Bits Bucket And Craigslist Finds For June 26, 2007
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Yahoo poll.
http://post.polls.yahoo.com/quiz/financeresults.php
Lennar out with … no bottom in sight
Revenues of $2.9 billion - down 37%
– Loss per share of $1.55 (includes a $1.33 per share charge related to FAS 144 valuation adjustments and write-offs of option deposits and pre-acquisition costs)
– Homebuilding operating loss of $351.7 million (includes $329.1 million of FAS 144 valuation adjustments and write-offs noted above)
– Financial Services operating earnings of $14.2 million - down $20.4 million
– Homebuilding debt to total capital improved to 31.6% from 33.5% (net homebuilding debt to total capital of 29.6%)
– Deliveries of 9,568 homes - down 28%
– New orders of 8,056 homes - down 31%; cancellation rate of 29%
– Backlog dollar value of $2.8 billion - down 56%
“As we look to our third quarter and the remainder of 2007, we continue to see weak, and perhaps deteriorating, market conditions,” Chief Executive Officer Stuart Miller said in the statement. “We currently expect to be in a loss position in our third quarter.”
Homebuilding operating loss of $351.7 million (includes $329.1 million of FAS 144 valuation adjustments and write-offs noted above)
The only bright spot is that they have managed to hold their cash position
Homebuilding cash 2007/234,256 2006/164,157
Obvious question:
Do they break any significant lending covenants if they are indeed “in a loss position” for their Q3? I vaguely remember reading that a lot of company loans have “2 consecutive quarters of losses” repayment triggers attached.
There are other players like WCI that have already broken 2 covenants in Feb.
so far without action from their lenders.
One covenant for sure is the debt/capital ratio. i´m not so sure about the q/q loss covenant.
I think the other ones are mostly tied to cash flow etc.
Actually, they burned cash in the quarter. You need to compare the net debt at the end of the May quarter with the net debt at the end of the previous quarter (a company must be burning cash if net debt increases and all else is equal). At May 31, 2007 net homebuilding debt was $2.35 million; at Feb 28, 2007 it was $2.32 million, so net debt (ie, cash burn) was ~$30 million. The company did not buy in any stock (basic shares went up a little in the quarter) so they must be burning cash. This is actually more negative than the headline loss number (which is driven by a large non-cash writedown), since builders should be generating a lot of cash in a downturn as they pare back inventory and don’t restock. Stunningly bad report….
The Bloomberg headline here http://www.bloomberg.com/apps/news?pid=20601087&sid=azdNRbMbwrMs&refer=home said Lennar suffered an “unexpected” loss.
Unexpected by whom? People were making a big deal out of lower profits for the homebuilders. But it isn’t a significant downturn if they are making any profits at all. Losses are inevitable.
So now we have them. Finance is next.
Unexpected by the analyst community, which publishes quarterly earnings estimates.
Visited with my mother yesterday. She has an IRA with BofA that was invested in money market funds (TCRXX). I thought this was pretty conservative. She said the rep called her and told her she needed to get into Bank of Scotland which would give a much higher yield…6%. The paper they mailed her says the order was unsolicited, what bull. It tells nothing about where the money is. I sure hope it has nothing to do with mortgage backed securities. Isn’t Bank of Scotland a big player in these?
What rep? What paper? Who mailed her? What order?
RBS (formerly Royal Bank of Scotland) is an emerging major player in U.S. markets, mainly through credit card and online banking and mortgage operations. Probably most similar to Capital One. They are a bank and thus their CDs (but not any other money market or other accounts) are insured to $100K/account.
FYI - Charter One is the name of the US banking branch of RBS.
The account rep says that “preffered” was purchased, not a CD, not a bond. He swears it has no connection to mortgage backed securities. I have no clue what a “preffered” is. I hate double speak.
Preferred stock. To oversimplify: if your Mom owns a preferred stock issue of RBS, she owns something similar to a bond issuance of RBS. Not as safe as a CD, both because it is not insured and because of the inflation risk. But nothing like as risky as owning mortgages.
Probably not a problem, but there is also probably no good reason to take on non-trivial additional risk for an extra percent or two of yield except that the broker got a hefty commission check. If it was an IPO I’m sure the payout was generous. Very likely this broker is walking on the edge of his fiduciary responsibilities. You shouldn’t freak about this one particular issue but it is definitely a red flag in terms of the broker’s behavior.
Something similar happened to my mother recently but luckily I had given her the alert about high commercial bank rates on CD’s and potential risks. She is starting to come around to short term treasurys with treasurydirect but balks at giving the government access to her bank account (as if the gov can’t get access).
I know this has come up previously but can anyone comment on their experience with treasury direct—both pro and con? Thanks.
I worked well when I used it. But I just use the Vanguard Treasury money market fund instead, because it’s easier, though it probably costs me a few nickels.
Fidelity lets you buy treasuries at zero cost to you.
Worked great - I was able to purchase twelve consecutive batches, or whatever the tranches were called at that time, providing a continuous cash stream when investing some money for my parents. That was early 1990’s.
I’ve been using Treasury Direct for 4 years now and love it. It is very easy to make purchases on line, look at the results of auctions, call up to reinvest or cancel a reinvestment, etc…
To get a more liquid investment I have my 3 mo treasuries invested in 6 blocks, offset every two weeks. Then I just set these to automatically reinvest. If I want to take money out, all I have to do is call up and ask that $1000 (for example) not be reinvested–two week wait maximum for funds. Adding funds can be done easily on line.
TD is fantastic. Easy to use, great records, easy to find auction dates and yields. Have never heard of any security issues. Best of all, no fees. 10+
Yes, TreasuryDirect is awesome. Easy to use and no fees.
Agree. Enter the site on Netscape. Firefox & Safari won’t work.
http://www.treasurydirect.gov/indiv/indiv.htm
~Misstrial
Works great on Firefox for me.
Thanks for the feedback.
Just an FYI, Bank of Scotland’s U.S. subsidiary is Citizen’s Bank, based in Rhode Island.
They also own Charter One here in the midwest
Citizen’s Bank, based in Rhode Island.
Mob country
Sorry, that’s wrong - see my post below.
There are two similarly named banks:
Halifax Bank of Scotland (HBoS) which was formed from the merger of Halifax Building Society and Bank of Scotland.
Royal Bank of Scotland which owns, amongst other things, RBS Greenwich Capital and Citizens.
Saw Lawrence Yun on Cable Network Bubble Cheerleaders talking about the May EHS numbers, and calling a bottom.
Somehow managed to refrain from hurling (something :)) at the television.
Does anyone know if there’s a site that’s consolidating all the bottom calls for this housing market?
“Does anyone know if there’s a site that’s consolidating all the bottom calls for this housing market? “
That would be great information
From that information we could then figure out the exact date the RE cheerleaders went from declaring that there was no RE bubble to declaring that the bubble had popped and the recovery was here. From what I remember that bubble pop occurred overnight with the recovery firmly in place by 8 in the morning
Yun has taken over David Lereah’s position as the NAR’s BIC (Bottom-caller in Chief).
Shouldn’t that be “BICh”?
LOL.
That would be great information. I think we need a “it’s different here” tracking blog as well…
Good, hang onto your tv, you may need it if there’s rioting in the streets. Hence, refrain from hurling (anything) at it even when LYers appear unchallenged.
Boom/Bust
http://finance.yahoo.com/expert/article/richricher/37414
He’s as sleazy as Casey, just had better timing.
he was pitchin RE unitll the bitter end
robert komakazi
I ardently disagree. If you took time to read his books, he encouraged investing in assets, be they rental properties or something else, but only if they were cash flow positive from day one. That message was repeated over and over in his books.
Touting cash flow positive real estate is a lot different than touting real estate at any price and regardless of cash flow.
I recommend you read one of his books before you disparage him further. You’ll likely find that his concepts make a lot of sense.
Kiyosaki is just a name attached to a network marketing scheme. His books and tapes are just upsales and his seminars are all over the place on info. He throws out enough nibbles, that every once and a while, it sticks. Welcome aboard the train wreck of the $5000 and up seminar swindlers as this market tanks for years to come.
Has there been a Carleton Sheets sighting recently?
Until Spring of 2006, I had never heard of Kiyosaki; unfortunately for him (and maybe for you) his name has come up over and over again as THE person (aside from Al Greenspan who opened up the lending spigot) who most influenced people to view homes as “investments” and not as shelter. Mr. Kiyosaki influenced Casey Serin, for example.
If Mr. Kiyosaki intended for his writings to be understood as you have stated, then he did a very poor job of making his guidance known, since tens of thousands of “investors” (I use that term loosely here) arrived at a similar conclusion regarding Kiyosaki’s advice.
Since Mr. Kiyosaki has trouble with putting his thoughts onto paper, perhaps the best thing would be for him to cease writing and go back to school.
~Misstrial
Again, it sounds like you are criticizing his works without having read any of them. It also sounds like you are making broad unsubstantiated claims (ie, saying that tens of thousands of people followed his advice and since they did the wrong thing, his advice must not have been clear).
His advice was perfectly clear and, in my most bearish of bears opinion, it was good advice. To the contrary of your unsubstantiated speculation, I think the masses got caught up in a hysteria over houses and overpaid for them without regard to his advice.
I’d suggest you read his first book so as to have a real basis for judgement.
The “investors” who blame Kiyosaki are just plain stupid. I read a few of his books, and he says the same thing most of you have been saying.
His writing is pretty vague and general, and he has an annoying habit of pushing games, seminars, etc. But anyone with 2 brain cells to rub together knows his stance on a house being a liability and rental properties being assets only if they put money in your pocket every month. He’s very clear about that.
Mr. Fontain:
I don’t need to read his books.
Looking at the massive real estate destruction going on around me here in NM, and seeing the damaging effects of the Kiyosaki-inspired mania in AZ, and last but not least: statements posted by Casey Serin regarding the influence of Kiyosaki - that is all the evidence I need to write this huckster off.
No thank you, Mr. Fontain. Just because books have been published and seminars have been scheduled does not indicate that these products are worth my valuable time.
~Misstrial
Its easy to be cash flow positive if you have enough cash…Its the rate of return on that cash thats the real question….With CAP rates far below the cost of funds for some time now, I don’t see how “Cash Flow Positive” real estate can make sence without some appreciation…
I see Kiyosaki. I don’t like Kiyosaki. Kisosaki is a guru.
Kiyosaki debunked http://www.johntreed.com/Kiyosaki.html
“Savers will be losers”
It is this mentality - regardless of the product being shilled, that frightens me the most. For one reason, I am a saver. For the second reason, am I the only person that every single time I spend money I compare it to my daily earnings, and I figure for every day’s worth of after-tax earnings I spend that is two extra days I have to work before retirement (one day to make up what I spent, and another day to pay for current and future living expenses).
Ever heard of inflation? If you stuff your $$ under your mattress or believe the phony CPI and invest in ripoff treasuries until retirement, you ARE a loser.
Wanna know why M3 was discontinued?
http://www.shadowstats.com/cgi-bin/sgs?
honolulu renter:
With your post in mind, please inform me of your investment strategy as well as all of your current positions.
Thank you.
~Misstrial
Canroys, oil services, and commodities.
Wow - is that article not the most hypocritical article ever? Robert Kiyosaki pontificating about debt? I think somehow theonion.com hacked Yahoo’s financial page.
Greenspan Comes Out Of Retirement For One More Interest Rate Hike
June 25, 2007 | Issue 43•26
WASHINGTON, DC—Confirming a rumor that first appeared in March on the FDIC Fan Forum message board, former Federal Reserve chairman Alan Greenspan came out of retirement Tuesday to raise interest rates on federal funds by a quarter of a point.
“You may remember this one from 1989,” said Greenspan, barely audible above the roar of an estimated crowd of 20,000 gathered in front of the Marriner S. Eccles Building. “But before I start, I think I’m gonna need [current Federal Reserve chairman] Ben [Bernanke]’s help with this. C’mon up here, Ben.”
Greenspan refused to comment on buzz that he was planning a five-nation comeback tour to stabilize international housing markets.
The Onion
good stuff
I wish Volcker would come out of retirement.
Mister we could use a man like Herbert Hoover again…
NO !!!! I am still licking the wounds from that period (:
GS your’re right on…Greenspan simply rode on the successes of Volcker, who made the really tought decisions to raise interest rates until he wrung inflation out of the economy. Greenspan allowed two extraordinary bubbles to go unheeded, the dot com fiasco wiped out many, many individual’s retirements, especially near the end when all of the sheeple got in (who had the most to lose). Then, he did nothing to rein in the housing bubble, except retire at an opportune time to pass the buck.
Those mug shots remind me of the realtors and used car salesmen whose photos appear in the Sunday SD U-T advertising section.
“They’ve never trusted banks, but have always trusted gold. Maybe it’s time we started doing the same.”
No,no,no,no,no, aaaahhhh
‘It began to sink after 9/11. We lowered interest rates and began printing more money. In 2003 and 2004, the Bank of Japan created 35 trillion yen to save the dollar and their economy. It was like a loan of $320 billion to the United States, and probably prevented a run on the dollar.’
Why isn’t this discussed more in the media? I know the answer, but it sure as heck looks like a huge sticking of the finger in the dam.
The housing market is moving into uncharted waters, someone told MSNBC here http://www.msnbc.msn.com/id/3032072/.
I think it is moving FROM uncharted waters, in terms of prices relative to incomes, lending standards, new construction relative to household formation, and square footage per person, back to charted waters. The problem is that it is first neccessary to sail around Cape Horn in winter.
They are finally calling it like it is in the local MSM in Tampa. The lead news story last night on the 11:00pm news was the housing bust. The verbal headline was that the market here has “Ground to a halt.” They showed a realtor wandering around in the backyard of a home, muttering “lower the price, lower the price”.
And, amazingly enough, they’re doing the same thing here in Tucson:
http://www.azstarnet.com/business/189107
“Some 55 percent of American say their home would sell for more money now that it would have a year ago, according to a survey conducted this month by Boston Consulting Group. That’s down just 4 percentage points from last summer. Nearly three-quarters say they’re confident they could sell their home within the next six months for a price they think it’s worth. And 85 percent said they believe they house will be worth more in five years than it is today.”
Obviously, the people that think they could sell their home within six months for their inflated sense of what it’s worth haven’t tried to sell their home recently. Of course, if there’s enough cash-back-at-closing action, maybe all these delusional fools could still be right. Go ahead and book me on that passage around Cape Horn in the winter. The odds of a safe passage are greater than the chances that a home purchased at the peak will be worth as much in 2012.
Yeah, and probably 80% of Americans think that their children are intelligent, whereas basic statistics tell us that 80% of them are NOT intelligent.
Very often the exact opposite of what is thought to be…
Is in fact, true.
I drove through the UP of Michigan this past weekend during a vacation. Just about every third or fourth piece of land is up for sale. Not to mention all of the billboards for “refinance this”, “home equity that”. “Containment” must surely be a joke at the Fed banks by now, something they all laugh at in private but spout off in public.
UP and Northern lower michigan land sales are as much a result of the collapse of the auto worker and rising gas prices. It’s the home of the getaway and hunting land. Only way to get there is a long (and I think nice) car ride. If you have the type of job you can do from anywhere I’d take a look at the UP.
Any idea on the price per acre for raw land?
How much land and where? On Lake Superior anywhere from 1K/acre to 250K/acre; inland from $100/acre to whatever some flatlander is willing to pay. Size takes precedent.
Possibly the biggest seller is going to be International Paper, they acquired land when they purchased Champion International and have been selling to “conservation groups” for $50 - $25,000/acre. So far they have sold 5 million acres in the US. Not a bad way to form a hunting club and lodge in the UP.
I like living by Lake Superior, I enjoy the total outdoors. There are very few people that enjoy the winter enough to wish to buy in an area that gets 200+ inches of snow from September to May.
If you are not rich or do not own a profitable business, there are few jobs. There are church members that commute 60 miles each way to work at $10/hr jobs. Michigan has a $0.10/ can-deposit requirement, I know of people that illegally but regularly bring their cans and bottle from Wisconsin across to Michigan to get “gas” money. Unemployment in the UP is ~8%. Underemployment is a lot higher.
I had a faculty member sell his place in Davis, CA and have a place built in Michigan. The house is crazy huge and he still had half of the money left over from his former home sale and UC retirement on top of it all. He loves it up there.
I pulled into the Office Max parking lot yesterday next to a big chevy Suburban and noticed what appeared to be large signs advertising Pulte. Upon closser inspection several were drawings of large lemons with Pulte under it. Taped to the rear side windows were photos of this guys home with captions showing shoddy workmanship and what appeared to be nasty mold. There were also two web sites to go to : hadd.com & hadd.org. There were other comments, phone #’s to call all over the back, a mobile anti Pulte one man show. Guy obviously po’d big time.
I remember driving up to Tucson on July 4th 2005 and seeing no lookers at any of the subdivisions with models and thinking this is the turning point. Many of the house in progress at least at one large subdivision with several different national HB’s in there were open framed with window casings set. They sat like that through our summer rainy seasaom (called monsoon here). I thought can’t be doing them any good.
desertfox
Great minds think alike, Fox. I also called the turning point back in the summer of ‘05. Few people were willing to agree with me back then, but now? Different story. I’m looked upon as some sort of sage.
And all I’ve been doing is reading and observing.
Next thing that guy will have a sign against Chevrolet for making him buy a Suburban.
But I do get a kick out of those people. Best one I saw was the guy driving around a car dealership with a sign on the roof saying “Don’t buy at Scarritt, they screwed me”. Even better was the look on the salesmen’s faces out front.
http://heraldtribune.com/article/20070626/REALESTATE/70626001/1201
They will only co-operate when and if it serves they’re purpose. These people have absolutly no credability what so ever.
These people have absolutly no credability what so ever.
The only historical analogy I can come up with relevant to the blantant dissemination of disinformation by the real estate sales industry and it’s affiliates, is the Nazi Socialist proganda machine lead by Joseph Gobbels during WW II.
Lies and more lies on top of the original lies.
Also remember the NAR is one of the largest political PAC’s in the US.
Congress, the FED, and the NAR…
Dangerous times ahead.
It’s unbelievable. As sales agents representing both buyers and sellers, realtors should be neutral when it comes to sales data and what’s included or excluded.
It’s this kind of crap that displays the NAR’s obvious bias to continually spinning things to the upside.
I would love to see some independent analysis.
Lake Tahoe blaze is expected to be fully contained by Sunday.
More California news
Firefighters gain ground on Tahoe blaze, closer to learning cause
By Aaron C. Davis
ASSOCIATED PRESS
12:15 a.m. June 26, 2007
MEYERS – Firefighters have slowed a raging forest fire on Lake Tahoe’s south shore that has destroyed more than 225 structures, and are closer to pinpointing the cause of the blaze.
Light winds Monday gave firefighters a badly needed leg up on the inferno, and by late afternoon it was 40 percent contained, fire officials said. Residents whose houses were only moderately damaged will be allowed to return home Tuesday, and by Thursday authorities plan to begin escorting residents to destroyed homes.
The U.S. Forest Service and state fire agencies initially said they expected full containment of the blaze by Thursday – but later changed that estimate to Sunday.
http://www.signonsandiego.com/news/state/20070626-0015-ca-tahoewildfire.html
Isn’t it ironic that the part of the U.S. with the fewest natural hazards, the Midwest, is the part everyone is moving OUT OF?
Californians should feel right at home in the midwest.
Tornadoes hit Oklahoma
OKLAHOMA CITY (AP) — Severe thunderstorms spawned at least four brief tornadoes in northwestern Oklahoma Wednesday evening, but there were no immediate reports of damage or injury.
Tornadoes repeatedly dropped out of a storm that tracked into Major County and slowed down. One twister touched down about three miles west of Orienta around 6:31 p.m. and remained on the ground for two minutes, the National Weather Service reported.
http://www.usatoday.com/weather/storms/tornadoes/2007-06-14-oklahoma_N.htm
Disaster agencies plan for quake
KYLE MCDANIEL/Missourian
Representatives from state and federal agencies gather to identify the resources that would be needed if a large-scale earthquake hit the New Madrid fault line.
By HOLLY JACKSON
June 21, 2007 | 12:00 a.m. CST
…
Today marks the end of a three-day statewide earthquake drill that began Tuesday in Jefferson City. Unlike earthquake drills in schools, this event included agencies such as the Federal Emergency Management Agency, the American Red Cross and representatives from many Missouri counties. The drill comes on the heels of other disasters in Missouri, including the ice storms of January and the flooding along the Missouri River in May. In the event of a large earthquake, Missouri would have to respond to a slew of problems.
http://www.columbiamissourian.com/stories/2007/06/21/disaster-agencies-plan-quake/
When the New Madrid goes - The US might as well shut down for vacation for a a month or two. No shipping out of the Mississippi and if the upper levees on the Missouri go - New Orleans will be under water again. FEMA has said the New Madrid quake was its number 1 disaster problem. As well as changing its course, in the 1811 quake the Mississippi river flowed backwards for 4 days.
“Survivors reported that the earthquakes caused cracks to open in the earth’s surface, the ground to roll in visible waves, and large areas of land to sink or rise. The crew of the New Orleans (the first steamboat on the Mississippi, which was on her maiden voyage) reported mooring to an island only to awake in the morning and find that the island had disappeared below the waters of the Mississippi River. Damage was reported as far away as Charleston, South Carolina, and Washington, D.C.”
Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri, Tennessee, Louisiana will be shut down when the fault goes. The fault is enormous. For a relative size comparison of 2 similar sized earthquakes “New Madrid VS California Northridge” see the following map.
http://tinyurl.com/5bvk6
Yeah, I’ve only lived in the Midwest for six months but I’ve already experienced an ice storm, flooding, and tornado sirens. There’s plenty of weather here.
The Midwest has winter every year. I like it but I’m in the minority.
http://www.cnbc.com/id/19415459
Home Sales Data: The Number The Pundits Will Miss - Diana Olick
Existing home sales in May were essentially flat, down just 0.3% from April and down 10.3% from a year ago. Prices also continue to drop for the tenth straight month, down 2.1% and inventories continue to rise, now to an 8.9-month supply. A pretty bland housing report all in all, except for a strange new number slipped into the middle of the report by that crafty NAR Senior Economist, Lawrence Yun. This mention, to me at least, is the real nugget that the 94 talking heads we’ll see on TV today will inevitably miss.
Household Formation. What’s that? It’s first time homebuyers. Whether it’s young professionals, new families, or new investors, none of these people, well, a lot less than usual, are jumping into the market. Household formation is down 70% (!) in the first quarter of this year from last year. On an annualized basis, it’s less than 500,000, which Yun calls, “rare.” You only see that in a real economic recession.
Home Inventory Data: Another Number The Pundits Will Miss — GetStucco
Where the housing boom goes on
These markets are bucking the downturn and posting double-digit growth. What makes them so special?
By Les Christie, CNNMoney.com staff writer
June 26 2007: 9:35 AM EDT
NEW YORK (CNNMoney.com) — In the middle of a nationwide housing slump, a few markets have held their ground - and then some.
In Seattle, for example, the median home sale price was $380,200 during the first three months of 2007, according to the latest stats from the National Association of Realtors (NAR). That’s a 12.3 percent year-over-year increase.
11 Bust-free markets
Where housing prices grew at double-digit rates.
City State Median price 12-month increase
Cumberland MD $100,000 17.1%
Beaumont TX $115,800 16.5%
Gulfport-Biloxi MS $153,700 15.7%
Salem OR $221,600 15.6%
Bismarck ND $149,400 14.1%
Albuquerque NM $193,700 12.7%
Seattle WA $380,200 12.3%
Salt Lake City UT $206,900 12.3%
Oklahoma City OK $134,400 12.1%
Farmington NM $178.800 12.0%
San Antonio TX $148,300 11.2%
Source:National Association of Realtors
Money Magazine’s Walter Updegrave gives a reader advice on the best way to get her retired parents a reverse mortgage.
Ten other metro areas among the 156 markets covered by NAR also recorded double-digit, year-over-year price increases.
So what have they get that other markets don’t?
The main ingredient is a set of positive fundamentals, including strong job and population growth, which then fuel demand for houses.
http://money.cnn.com/2007/06/22/real_estate/bust_what_bust/
I can’t speak for other markets but in Salt Lake cracks are starting to form. Inventories are up 90% from a year ago and have been growing around 10% per month since February. We are even starting to see asking prices decrease a little. The strong job and population growth is due mainly to the construction industry. It will quickly revert back to the norms as soon the builders realize that they were just late to the party and that its not different here.
wahooo!! party time!!1
There are a bunch of young women who grew up on my block. They were 12-13 when I moved in, 13 years ago, which is to say they were about the age my daughters are now. Best as I can determine, all who still live in the area are LIVING AT HOME.
How could they afford otherwise, given housing costs today in Brooklyn. Very nice girls, really cute, should be married — but might still be living at home afterward.
I just hope, for my daughters’ sake, that there is no housing bubble 12-13 years from now. That’s why (and lots of people think this is strange) though I am a homeowner I am hoping for lower prices.
I don’t find it unusual for a 25-year old to still live at home. However, IMO, that’s the age when it’s time to go out on your own. I lived at home after college until I was 25, just about to turn 26. My first job didn’t pay enough to move out. As soon as I had some experience and landed a new job (that came with a $10K increase), I was ready to fly the coop.
Now, if someone’s 25 and not working towards the goal of moving out, that’s a problem. Regardless of what houses cost, apartments can be found. My first apartment was crappy, for sure. But it was affordable and it was my own place.
May not be unusual, but I couldn’t wait to get the heck out of dodge. Loved my folks and all, but once job started and college ended–I was gone. Had no money, lived in crapholes, but it was worth it.
yeah I lived with my parents until I was 26. That was back in 1985 when I finished college. Back then it was very rare for a young man to live with his folks. Now it’s more common. In Italy, more and more men in their 30s live with their parents. It’s no wonder the birth rate is down in European nations. It’s kind of scary that birthrates have been declining over the years among the most educated people but have been high among uneducated people. Part of the problem is that it costs too much these days to raise a family. In the 1950s it took only one breadwinner. In actuality, the percentage of middle class people in the U.S. has been markedly declining. My definition of middle class, of course, is where it only takes one breadwinner in the family.
Also remember that 25 year olds these days can easily be $40-60K in debt from student loans just from an undergraduate degree (more if they went on to get a masters). That plus NYC rents plus low pay in a first job out of school can be very constricting.
Also remember that 25 year olds these days can easily be $40-60K in debt from student loans just from an undergraduate degree (more if they went on to get a masters).
25YO’s?
How about that CL link from TXchick57 about the 47YO from TX with a real estate law degree willing to be hired as a paralegal?
Down the standard of living shitter we all go.
“Very nice girls, really cute, should be married…”
Where are you at? Got phone #’s?!
I left home at 16 (graduated early from high school) and never went back. But in large part that was due to a difficult family situation. I wouldn’t mind it a bit if my daughters wanted to stay at home longer to save money and get a jump on finances. As long as they are working, going to school and generally doing something valuable with their lives and extended family situation can make a great deal of financial sense.
Household formation is down 70% (!) in the first quarter of this year from last year. On an annualized basis, it’s less than 500,000, which Yun calls, “rare.” You only see that in a real economic recession.
illegals just subdivide and pack em in -no new homes needed
A brief summary of layoffs and closings (housing related)
Pulte Homes Corporation
Bloomfield Hills, MI
Sacramento, CA
Reno, NV
Pulte Homes Corp. laid off 45 workers at its Sacramento and Reno offices — part of nationwide cuts designed to thin Pulte’s ranks by 16 percent. The Pulte layoffs are across the board and hit several workers with years of experience. The layoffs are on top of the Michigan-based builder’s other reductions over the past 18 months. The company had trimmed its work force by about 25 percent prior to the recent layoffs. The layoffs don’t include trade contractors working at job sites.
Approximate Affected Workforce: 1-50
Federal National Mortgage Association
Washington, DC
Mortgage giant Fannie Mae, remaking itself as it recovers from a multibillion-dollar accounting scandal, is offering buyout packages to some employees as it aims to cut its 6,500-person work force by several hundred by year’s end. The job cuts announced in April are among cost-cutting measures that the government-sponsored company, which finances one of every five home loans in the United States, has undertaken to reduce its operating expenses by $200 million this year compared with 2006. The Federal National Mortgage Association, commonly known as Fannie Mae, already has eliminated some full-time positions and reduced the number of contractors it retains. A Fannie Mae spokesman said in a statement Tuesday that we anticipate that the company will have several hundred fewer full-time employees at the end of the year.
Approximate Affected Workforce: N/A
Source: The Associated Press - June 19, 2007
SunTrust Banks Inc.
Atlanta, GA
SunTrust Banks will eliminate 300 jobs as part of a continuing restructuring that includes the sale and lease-back of hundreds of branch banks and dozens of office buildings. Five South Florida buildings are on the list to be sold by the end of this year, but a SunTrust spokesman said it hadn’t been determined yet which locations would suffer job losses. The staff reductions, to be made in the next six months, will be among employees who don’t interact daily with the public. The cuts will come from the ranks of middle management, commercial and small business administration, and operation or support positions.
Approximate Affected Workforce: 101-500
Tolko Industries Ltd.
Vernon, BC
High Prairie, AB
Meadow Lake, SK
Tolko Industries Ltd. is cutting back production and taking downtime at two of its panelboard mills in Alberta and Saskatchewan. The curtailments at Tolko’s High Prairie and Meadow Lake, Sask., oriented-strandboard mills are the latest moves by the Vernon, B.C.-based forester to combat slumping prices in a depressed market.
Combined with previous moves this year, privately owned Tolko will decrease OSB production by about 740 million square feet of 3/8-inch equivalent board. The related restructuring of the division will eliminate 30 production jobs. Tolko has cited rising fuel costs, an escalating Canadian dollar, and a 30-per-cent drop in U.S. housing starts for creating poor business conditions.
Approximate Affected Workforce: 1-50
Durham Furniture Inc.
Durham, ON
Durham Furniture announced the loss of about 80 more jobs and consolidation of work in the Durham plant. The company blamed sluggish U.S. furniture sales and the high Canadian dollar for the belt-tightening. Durham Furniture employs more than 500 employees. In February 2006, Durham Furniture employed 650 people. At that time the company produced an estimated 170,000 to 180,000 pieces of solid wood bedroom furniture annually.
Approximate Affected Workforce: 51-100
Horizon Plastics Co. Ltd.
Cobourg, ON
A cold, wet spring has led to layoffs for 70 workers at a Cobourg factory. Horizon Plastics Co. Ltd., which makes products such as lattice for fencing, has laid off 70 workers. The sales and marketing manager said the cold, wet spring weather has meant lost sales in eastern United States. The soaring value of the Canadian dollar is also a factor in the layoffs.
Approximate Affected Workforce: 51-100
Source: Peterborough Examiner - June 21, 2007
Shermag Inc.
Sherbrooke, QC
Quebec furniture maker Shermag Inc. will have further plant closures and employee layoffs to combat the relentless impact of a soft U.S. home furnishings market and the appreciation of the Canadian dollar. The Sherbrooke, Que.-based company has undergone painful restructuring over the past few years to become more competitive with Asian imports. It has cut its workforce in half to 1,200 and closed seven plants since 2005 as it moved its mass-produced furniture operations to China.
Approximate Affected Workforce: N/A
Vassallo Industries Inc.
Colo Laurel, PR
Van Buren, NY
Syroco Inc. employees arrived at work Monday in Van Buren to find out they no longer had jobs. A notice posted late Friday on company bulletin boards said the company was in financial difficulties and its last day was Monday. This difficult decision is due to increased raw material prices, and operational costs that have affected the profitability of the company, the company said. Syroco said that it was laying off 371 workers and closing its headquarters and plant in Van Buren and plants in Arkansas, California and Florida. The company said it will continue selling its plastic furniture and wall decor until it depletes its inventories. Vassallo Industries Inc., of Puerto Rico, owns the company. Syroco was founded in 1890 as the Syracuse Ornamental Co. by Adolph Holstein to make wooden decorations. In 1962, it began making wall decor products using molded resin. It added plastic patio furniture to its product line in 1986. It had several owners over the years before Vassallo Industries, a company known for making PVC pipe, bought it in 2004 for $40 million.
Approximate Affected Workforce: 101-500
Visteon Corporation
Belleville, MI
Bedford, IN
Visteon Corp. will shut another Indiana auto-parts plant as part of a string of closures that has cost thousands of workers their jobs. The plant in Bedford, about 60 miles west of Indianapolis, makes fuel delivery modules and has about 600 hourly and 85 salaried workers. The closing expected by April is part of a three-year plan to fix, close or sell about 30 factories to make the Michigan-based company more globally competitive. Visteon had discussed closing the Bedford plant for months as the company shifted to producing climate control, interiors and electronics instead of auto parts for a variety of automakers.
Approximate Affected Workforce: 501-1000
This is a rough sampling, but there is enough additional data to suggest that the American consumer is tapped out.
Nice research Hoz….
Thanks for the info.
Hmmm, let’s see …. Homebuilders are still building at a 1.5M annualized pace, and household formation is at 500,000 per year. And we got a rally in the Treasury market on the weak 1.5M number when it came out.
Wonder what the Treasury market and layoff numbers will look like when starts drop by about a million a month?
WOW, Syroco closing.
My former neighbor works (worked?) at Soroco. His daughter is getting married this month. I need to call back to NY.
Nice Canadian companies mentioned. I like Durham Furniture. Guess we are going to have to sell to other countries other than the U.S. for wood products.
It’s not the appreciation of the Canadian dollar as much as it has been the TANKING of the U.S. Dollar that has undermined our U.S. sales.
Pretty soon anybody anywhere will be able to scoop up American assets at pennies on the dollar. That would be interesting.
Hah! We have already sold or mortgaged our national assets to late you crazy canuck! LOL
I believe there are a few bridges for sale that cross the Hudson. If interested, I am sure we can arrange an amicable price.
Is it possible to drown in an inch of water?
So long as the Fed stands ready to supply ever more liquidity to the market, I guess nobody needs to worry about drowning in debt?
Behind Buyout Surge, A Debt Market Booms
By Serena Ng and Henny Sender
Word Count: 2,191 | Companies Featured in This Article: Bear Stearns
The corporate buyout boom of the 1980s was funded in large part by high-yield “junk” bonds. This time around, another financial product is supplying much of the fuel — collateralized loan obligations.
CLOs, as they’re called, are giant pools of bank loans bundled together by Wall Street and sold off to investors in slices. They aim to spread default risk an inch deep and a mile wide. Last year, more than half of the loans behind the record wave of buyouts were parceled out to investors as CLOs, bankers say.
As corporate borrowing soars, however, concerns are growing that CLOs have made it too easy for shaky or debt-laden companies to borrow money. If economic conditions deteriorate, those loans could sour and investors in the riskiest CLO slices could face large losses. That, in turn, could make it harder for buyout firms to borrow money.
http://online.wsj.com/article/SB118282461107748034.html?mod=hpp_us_pageone
If it gets harder to for these corporations to borrow money then I am out of the stock market. Right now it looks to me like money is everywhere , well except for home loans.
You have put your finger on the reason that it is essential for the PPT to keep a lid on l-t T-bond yields…
Luckily for Rich Dads, stock prices always go up!
Housing prices fall steeply
Case-Shiller index for April shows U.S. home prices declining at their fastest rate in 16 years. Ten-city data show a 2.7% retreat.
http://www.marketwatch.com/tools/marketsummary/
Kind of like the builder profits situation discussed earlier — big headlines for lower profits, which were not significant, earlier, but now we have losses.
A 2.7% price decline is not significant either. Not when far greater declines are required to get price/income ratios back in line. Sure is taking a long time.
“A 2.7% price decline is not significant either.”
Your point is taken — this is a scratch to the surface of the correction needed to restore affordability. However, I believe the nationwide decline does seriously call into question whether “Real estate always goes up.”
“A 2.7% price decline is not significant either.”
IMHO this is very significant! It is statistically significant and it is emotionally significant. The mere fact that there is a decline in RE prices, to the majority of Americans, is a shock.
“It is statistically significant”
Indeed: ‘Fourteen of the 20 cities showed falling prices in the past year…’
When you combine the 2.7% decline in nominal price with a (say) 2.8% inflation rate, you’re looking at a real rate of decline of 5.5%. Possibly just the beginning as well. Attention house shoppers — don’t buy just yet!
What I find most interesting is the boulevard where the home sales falling, meets up with the average decrease in home value…
an example from the above Florida thread, it’s going roughly 3 to 1 there.
“Statistics further south in Charlotte County-North Port painted a darker picture for that market. Home sales fell 39 percent, and the median price slid 12 percent, from $213,400 to $186,900.”
an example from yesterday’s California thread, it’s completely different from Florida, er, if you believe the CAR.
“Home sales decreased 25 percent in May in California compared with the same period a year ago, while the median price of an existing home increased 4.8 percent, the California Association of Realtors reported today. ‘The decline in sales continues to be driven by both tighter underwriting standards since the start of the year and the adverse psychological impact of news regarding foreclosures and the subprime situation,’ said C.A.R. Chief Economist Leslie Appleton-Young.”
“2.8% inflation rate”
CPI inflation last month came in at +0.7% for May 2007 — +8.4% annualized. Not sure how you came up with 2.8%?
Early Rally Dissolves As Oil Prices Stoke Inflation Fears
Associated Press
Tuesday, June 26, 2007; Page D06
NEW YORK, June 25 — Wall Street gave up a big advance and turned lower Monday as investors awaited the Federal Reserve’s meeting on interest rates later this week.
…
But when crude oil prices rose back above $69 a barrel on news of U.S. refinery outages, many investors chose to take money off the table. High energy prices could translate to accelerating inflation, which investors fear the Fed may use as a reason to raise a key interest rate later in the year. The Fed committee that sets the rate is scheduled to meet Wednesday and Thursday.
http://www.washingtonpost.com/wp-dyn/content/article/2007/06/25/AR2007062501601.html
“california difference”
still-rising median means recent exclusion of low-end buyers is more complete in Cali than elsewhere. Case Shiller method looking at same-house sales is clearly more informative. Nothing Leslie Appleton-Young says in aladinsane’s post is factually incorrect (I guess), it just omits the elephants in the living room: price/rent ratio, price/income ratio, any other version of same.
“restore affordability”
it seems like the experts on CNBC have no reason to restore anything.
The Case-Shiller index in the gold standard. Down 2.7% annualized IS a big deal, and this doesn’t include the bigger price drops of the last two months. And this doesn’t include seller incentives. This is a significant drop early in the decline. Think of this as priming the credit-tightening/foreclosure pump, a taste of what is to come. With the way things are unfolding, we could well see the Case-Shiller down 15% by the summer of 2008 (from the peak).
Glimmer of hope? What about that growing inventory pyre?
ECONOMIC REPORT
Home prices fall at fastest rate in 16 years
S&P/Case-Shiller index shows prices down annualized 2.7%
By Rex Nutting, MarketWatch
Last Update: 9:54 AM ET Jun 26, 2007
WASHINGTON (MarketWatch) — Home prices in 10 major U.S. cities dropped at the fastest pace in 16 years during the 12 months ending in April, according to Standard & Poor’s Case-Shiller home price index released Tuesday.
Home prices in the 10 cities fell 2.7% on a year-over-year basis, the largest decline since September 1991. Meanwhile, prices in 20 cities dropped a record 2.1% year over year.
The 10-city index began in 1987. The more comprehensive 20-city index goes back to 2001.
Price appreciation has slowed for 17 consecutive months. Nationally, prices have doubled since 2000.
Fourteen of the 20 cities showed falling prices in the past year, led by Detroit (down 9.3%), San Diego (down 6.7%) and Washington (down 5.7%). Seattle had the largest price gains over the past year at 9.6%, while prices are up 7% in Charlotte, N.C., and 6.4% in Portland, Ore.
Miami’s appreciation turned negative in April for the first time in this cycle; prices in Miami, which had risen 25% in the year through April 2006, are now down 1% in the past year.
“No region is immune to weakening price returns,” said Robert Shiller, chief economist for MacroMarkets LLC and the co-creator of the index. Even in regions such as the Pacific Northwest or the Southeast, where prices are still rising, the gains have been slowing.
A glimmer of hope shone in a few cities — Atlanta, Boston, Dallas and Denver — as they recorded price increases and stronger annual rates of return. “A few more months of data will reveal if it is a seasonal issue or the beginnings of a recovery in these markets,” S&P said in a release.
http://tinyurl.com/3caebo
Is this the good news which sparked today’s stock market rally?
New home sales fall in May to 915,000 units
By Greg Robb
Last Update: 10:00 AM ET Jun 26, 2007
http://tinyurl.com/2tk9nn
Or was this the good news that sparked today’s stock market rally?
Consumer confidence falls to 10-month low in June
By Rex Nutting
Last Update: 10:00 AM ET Jun 26, 2007
http://tinyurl.com/2ljskg
from minyanville:
“The next time someone tells you that the mood of the public is too optimistic for the market to advance further, send them a link to the “General Mood of the Country” page over at the Gallup Poll website.
There you will discover two charts and a table that show, without much doubt, that quite the opposite is true. The public is actually more pessimistic about the future today than at any time since the late summer of 1992.
Asked last week by polltakers, “In general, are you satisfied or dissatisfied with the way things are going in the United States at this time?” 74% of U.S. respondents said they were dissatisfied, while 24% said they were satisfied. That’s a negative “spread” of -51 percentage points.
Now, the funny thing is that stocks typically do best when the mood of Americans is most sour, and worst when Americans are buoyant.
Just to give you an idea of how that works, in the first week of January 2000, the “General Mood” poll found that 69% of Americans were satisfied and 28% dissatisfied. The Dow Jones Industrials peaked a week later, and didn’t crawl back to flat for seven years.
Despite a plunge in the stock market, the positive satisfied/dissatisfied spread persisted well into the bear market — including most of 2001 and 2002. The mood only turned decisively negative in March, 2003, just before the start of a massive bull market.
Americans’ mood never really got a lot better during the bull market, except for a few isolated months. But the mood really deteriorated in earnest in October, 2005. The average American was bummed out through the entire strong market of 2006, but the national mood just recently fell off a cliff into total moroseness. A worse public mood has been recorded in only 10 of the past 210 months.
In the topsy-turvy world of stocks, all this anguish could be a good thing, however. The last time that the negative spread was exactly -51 was September, 1992. The Nasdaq 100 was up 24% five months later.”
uuuhhhhhh, now thats counter-intuitive
Looks to me like the first and second derivatives have turned negative…
June 26, 2007 10:22 A.M.ET
BULLETIN
Buyers stem indexes’ slump
Stocks advance early Tuesday on heels of Monday’s whipsaw decline.
Given the role in CH negotiations, I would have assumed Blackstone qualified for plunge protection?
http://www.marketwatch.com/quotes/bx
The five-day chart gave me butterflies in the stomach:
http://tinyurl.com/2olkzl
Hilarious! glad none of us owns any
Looks like the PPT fix is in now at $31/share…
I’m trying to put less importance on these reports of median prices for cities becuase I keep remebering Location, Location, Location as the holy grail of real estate.
The Los Angeles market shows incredible strength in super wealthy Pacific Palisades and not so good in Watts. But the industry lumps these numbers together and tell me the LA market is heading down. I wouldn’t choose to live in Watts, and so as I search for a deal in Pacific Palisades, I am not finding any weakness. The income of the wealthy, and their desire to live in very select locations, make the median price an insignificant number in this new market place. In my opinion
LA’s a tough nut to crack, but it will happen, or so I’m told on this board.
Bearmaster at http://sbbeachbubble.blogspot.com/ summarized the LA market this way (she does some nice graphs following the LA South Bay beach cities):
Before you tear out your hair in despair thinking this market will never correct, let me remind you all what happened last time Southern California experienced a substantial housing downturn. The top was in 1988. There was notable weakness in 1989 that hit the lower end and middle tier of housing first. ARMs holders started feeling the pain. First-time buyers were effectively shut out of the market and the trade up market came to a standstill. In October of 1990 an executive from Shorewood was quoted in the L.A. Times as saying:
If they are waiting for the bottom to fall out, they are waiting in the wrong neighborhood…There just has never been any evidence of that in the South Bay.
But the housing downturn quickly overtook the high-end and coastal areas with a vengeance. By February 1991 DataQuick admitted that “the high end of the market had dropped off much more profoundly than any other part of the market.” Bel-Air house prices had dropped 50% in 18 months. By May 1991 the L.A. Times reported in a special South Bay edition that both sales and median prices were down by 16%. By November 1992 peninsula foreclosures were selling for less than half their peak price. By June 1993 median peninsula prices were down by some 28%. A March 1994 south bay edition story reported that while many “dreams” have been fulfilled, many fortunes in the south bay had also been busted, thanks to the housing market.
One big difference between then and now is that back then, in the initial years of the downturn, lenders refused to allow home sellers to engage in a short sale, thus forcing them into foreclosure. Then later on, overwhelmed by all the foreclosures on their books, lenders eased up a little on short sales and accepted low offers for the foreclosed properties in their books. This time around, some lenders are bending over backwards to “restructure” problem loans so people can stay in their houses. The FHA is busy restructuring 2 out of every 3 of its problem loans, according to a June 15 New York Times story. Lenders are probably doing it so they don’t have a pile of foreclosures on their hands. It’s interesting how, in spite of that effort, foreclosure charts appear to be tracing out a rocket-path trajectory, isn’t it. In my opinion, lenders are just delaying the inevitable.
It is shaping up as a great day for the Fed to create inflation and help Rich Dad get richer through the stock market wealth effect.
Bear not bailing out the second fund
http://www.reuters.com/article/ousiv/idUSN2635025420070626
TxChick — Any thoughts on the “mark to market” issue? A WSJ article yesterday suggested the BS hedge fund was the “tip of the iceberg,” as most every other investment bank on the planet sponsored similar subprime investment schemes. Can these guys keep the reality of drowning hedges from reaching the media’s glaring spotlight?
and Bear has officially withdrawn its Everquest IPO. Quietly.
“It was Bear Stearns, the biggest broker to hedge funds, that nine years ago declined to join 14 other investment banks in the bailout of Long-Term Capital Management LP. Then last week, as New York-based Bear Stearns pleaded for help to rescue two of its hedge funds teetering on the brink of collapse, many of the same firms refused to come to its aid.”
Bloomberg
or succinctly “screw ‘em”
Payback svcks…
I threw that out as a reason to short sell the brokers or have some put leaps about 2 months ago. Who knows, they make so much money trading maybe they won’t miss this.
txchick,
Why would you bail out one, but not the other?
Hi Aladin Sane, The one that you don’t bail out, you liquidate because it has a current positive net worth. Currently the BS fund to be liquidated has a net worth of 200M. (MTM)
cheap rent:
http://tinyurl.com/35vo3a
Ben, I listened to the NPR Talk of the Nation segment yesterday - good job! Dean Baker did a good job too, and the Ilyce Glink woman was just atrociously ridiculous - just anecdotes, no data and full-blast cheerleading.
umm…
New home sales fall in May for 4th month
http://tinyurl.com/2j33vg
From Bloomberg:
“Sales fell 1.6% to an annual pace of 915,000 last month from a revised 930,000 rate the prior month that was lower than previously estimated
. . .
Home prices in 20 metropolitan areas dropped 2.1 percent in the year ended April, the biggest year-over-year decline since record keeping began in January 2001, according to a report today from S&P/Case-Shiller. The decline was led by a 9.3 percent drop in Detroit and a 6.7 percent fall in San Diego.
Prices Drop
The median price of a new home fell 0.9 percent to $236,000 last month from $238,200 a year earlier”
(my emphasis)
OK, so we can almost certainly expect an even bigger YOY decline for the Case-Shiller index when they report for May. This is probably the most carefully calibrated of all the pricing indices (same-house comparisons only), because real money is bet on the numbers.
Notice the revised 930.000 comes from an original estimate of 980.000 last month. unfreakingbelievable.
April:
http://www.census.gov/const/newressales_200705.pdf
May:
http://www.census.gov/const/newressales.pdf
This borders incompetence, both on the census bureau and the reports’ behalf.
Paris freed at last!
NOW comes the Big Final Exam………was her stupidity all an act?
or is she really that clueless? Inquiring Minds want to know!
I don’t even care enough to respond…LOL
Me either!
hmm… what will happen if they don’t bail the second fund out?
Bear Stearns not planning to bail out second fund
http://news.yahoo.com/s/nm/20070626/bs_nm/bearstearns_hedgefund_bailout_dc_1
Similar to Brookstone (sp?), on a much larger scale.
The clients get wiped out.
And the banks that lend to them get hosed too.
check it out. Blackstone trading under the offering price
Well, well…
It’s a start, but true justice won’t be served until the insider options are underwater.
They are…. Pre-IPO price = $31. Initial trade expected to by $40+ meaning $10+ per share profit… Actual open was $36.45 for $5 a share max….. All down from there.
Today it is trading at $30.75… The insiders are underwater!!!!
Not really. “Pre-IPO price = $31″ means that those that bought IPO shares are underwater. Those are not insiders, those are “well-connected” funds managers.
Insiders have their shares at numbers much lower. They are still in a position to profit handsomely.
Blackstone shares drop below listing price
By James Politi in New York
Published: June 26 2007 21:34 | Last updated: June 26 2007 21:34
Blackstone shares on Tuesday fell below $31 – the price at which they were sold in last week’s landmark initial public offering – as investors continued to express doubts about the future performance of the US private equity group.
After rising 13 per cent on a strong first day of trading last Friday, the value of Blackstone’s partnership units dropped 7.5 per cent on Monday, and extended those losses by 4.6 per cent in morning trading on Tuesday.
Blackstone shares dropped as low as $30.36 before climbing back to hover around $30.95 in the middle of the day.
The lacklustre stock market performance over the last two sessions could take the shine off the achievement of Steve Schwarzman and Pete Peterson, Blackstone’s co-founders, in floating the company in spite of headwinds in Washington and doubts about the sustainability of the private equity boom.
http://www.ft.com/cms/s/644d55d6-2420-11dc-8ee2-000b5df10621.html
Banged out a chart with median new home prices, CPI, and median wage (per the SSA) in excel. Interestingly enough:
The ratio of Wages/CPI is up only 16% since 1963.
The ratio of New Home Price/CPI has nearly doubled since 1963.
The ratio of New Home Price/Wages is up 66% since 1963.
Furthermore, looking at the charts and moving averages, it isn’t a case of “have we reached the bottom”, I think it is a case of “this thing hasn’t even started to pop yet”.
This is going to be ugly.
Correction to my typo - wages relative to CPI has is up 26% since 1963. My bad.
Could you put this chart up on ImageShack or some other free hosting site?
How does it look when normalized by house size (sqft)? That would mitigate some of the disparity since new houses have become bigger over time.
I’m working on the graphs, will post tonight and put the address in tomorrow’s bits bucket.
Any other requests?
Just graphed the ratio of $/sq ft price of new homes relative to CPI.
Almost flat since 1972, when median size of homes was first reported, with a range variation of about 10% to either side of the mean; currently on the high side.
can’t wait for cali news:
i just saw a second short sale for sale sign in carlsbad.
is this the new sign?
spoke to a realtor last week end who mentioned there were about 45 short sales in the laguna area in the OC, which is a nice area. the one I visited dropped from 1.2mil to currently 850k offered. NOT BAD. 30 % more to go and we’ll be fine. this by the way on an ok 2700 sqft house.
From Briefing.Com and PIMCO:
PIMCO’s Bill Gross’ latest missive covers ground from Paris in prison to prostitutes (OK, hedge-funds) & subprime pimps (OK, mortgage lenders). He sticks to his guns on a Fed rate cut (OK, “insurance policy”) over the next 6-mos, & cites a BofA study that “estimates that approximately” $500B adjustable mortgages will “reset skyward” in 07 by “over 200 basis points.” Ugliness due in 08…”nearly” $700B ARMS reset, nearly 3/4 “of which are subprimes.” His only beef with Bear is that they bailed themselves out in order to not tip their hand by marking-to-market items that would have been offered in a fire sale “not high-class assets worth 100 cents on the dollar. And sorry Ben, but derivatives are a two-edged sword. Yes, they diversify risk and direct it away from the banking system…but they multiply leverage like the Andromeda strain. When interest rates go up, the Petri dish turns from a benign experiment in financial engineering to a destructive virus because the cost of that leverage ultimately reduces the price of assets. Houses anyone?”
I think it was Get stucco who said if you price a house right, you can sell it in two weeks. I mentioned here a week ago my brother and I were putting my dad’s house (which we inherited, in Montrose, Colorado) on the market. Using advice from this blog, we priced it agressively instead of chasing the market down (it’s definitely slowing here). We sold it in three days - at least, it’s under contract, so hopefully all will go through.
We did use a realtor (we’re both too busy to do a FSBO), but negotiated 4%. He told me today that most of his sellers won’t do what we did, he said, “They may have 100k equity, but they still try for an extra 10 or 20k, then it just sits.”
Thanks, HBB friends. By the way, for those who were interested, the little finch I was hand-feeding goes to rehab today (gotta get him off the liquids) - is doing great!
Just one suggestion, if the buyer wants a few more thousand off…or finds a few thing need fixing, you know what to do…..dump the house on the new sucker…… Like GS and others say: you may never get this high a price again.
For sure - the offer was for 10k off, and we didn’t even counter. Would rather have fishfry for dinner, even if it’s a little fish, than go hungry waiting for a big suck… oops, fish. Thanks, Ben and everyone.
Congrats, and thanks for testing my theory
Bond investors should have married the nice girl next door instead of being seduced by hooker CDOs, according to Bill Gross per Bloomberg: http://www.bloomberg.com/apps/news?pid=20601087&sid=aiKfKdfvG9GY&refer=home.
“AAA? You were wooed Mr. Moody’s and Mr. Poor’s by the makeup, those six-inch hooker heels and a `tramp stamp,”’ Gross said in his monthly commentary posted on Pimco’s Web site today. “Many of these good looking girls are not high-class assets worth 100 cents on the dollar.”
I saw a 40 something yo in a bikini with a tramp stamp yesterday. Not very becoming for a lady walking with her 16yo daughter.
That’s probably illegal in utah - along with coffee…LOL
CDOs in `6-Inch Hooker Heels’ Fooled Moody’s, S&P, Gross Says
Defaults on subprime loans will “grow and grow like a weed in your backyard tomato patch” and if total losses reach 10 percent, CDO slices rated A may also “face the grim reaper,” Gross said
http://www.bloomberg.com/apps/news?pid=20601087&sid=aiKfKdfvG9GY&refer=home
Hookers can give you syphilis, and syphilis can kill you.
http://en.wikipedia.org/wiki/Syphilis
Apt description and one that Bill Gross would approve. LOL
” Well prudence and rating agency standards change with the times, I suppose. What was chaste and AAA years ago may no longer be the case today. Our prim remembrance of Gidget going to Hawaii and hanging out with the beach boys seems to have been replaced in this case with an image of Heidi Fleiss setting up a floating brothel in Beverly Hills. AAA? You were wooed Mr. Moody’s and Mr. Poor’s by the makeup, those six-inch hooker heels, and a “tramp stamp.” Many of these good looking girls are not high-class assets worth 100 cents on the dollar. And sorry Ben, but derivatives are a two-edged sword. Yes, they diversify risk and direct it away from the banking system into the eventual hands of unknown buyers, but they multiply leverage like the Andromeda strain. When interest rates go up, the Petri dish turns from a benign experiment in financial engineering to a destructive virus because the cost of that leverage ultimately reduces the price of assets. Houses anyone?…
We remain consistent and resolute. Contagion? Maybe, but you won’t be finding it at “99.9%” pure Bear Stearns. Look for it instead, in the subprimely financed homes of Las Vegas, Rockford, Illinois, and Miami, Florida. This problem – aided and abetted by Wall Street – ultimately resides in America’s heartland, with millions and millions of overpriced homes and asset-backed collateral with a different address – Main Street.”
Bill Gross
June 25, 2007
http://tinyurl.com/2h7t7c
Ivory soap is only 99.44% pure…
But it has the natural ability to float.
This is the main front-page story in today’s St. Louis Post-Dispatch:
Seller Dwellers
“In the St. Louis area, 3,751 homes were sold, a 12.7 percent decline over May 2006.”
“May was a particularly bad month regionally. Comparing May 2006 with May 2007, sales declined 33 percent in the Metro East area and 8 percent on the Missouri side of the St. Louis area.”
There’s nothing particularly surprising in the story itself, but its prominence is unusual.
“Activity in the market and sales have been picking up, some say, but most local real estate professionals agree that a turnaround in the local market is not likely until early next year.
Sales of existing homes are at the lowest level in four years nationwide, the national Realtors reported, and the number of homes for sale are at the highest level in 15 years.”
Let’s see if I grasp their reasoning: We have the lowest level of sales in four years and the highest level of homes for sale in fifteen years on a nationwide basis, and St. Louis’s market has slowed down by more than the nationwide average slowdown.
Yep — a turnaround in the local market early next year is in the bag.
I know that everyone is tracking ABX “BBB-” as a proxy for sub prime risk, but take a look at ABX “A” for 7-1:
http://www.markit.com/information/affiliations/abx
(click on ABX-HE-A 07-1)
A pretty interesting drop since January, and another one in late May.
Are the letter designations (”A”, “AA”, etc.) different “tranches”? What type of securities have the “A” designation?
SEC opens probes into subprime loans
By Rex Nutting & Greg Morcroft, MarketWatch
Last Update: 6:45 PM ET Jun 26, 2007
WASHINGTON (MarketWatch) — The Securities and Exchange Commission is actively looking into possible securities fraud in the packaging and sales of securitized subprime mortgages, Chairman Christopher Cox told lawmakers Tuesday.
Cox said the SEC had opened 12 investigations into “issues” similar to the meltdown of two Bear Stearns Cos. Inc. hedge funds that were invested in collateralized debt obligations that included subprime loans.
Cox said the SEC’s enforcement division has formed a working group and is “actively on the lookout for possible securities fraud.”
Don’t look too hard, or you will strain your eyesight.
Last week, Cox revealed in an interview that the SEC was looking into the problems at the two Bear hedge funds. Bear said last week that it would provide up to $3.2 billion in financing for one of the funds after the investment bank discovered that the underlying value of the assets was much less than it had believed.
There is little “systemic risk” to the financial system from the two Bear funds, Cox said.
Never mind the recent WSJ article which hinted that almost all the big investment banks created similar gambling rackets to the BS hedge funds that just blew up.
http://tinyurl.com/3bhnnt
Data add to gloom in US housing
By Doug Cameron in Chicago and Daniel Pimlott in New York
Published: June 26 2007 17:08 | Last updated: June 26 2007 23:38
The head of one of the largest US housebuilders on Tuesday warned that prices have further to fall in order to restore consumer confidence in the troubled sector.
The glut of existing homes has become an increasing concern for builders, who have cut construction and increased discounts in an effort to clear an inventory of single-family houses now at its highest level since 1992.
“Consumer confidence is going to have to be restored so that purchasers believe again in the value of homes,” said Stuart Miller, chief executive of Miami-based Lennar, the second-largest US builder.
While average prices have fallen over the past three months, he said the values of existing homes – which account for 85 per cent of the market – remained “stickier” and would have to fall to clear the inventory overhang.
http://www.ft.com/cms/s/bbb07526-23ec-11dc-8ee2-000b5df10621.html
No cargo drops for Wall Street. Deal with it, boyz.
IRWIN KELLNER
Markets get a case of nerves
Commentary: Housing slump, inflation fears trouble the Fed and investors
By Dr. Irwin Kellner, MarketWatch
Last Update: 9:26 AM ET Jun 26, 2007
HEMPSTEAD, N.Y. (MarketWatch) — After running up nicely earlier this year, the stock market has come down with a bad case of nerves.
One day equities rise, the next day they fall.
Sometimes it doesn’t even take this long for the market to reverse course. As we saw on Monday, the market can go from a strong rise to a decline in a matter of hours.
Nowadays, it seems that sentiment tends to shift with the wind. Investors don’t know what to expect and with good reason: neither does anyone else.
The problem stems from the fact that there are several issues that the Street is grappling with — each one foreshadowing a different outcome for monetary policy, and thus for stocks, bonds and the economy.
Number one on investors’ radar screens is the state of the housing market.
As you know, housing continues to deteriorate, taking along with it a number of mortgage lenders, and, more recently, several hedge funds that made big bets on securities backed by subprime loans.
If this was all there was to worry about, the implications for the Federal Reserve’s monetary policy would be a slam-dunk: cut interest rates ASAP to ameliorate concerns over housing.
Lower rates would make it easier for people who took out an adjustable rate loan to make their payments. This would keep the supply of unsold homes from swelling, while at the same time stemming the decline in home prices.
The number one issue for the Fed, however, remains inflation.
http://tinyurl.com/3alq2c
Quite amazingly, against a backdrop of falling San Diego home prices (off 6.7% YOY according to the S&P / Case-Shiller repeat sales index), median prices in my zip code (92127) are rising. I take this as a sign that high-end speculators are cashing in the chips, thereby adding to the number of high-end listings that will not sell due to a lack of buyers at these price levels. Here is a description of what is currently the median priced home (only on the market for 152 days so far
):
List Price: $1,399,000 - $1,399,000
ZipRealty will give you up to $8,394 cash back.*
Bedrooms: 4
Full Baths: 5
Partial Baths: 0
Square Feet: 3,734
Lot Size: 7,900 Sq. Ft.
Year Built: 2003
Listing Date: 01/25/07
On Market: 152 days
Type: SFR
Status: ACTIVE
MLS #: 071007843
P.S. Notice how the listing does not indicate that “Seller will entertain offers on the range from …”
The Bank for International Settlements, the world’s most prestigious financial body, 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.
http://tinyurl.com/35moqq