we make the move back to Canada in a few years we might have something to show for it, fingers crossed. ”
Another FB. A shame really, they are such nice people. The issue is what do I say? I just can’t muster a “Congrats on the house!” It would come out more like “Congrats on irresponsible financial suicide!” Like I said, Oh dear.
are they inside the wall ?
or in the underworld part - maybe soon
If they are heading to Canada, then they’ll not need a good UK credit report. Just jingle mail they keys at a future date.
Suggest they buy some SRS, a real estate short ETF, “just in case”….
UPDATE 1-ABX subprime mortgage index falls to new low
Mon Jun 25, 2007 11:59am ET25
Bonds News
NEW YORK, June 25 (Reuters) - The benchmark subprime mortgage ABX index fell to new lows on Monday, after June remittance reports showed delinquencies on outstanding pools of subprime mortgage loans were rising, market sources said.
“So far the latest reports show that delinquencies are looking worse so the ABX index is selling off,” said one home equity ABS analyst. “Reports are still being sorted through,” he said.
The ABX 07-1 “BBB-” series, which is tied to loans made in last year’s second half, sank two points to 55.94 from 57.95 at Friday’s close, market sources said.
“The reports look terrible. The tone is very poor in the latest performance data,” said one investor.
http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2007-06-25T155853Z_01_N25294242_RTRIDST_0_USA-SUBPRIME-BONDS-INDEX-UPDATE-1.XML
“So far the latest reports show that delinquencies are looking worse”
See, well, OK, *today* is the market bottom, forget what I said about last week being the bottom, *today* is the bottom, it’s only up from here, right? RIGHT?
Ouch. This is sad. But I thought the Dallas and Houston markets were going great guns!
http://dallas.craigslist.org/lgl/359908744.html
Not that a good researcher if they didn’t forsee this.
Txchick. Send him to CA and instead of the $60k he wants he can start at $70k as a prison guard.
umm… oh my…
Goldman-issued subprime bonds lead downgrades
http://news.yahoo.com/s/nm/20070625/bs_nm/goldmansachs_subprime_downgrades_dc_1
Posted on Mon, Jun. 25, 2007
The subprime implosion: It gets worse
McClatchy-Tribune News Service
The following editorial appeared in the Philadelphia Inquirer on Friday, June 22:
Horror stories concerning so-called subprime mortgage loans have become common as more and more financially unsophisticated borrowers find themselves unable to pay their house notes.
Adjustable interest rates have risen and balloon payments become due even as housing prices have dropped. So long as housing values were going up, people could pre-empt a balloon payment by refinancing at lower rates. But as the housing market collapsed in many areas, borrowers couldn’t refinance.
Nationally, the proportion of delinquent payments by subprime borrowers with adjustable-rate loans is at its highest in five years, according to a Mortgage Bankers Association survey. Pennsylvania hit a five-year high in delinquencies at the end of 2006, but has seen a dip in the first three months of this year. New Jersey remains close to its five-year high.
http://www.fortwayne.com/mld/newssentinel/news/editorial/17415969.htm
Wow I’m listening to mr Ben Jones right now on NPR! Go Ben!!
I’m starting to see some real downward momentum even here in South OC (Gary Watt’s country).
My wife and I visited an open house yesterday - 4 bdrm ‘94 built home in Santa Margarita listed for $ 805 k. What’s interesting is that as soon as we walked into the house, the RE agent blurted out that he thinks that if we lowballed the seller in the low $ 700’s they would “go as low as $ 740 k”. I was kind of surprised how fast he capitulated especially since OC is supposed to be price reduction proof.
“I was kind of surprised how fast he capitulated”
The Realtor has to make his/her Mercedes payment somehow…unfortunately for their sellers, commission is for closers!
Just saw a REO condo listed in RSM for $299,000. According to Zillow, last sale was in 2005 at $374,000.
A 20% haircut. Nice. We’re just getting warmed up.
hey chillin
last weekend we walked into an open house in south oc, I has noticed short sale on the sale sign.
this is how the conversation went:
MMG how much is the house going for?
Realtor: well the lady bought the house a couple of years ago for 1.2mil.
MMG: ok, how much anyway?
Realtor: 1 mil.
MMG: I mean how much will the bank take for the lowest offer?
Realtor: so far we are down to 850k.
MMG–>smiling and thinking to self “now we’re talking”.
later after talking a bit with him and trying to get past the koolaid, the realtor told me that there are many short sales in the nicer areas of SOUTH OC.
by the way, I saw a nice home on the MLS in Rancho Santa Margarita, built 1999, 2700 sqft, view offered at 699k. not bad considering a year ago, 699k would fetch you a condo at best or a 1960s POS house.
it’s happening, slowly but surely.
Yeah, ChillintheOC, same thing happened to me on the WestSide, Venice specifically. Except it was nearly 2 million, but immediately I was being offered the option to make a lowball offer. Isn’t that nice of them?
Gone from “they won’t take ‘insulting’ offers” to “low ball em” in two years……..yes, the major, visible, part of the slide is starting to emerge.
PPT boys tried pushing the NYSE up today and was up over 120 points by lunch….now it is negative 10 in an hour.
Up and down like I thought….more bad news comes out about subprime, CDO funds and notes and their derivatives and we will see wilder swings methinks.
Boys took their gains from the suckers rally and now are going home.
I also sent Ben a donation. This blog keeps me sane too. I think the most intelligent real discussions actually take place on Ben’s blog. A big thank you to Ben and his hard work.
“The current slump in housing is the worst since the 1989-92 downturn.”
Given the state of things - I’m amazed actually that we still see statements like this. Guess I’m not that intimate with the 89-92 downturn, since I didn’t buy my first house until ‘94 - but it seems to me like this downturn should already be universally-recognized as the worst since the Great Depression. Perhaps the 89-92 one was worse than I thought?
Being that the Case/Shiller data shows a faster decline currently than happened in 91-92, and already deeper, the only thing I can figure is that it’s just because the previous downturn was longer-sustained that made people consider it worse than the current one. So basically I guess just give it time.
Was pretty rough in the Northeast. Some areas saw nominal declines of 30% or more. In many cases, people who purchased at the peak in the 80’s had to wait until ‘05 or so in order to break even on an inflation adjusted basis. The major price declines were complete in the NE by ‘94. They were followed by a few years of zero appreciation (real price declines).
jb
In CA, the downturn lasted a lot longer than that. It wasn’t until 1997 that prices here bottomed and finally started to tick back up (slowly). And it wasn’t until until Easy Al turned on the credit spigot full-bore (2001) that we started to see double-digit appreciation.
Exactly right, HARM.
My parents owned a house in a nicer part of LA (SFV). Nice 4/3 house, good ‘hood, pool, 1/3 acre, etc. & those dropped between 35-40% NOMINALLY. Didn’t see 1989 prices until around 2000/2001.
This time will be much worse, IMHO, but we are just getting started.
(In Sacramento, I’m seeing more and more ads on CL for roommates in these McMansions…Someone brought this up earlier and I still wonder when we’ll see these mega houses split into duplexes similar to the dividing up mansions in the 30’s. HOAs are supposed to stop this from happening but when do the HOA capitulate and decide to left the lots go R2 instead of having squatters next door?)
Get ready for the McMansion political war. I just read an article about a suburb of Memphis where they are looking to ban unrelated adults from living together in one-family zones, and to restrict the number of houses in town that can be rented.
Fears of racial intergration could lead to this getting very nasty very quickly. Conservative suburbanites are all in favor of the free market unless the market outcome would allow less well off people to live in places with better schools and nearby jobs. You might even have the rapid turnover and blockbusting to spur sales that you had in urban areas in the 1960s and 1970s, by realtors desperate for sales and income.
But all this will not occur until AFTER the big housing price drops. From the point of view of this issue, it is still 2005 with the action two-plus years away.
This is already happening . . . which I should know, since I’m a boarder in one of the oversized, under-quality homes in question. I’m sure the neighbors in my particular (multi-million dollar) neighborhood would be shocked if they knew that the house next door had several boarders living in it, but it works for me (it’s month-to-month rent, which is perfect for my situation.)
But in the future, I think the McMansions will go the way of the triple-decker: split out into multiple apartments and rented out. Yes, it’s going to get nasty when the trend becomes obvious, but there won’t be any reversing it, there are too many oversized houses and not enough people with money to burn to live in them. Best bet at this point are middle-of-the-road, established neighborhoods with medium to small sized homes that can’t (easily) be broken down into rental units.
Many triple-deckers were built as multi-families. It seems odd, but when you recall that in the 1920’s most people still walked to work, despite the introduction of the streetcar, land was at a premium in working class ‘hoods.
Dorchester and Worcester MA are full of built-as-multifamily triple-deckers.
“Conservative suburbanites are all in favor of the free market unless the market outcome would allow less well off people to live in places with better schools and nearby jobs.”
Rephrase to say…..unless the market outcome would adversly affect them
Typical NIMBY’s. It’s all great until THEY need roommates to pay the mortage.
Personally, I’ve always had multiple roommates (& liked it).
While I DO NOT like multiple families in SFHs, I think it’s reasonable to assume that not everyone is part of a nice little nuclear-family package.
It would benefit everyone, IMHO, if they would just limit the number of people per house (or cars per house) based on the number of bedrooms & square footage.
A law against “unrelated adults” would kick out gays as well.
Food for thought.
“Move along folks..there’s nothing to see here.”
O/T but funny: While driving into Carmel this past Sat and listening to the radio I heard the following “The best kept secret for an entry level job in CA is (are you ready?) a correctional officer paying around $70,000 per year. That’s right folks, CA is going to become the prison Capitol of CA.
I’ve heard that commercial a lot on KNBR 680 (Bay Area sports). Definitely can’t argue with it being a growth industry!
Those ads also tout the retirement package “that you just can’t find in private industry”. Yep - retire at 50 with 90% pay plus health insurance. State will eventually go broke trying to pay for all those 50-somethings sucking down $100K+ in retirement benefits for 20-40 years.
No more healthcare benefits after retirement, AFAIK. I’m not sure any govt entity (except for some high-up political positions, perhaps) still offers this.
And expect the % of pay to be lowered as we move forward.
“said Lawrence Yun, the Realtors’ senior economist, in the report. ‘It appears some buyers are simply waiting for more signs of stability before they get serious about getting into the market.’”
They just don’t get it. There are NO MORE DUMB BUYERS!!! all the “dumb” buyers bought already so now all that is left are “SMART” buyers and why would a smart buyer purchase a depreciating asset? They won’t!! It’s that plain and simple. ugh!!
Actually there are a surprising amount of dumb buyers still out there… just not enough dumb money being loaned out these days.
check this out !
http://www.nwfdailynews.com/article/6725
Don’t think Jesus had much truck with money lenders and scam artists using religion if I remember his actions at the temple.
This is just RE using the Cross to bring in more suckers for overpriced MCMansion.
Better pray the prices come down, first, that the common man of Christian Faith can afford them.
I can remember public job prayers in Pittsburgh during the 1980s. Having lived in the ‘Burgh during that time, I can report that such efforts did no good.
DUE DILIGENCE
Bear Stearns’ stumble sends shockwaves
Merrill’s sell-off threatened other assets, so Bear stepped up with bailout
By Greg Morcroft, MarketWatch
Last Update: 2:49 PM ET Jun 25, 2007
NEW YORK (MarketWatch) — When people who are supposed to know better lose a lot of money, everyone else generally gets a little more scared about making financial decisions.
That lesson hit home Friday when the Dow Jones Industrial Average fell almost 200 points after Bear Stearns Cos., considered an expert in the mortgage and fixed-income business, had to pony up more than $3 billion to stem losses at one of its hedge funds :-0 .
That move highlights the continuing danger of the subprime-mortgage business, and according to some could expose the bank to a takeover.
It also caused concern among investors that any further weakening in the asset prices of similar funds’ holdings could hurt broker earnings and drive rates up precipitously, as lenders demand bigger premiums for riskier loans.
http://tinyurl.com/342ens
I wonder who will snap up BSC? Maybe Cerberus, Blackstone, Fortress or Citadel?
Bear Stearns woes seen raising chances of sale
If bank suffers big hedge-fund losses, it may be bought, analyst says
By Alistair Barr, MarketWatch
Last Update: 5:11 PM ET Jun 22, 2007
SAN FRANCISCO (MarketWatch) — If Bear Stearns Cos. loses a lot of money trying to bail out one of its struggling hedge funds, the bank could be acquired by a rival, an analyst at Merrill Lynch & Co. said on Friday.
Bear Stearns unveiled a $3.2 billion rescue plan for its in-house High-Grade Structured Credit hedge fund after it was hit hard by mortgage-derivatives trades that went awry.
Before that, Bear had only invested $35 million in the fund and another more leveraged vehicle called the High Grade Structured Credit Enhanced Leveraged Fund and it hadn’t lent any money to them.
http://tinyurl.com/36mpsm
Apologies if already posted - Seth Jayson’s take today from fool.com.
http://tinyurl.com/2fhs75
“The median price of a home dropped yet again, down 2.1% from last year at this time. As always, keep in mind that these prices are, quite likely, already unreasonably inflated by desperate givebacks that sellers have been using to move homes, givebacks that are not netted out of reported sales prices. In other words, the truth is probably worse. (Alas, no one really knows how much worse.)”
“That didn’t stop the folks at the NAR from the usual spin, with President Pat Combs giving the Bizarro-world soundbite, ‘…higher inventories are helping to offset an affordability impact from higher mortgage interest rates.’”
Bizarro-world is right. Um - hello Pat - do you not realize that higher inventories and higher mortgage rates both contribute to price declines? I don’t think that would be considered “offsetting”.
err.. my oh my…
Bear may have to bail out second fund
http://news.yahoo.com/s/nm/20070625/bs_nm/bearstearns_hedgefund_dc_1
Check out the “Most Viewed” headlines on that page:
Most Viewed - Business
* Subprime mortgage worries drive stocks lower Reuters
* Stocks lose ground ahead of Fed meeting AP
* Home sales hit slowest pace in 4 years AP
* Existing home sales down slightly in May Reuters
* Time to Give Up the House? BusinessWeek Online
All 5: bad news. At least one of them is not directly linked to housing…
An additional $7 billion to bail out the second fund…The combined bail out costs of these 2 funds = half the value of Bear.
Methinks the Bear is toast or is takeover bait unless there is some more exploding picadillos in the BS suitcase.
7 Bill. is a lot of capital to lose just in two funds…what if there is others in the BS suitcase?
umm…
California home sales drop by 25 percent; prices increase
LOS ANGELES
June 25, 2007 1:18pm
why do they insist “prices” increase in the headline instead of MEDIAN increases? BIG difference…
http://www.centralvalleybusinesstimes.com/stories/001/?ID=5514
I suppose ultimately, when only the top 1% are buyign they will be running a story about how prices have “increased” to several million, while each individual home for sale has seen it’s value decrease.
Where I see this having the biggest impact is in the minds of potential sellers, who seeing the “good news” list their property in the stratosphere, then wonder why no one is looking for a year.
This afternoon’s cheery headlines on CNNmoney:
http://money.cnn.com/2007/06/25/markets/markets_445/index.htm
“Subprime jitters puts end to bull run
Stocks end lower after early runup on renewed concerns about scope of Bear Stearns hedge fund fallout.
Stocks rallied in the morning but gains evaporated following news that investment bank Bear Stearns may have to bail out a second hedge fund, a Merrill Lynch analyst wrote Monday. On Friday, Bear Stearns said it would provide up to $3.2 billion in financing for a struggling hedge fund it manages, which is heavily weighted with subprime debt.
The Wall Street bank is also facing a preliminary inquiry by the Securities and Exchange commission, BusinessWeek reported Monday. Regulators are reportedly looking into why Bear Stearns restated results of another hedge fund.
Calls to Bear Stearns were not immediately returned.”
http://money.cnn.com/2007/06/25/news/economy/existing_home_sales/index.htm
“Weakest home sales in 4 years
Slowest pace since 2003 sends glut of homes to a 15-year high; prices slide as buyers shy away from battered market.”
Does anyone have a link to–or the name of the NPR radio show-that Ben was on today? I would love to hear it.
Fast forward the indicator bar to about 3/4 of the way to the right.
http://preview.tinyurl.com/37wk57
Enjoy!
Talk of the Nation, June 25, 2007.
I’m just wondering if the other world shaking event is the bee population collapse.
I dunno who else is following this but this could be an epic enviromental catastrophy that causes widespread crop failure all over the US.
Just sayin that might change our spending habits a bit.
I’m going to stock up on can food, rice and beans.
I think it’s the upcoming human population collapse. Well not collapse but recession. The well off have fewer children than the impoverished. Witness Europe (Italy - it’s common for 35 year old men to live with their parents) and Japan. Makes a good case for bonds and dividend stocks.
I read the other day they suspect a certain pesticide as the cause.
If so, apocalypse averted.
OFHEO NEWS RELEASE
http://www.ofheo.gov/media/pdf/MortgageMarkets2006.pdf
Mainly historical data (2006), but still scary:
“Despite the overall decline in origination volume, Alt-A lending rose 5.3 percent to $400 billion and home equity lending increased nearly 18 percent to $430 billion (Figure 10). Originations of non-jumbo, prime conventional mortgages—those with balances below the conforming loan limit, which was $417,000 in 2006—fell 9 percent to $990 billion in 2006 and represented only 33 percent of total originations. Originations of loans insured by the Federal Housing Administration (FHA) and guaranteed by the Department of Veterans Affairs (VA) fell sharply to their lowest level in years. The combined volume of mortgages with FHA and VA backing,
which has been declining since 2000, fell to $80 billion, roughly 2.7 percent of all single-family originations in 2006. The jumbo market appeared to be hit hard by the housing slowdown, as prime jumbo originations dropped nearly 16 percent from 2005 levels to $480 billion.
The subprime share of single-family originations increased slightly in 2006. According to Inside Mortgage Finance Publications, subprime loans accounted for 20.1 percent of total single-family mortgages originated, up slightly from 2005 but two and one-half times the 8.0 percent share recorded in 2002. Originations of Alt-A loans represented 13.4 percent of 2006 total originations, whereas home equity originations represented 14.4 percent. Beginning in the late fall of 2006, the subprime market experienced a significant contraction in origination volume, with many of the top subprime originators leaving the business. More regulatory scrutiny,
decelerating house price appreciation, and diminished investor appetite for subprime loans were also major factors contributing to declining activity. In the fourth quarter lenders began to tighten underwriting standards significantly for non-prime mortgages after early defaults of loans made in 2005 and 2006 began to place financial stress on subprime originators. Residential mortgage debt outstanding grew 8.7 percent to $10.9 trillion in 2006, breaking a fiveyear string of double-digit growth. Mortgage debt owed by households reached $9.7 trillion at year-end 2006, up 101.5 percent since the beginning of 2000. Higher interest rates and a slower
pace of home sales reduced the growth of mortgages last year, but the deceleration was limited by the continued ability and willingness of consumers to tap their home equity through refinancing.”
Disappointment can set in pretty fast, huh? http://www.reuters.com/article/hotStocksNews/idUSN1224232320070625
“Shares of Blackstone Group LP (BX.N: Quote, Profile, Research) fell in their second day of trading as doubts set in about the valuation of the private equity firm .
Blackstone shares were down 7.5 percent to $32.44 on the NYSE.”
At least one firm decided to ‘mark to market’ the value of their ‘risky’ securities (by selling them at 50 percent off!).
Cheyne Capital sells ‘risky’ securities
By Gillian Tett in London, James Mackintosh and Saskia Scholtes in New York
Published: June 25 2007 19:37 | Last updated: June 25 2007 19:37
Cheyne Capital slashed the gearing of the hedge fund’s London-listed vehicle on Monday after selling assets hit by the US subprime mortgage crisis for only half their assumed value.
Queen’s Walk Investment, a listed vehicle founded by Cheyne, said that it had lost €67.7m ($91m) in the year ending March 31, or €1.67 per share, compared with a profit of €9.7m the previous year.
The loss partly stemmed from problems in the UK mortgage market, where the fund had placed highly leveraged and risky bets which turned sour. But Cheyne also held 12 per cent of its assets in risky securities backed by US subprime mortgages, which have experienced a spike in late payments and defaults in recent months.
During the first quarter of this year, Queen’s Walk wrote down the value of these securities by almost 50 per cent, officials said on Monday.
http://www.ft.com/cms/s/ee9a9066-2347-11dc-9e7e-000b5df10621.html
Nice find.
50 cents on the dollar… about what the doomed hedge fund is worth, and about what most Bubble-priced houses are worth. How fitting!
Investors will certainly lose everything in the leveraged hedge fund and will probably lose everything in the un-leveraged one. Remember Amaranth. Its losses were only supposed to be 30% or so but under forced sale it was almost a complete loss.
The leverage for the first fund must have been at least partially collateralized by Bear Stearns itself. If not, why try to prop it up?
Action in the market late in the day and in Asia right now hints that the propping is not working. Like trying to sandbag the Mississippi.
Clarification: speaking of the two Bear Stearns funds here, known as the High Grade Structured Credit Fund and the High Grade Structured Credit Enhanced Leverage Fund.
New CNBC story:
http://money.cnn.com/news/newsfeeds/articles/djhighlights/200706251835DOWJONESDJONLINE000633.htm
One more note: Although it is not exactly clear from the story (CNN not CNBC), it suggests that BSC is trying to save the unleveraged fund and has already thrown the leveraged one overboard, implying significant losses for someone besides BSC who was providing the leverage. As I argued previously, the weakening of BSC’s balance sheet and loss of morale and prestige almost certainly presage a takeover.