Price Reductions In Housing Markets Across The Country
Some housing bubble news from Wall Street and Washington. Bloomberg, “KB Home reported an unexpected second- quarter loss as sales fell to the lowest in three years and its chief executive officer said a glut of homes is hindering any chance for a rebound in the U.S. housing market. The company posted a cancellation rate of 34 percent. The average selling price slid 8 percent to $271,600.”
The Street.com. “‘Our second quarter results reflect the current oversupply of new and resale housing inventory, a difficult situation compounded by aggressive competition and continued weak demand,’ CEO Jeffrey Mezger said in a statement. ‘Housing affordability challenges and tighter credit conditions in the subprime and near-prime mortgage market have also exacerbated current market dynamics, keeping prospective buyers out of the market, slowing the absorption of excess supply and further delaying a housing market recovery.’”
The Associated Press. “KB reported a loss of $148.7 million for the period ended May 31. The latest period included a pretax charge of $308.2 million to reflect the decreased value of unsold homes on its books, and walking away from deposits on land it no longer wants to buy.”
“‘Given current market conditions, we are not able to provide an earnings estimate for the year,’ Mezger said.”
“Housing revenue plunged 41 percent to $1.3 billion, as unit deliveries slipped 36 percent to 4,776.”
From MarketWatch. “‘Pricing pressure intensified in many of our markets during the second quarter, compressing margins and requiring inventory-impairment charges in certain of our communities,’ Mezger said.”
“KB Home said it was using more price concessions and sales incentives ‘to meet competition.’ Meanwhile, the land charges were driven by ‘marked price reductions in housing markets across the country during the spring selling season.’”
“‘We interpret management’s tone as more cautious likely due to worsening trends toward the end of the quarter,’ wrote Banc of America Securities analyst Daniel Oppenheim. ‘However, we also think the company was aggressive in working to generate orders and likely found that, with the buyer fear at this point, lower prices do not always lead to increased traffic or sales,’ he added.”
“Separately, home builder Beazer Homes USA Inc. said in a filing late Wednesday that Michael Rand has been terminated as chief financial officer, ‘due to violations of the company’s ethics policy stemming from attempts to destroy documents.’”
“Analyst Stephen Kim said Beazer also stands out for its unwillingness to abandon land options.”
“‘We suspect that this unwillingness to walk from land options is due to the very large deposits the company used to hold those options,’ Kim wrote. ‘Thus, we suspect that Beazer may experience belated write-offs and/or a more sluggish margin recovery due to higher cost basis land than its peers.’”
“With many predicting the battered housing market will get worse before it gets better, home builders’ cash flows stand to take a further hit due to rising home-inventory levels and investments in risky land assets, according to analysts at Deutsche Bank.”
“‘Based on our detailed analysis of inventory trends, we do not think investors should be overly optimistic regarding the home builders’ ability to generate cash flow in the next 12 to 18 months,’ analysts wrote in a lengthy report this week.”
“By most accounts, the spring selling season has been a bust and hopes for a housing recovery are firmly on hold.”
“‘With housing prices declining, inventory rising and adjustable-rate mortgages resetting; we believe the probability the situation worsens is high,’ says Edward Maraccini, portfolio manager at Johnson Asset Management.”
The Wall Street Journal. “Caliber Global Investment Ltd., said it will return cash to shareholders after suffering losses from securities backed by U.S. subprime mortgages.”
“The company, managed by London-based hedge fund operator Cambridge Place Investment Management LLP, last month took a $15.1 million impairment charge and canceled its dividend after poor performance on securities backed by U.S. subprime loans.”
From Reuters. “Impac Mortgage Holdings Inc. said on Tuesday that its board has elected not to declare a second quarter dividend on its common shares.”
“‘In light of increased delinquencies, REO and loan losses, we believe it is prudent to aggressively liquidate REOs in this market,’ said CEO Joseph R. Tomkinson.”
“Carlyle Group, the private-equity firm that oversees $59 billion, cut the size of the initial public offering of a fund that invests in bonds backed by mortgages as damage from the slump in the U.S. real-estate market spreads.”
“‘The amount of headwinds in the market right now’ led Carlyle to reduce the offering, CEO John Stomber said.”
“Capital One Financial Corp., the largest independent U.S. credit card issuer, is cutting 2,000 jobs, or about 6 percent of its workforce, amid mounting loan losses and a slowdown in the mortgage industry.”
“Capital One will take a pretax charge of $200 million this year, including $90 million in the second quarter, to pay severance and other expenses, the company said in a statement today.”
“Capital One faced pressure to cut costs as new foreclosures set a record in the first quarter after it acquired GreenPoint Mortgage Funding Inc. through its $13.6 billion purchase of North Fork Bank in December.”
“The subprime mortgage problem will worsen over the next year and the rate of loan delinquencies could rise further, an influential fund manager specializing in mortgage backed securities said on Wednesday.”
“‘The subprime area is a total unmitigaged disaster and it’s going to get worse,’ (said) Jeffrey Gundlach, chief investment officer at the Trust Company of the West, who oversees about $60 billion in assets.”
“Moody’s Investors Service on Wednesday said it expects to downgrade more subprime-related collateralized debt obligations this year and next than it did in 2006.”
“‘Given what’s been said about this market, (and) as we see expectations of cumulative losses increasing, yes, I do expect to see downgrades,’ Yuri Yoshizawa, group managing director at Moody’s, told Reuters.”
The Financial Times. “The glut of credit in global financial markets, combined with excessive leverage, could all ‘end in tears’ when a big transaction finally goes wrong, Stephen Green, chairman of HSBC, warned on Wednesday.”
“His comments highlighted the widespread unease among banking executives after five years of benign credit conditions and the growing amounts of leverage in the financial system.”
“This has been particularly notable in the collapse of the subprime mortgage market in the US, which this year triggered HSBC’s first profit warning.”
“Mr Green said he was also concerned about the difficulty of bailing out institutions affected by a blow-up because risk was now so widely spread throughout the financial system.”
“He said: ‘When your risk has been parcelled up hundreds or thousands of times, it’s much more difficult to orchestrate a reconstruction of a difficult situation and, therefore, the write-off then risks being worse than it needs to be.’”
The Telegraph. “The United States faces a severe credit crunch as mounting losses on risky forms of debt catch up with the banks and force them to curb lending and call in existing loans, according to a report by Lombard Street Research.”
“The group said the fast-moving crisis at two Bear Stearns hedge funds had exposed the underlying rot in the US sub-prime mortgage market, and the vast nexus of collateralised debt obligations known as CDOs.”
“‘Excess liquidity in the global system will be slashed,’ it said. ‘Banks’ capital is about to be decimated, which will require calling in a swathe of loans. This is going to aggravate the US hard landing.’”
“Kia Motors Corp., South Korea’s second-largest automaker, canceled plans for a $500 million bond sale this week, joining at least seven companies abandoning borrowing as investors cut demand for riskier assets.”
“At least eight companies…pulled more than $3 billion of debt sales amid concern that losses from bonds backed by U.S. subprime mortgages will spread to other markets. Caliber Global Investment Ltd., a $908 million hedge fund, said today it will close after losses.”
“‘This may mark a tipping point in the credit cycle,’ said Robert Appleby, who helps manage $2 billion at ADM Capital in Hong Kong. ‘If we see a shakeout, it will be a healthy one because it will prevent deals from being priced incorrectly.’”
“The perceived risk of owning U.S. corporate bonds rose for the fourth day this week, according to credit-default swap traders who bet on creditworthiness. Contracts based on $10 million of debt included in the CDX North America Crossover Index increased $3,000 to $188,000 today, close to a 10-month high of $192,000, according to Deutsche Bank AG.”
“‘For so long, investors have been making excuses to buy,’ said Appleby at ADM. ‘Now they are looking for reasons not to buy. Psychology does change on a dime.’”
What a mess!
Makes you wonder when the credit crunch will hit…
RE: Makes you wonder when the credit crunch will hit…
Boston Globe ran an article this AM noting a dead & stagnant seasonal rental market for Cape Cod houses.
Seems all the $1600 per week shacks lack i-net hook-ups and A/C for the new hatch of Gen Y yuppies.
Boo-hoo…cry me a river.
I am gen x and I need my i-net!!! In fact I research hotels and make damn sure that they have I-net. It is required for my job (IT).
You wouldn’t dream of renting a place without running water, a phone line, or in many places, a television.
Internet access is no different.
In fact I research hotels and make damn sure that they have I-net. It is required for my job (IT).
Tough to be a slave to the grind.
Guess all them GreatGen & Boomer landlord’s best get the cable guy over.
“You wouldn’t dream of renting a place without running water, a phone line, or in many places, a television.” Actually, I would. It’s backpacking.
Possibly the wrong spot for this, but are there any economic principles that would lead one to believe that metal prices could or should return to ‘03 levels or are there factors that support the run-up in metals that has paralleled the run-up in home prices.
“You wouldn’t dream of renting a place without running water, a phone line, or in many places, a television.” Actually, I would. It’s backpacking.
Yup, but you’re backpacking, deciding to rough it, not paying money to someone for a roof and amenities.
Possibly the wrong spot for this, but are there any economic principles that would lead one to believe that metal prices could or should return to ‘03 levels or are there factors that support the run-up in metals that has paralleled the run-up in home prices.
I think nearly all commodities are going to go up in terms of paper money. After all, you can’t print them.
Here’s a link to the article. Apparently, the increase in Cape Cod summer rentals is a result of ARM resets.
For $1600 a week internet access and A/C is not unreasonable. $250 a week it might be asking too much. Should you not support seeking value for money? Or did you walk uphill through the shfiting sands with the tides going in AND out, canoe strapped to your back and vittles around your neck when you rented your shack on the Cape?
It is a mess and the lenders are still adding to the mess:
Subprime lending: Business as usual
Wednesday June 27, 4:27 pm ET
By Les Christie, CNNMoney.com staff writer
It would appear that subprime lenders have yet to learn from their mistakes. According to a consumer advocate group, abuses persist industry wide, despite the recent subprime mortgage meltdown.
Link here from CNN Money: http://tinyurl.com/ywfugc
When the tide goes out, you start to see some Bear Stearns.
I thought the sub-prime mess was Re-Contained.
All these homebuilders will be taking the biggest hit possible, to put the bad news behind them. When they THINK they have hit bottom, they’ll do this. Any finance person worth their salt knows to throw everything but the kitchen sink into a bad quarter, to set up future good ones. Cash flow is the item to watch.
Ah yes, “the big bath”
its the herding instinct
“‘Given current market conditions, we are not able to provide an earnings estimate for the year,’ Mezger said.”
How about “Down” ? See that wasn’t so hard !
Or if there is a requirement for a more specific estimate, “WAY DOWN”.
That was great. What a tag team you would make.
Do we get to wear mexican wrestler outfits ?
‘Do we get to wear mexican wrestler outfits’
Please respect the Californian’s … the Masked Wonders are special to us.
“‘For so long, investors have been making excuses to buy,’ said Appleby at ADM. ‘Now they are looking for reasons not to buy. Psychology does change on a dime.’”
I still don’t understand why this so called “changing on a dime” didn’t happen months ago when the subprime fiasco started coming to light.
In March they stopped buying the $0 down sub-prime and Alt-A but were still buying if there was equity involved.
Now it is hard to sell any sub-prime, and it is spreading to Alt-A.. And shocking to some, it is spreading into corporate bonds and loans to privaty equaty (hedge) funds.
Actually, I think it’s less a case of the buyers suddenly clamming up than it is a case of running out of greater fools. The only people left who still might want to buy are people who can’t afford it any more now that lending standards have tightened up, and those of us for whom those loans and these prices were never an option due to what I like to call “common sense”.
This quote was referring to lack of buyers in the bond market of the CDOs and MBSs… not lack of buyers for houses.
I am not so sure it is lack of demand as it is lack of supply. The BS debacle is 2 weeks old. Supply has been drying up for months as the lender/broker channel has imploded.
The buyers of these things by and large are fiduciaries (managers of other people’s money). If there is no reason to pull back on purchasing these bonds, they won’t. Moody’s rated it AAA, Average FICO score of 660, everyone else is buying them, etc. were all reasons that you wouldn’t get fired.
Now, Moody’s is cutting the ratings, Fair Isaacs has stated that FICO score isn’t a great measure of default rates with exotic mortgages, and now there are some sales of these assets that implies they aren’t worth 100 cents on the dollar.
MBS are not being purchased because money managers don’t want to get fired. It’s just that simple.
I wonder how many pension-fund and endowment fund managers have belatedly begun to study what these CDOs are all about and to think about the risk they’ve bought into, for that extra few points of return they thought was in the bag.
“I wonder how many pension-fund and endowment fund managers have belatedly begun to study what these CDOs are all about and to think about the risk they’ve bought into”
Only those who comprehend this part of the article:
‘When your risk has been parcelled up hundreds or thousands of times, it’s much more difficult to orchestrate a reconstruction of a difficult situation and, therefore, the write-off then risks being worse than it needs to be.’ This is the crux of the fiasco.
That stands out because I distinctly remember analysts saying when these loans were first being made how this would reduce the risk by spreading it around in small pieces
A large fund buying a lot of small pieces of poo = a big pile of poo.
‘Now they are looking for reasons not to buy. Psychology does change on a dime.’”
How many more reasons do they need??
Perhaps the NAR/NAHB Dream Home Myth has changed into the reality of the Ball and Chain psychology on these overpriced POS ?
“KB Home reported an unexpected second- quarter loss as sales fell to the lowest in three years and its chief executive officer said a glut of homes is hindering any chance for a rebound in the U.S. housing market. The company posted a cancellation rate of 34 percent. The average selling price slid 8 percent to $271,600.”
REALLY…..hmmm….”unexpected” ehh? I wonder then why the top brass over there had a mass sell off of their personal stock in the company? Were they just selling off these mass quantities of stock for fun? Did they think this year was going to be good and sold for fun, or did they expect this year to suck and next year and wanted to make money while the stock had a decent price…me thinks they knew as all the other leaders of the home builders knew as well.
“…an unexpected second quarter loss…”
I expected it, and I’m just a simple car mechanic. I’ve been reading this blog for 10 months and in 10 months I’ve developed knowledge that some suit with a 4 year Harvard degree doesn’t have. I think I’ll send Ben Jones $50 for “tuition”. That beats the hell out of spending $100,000 for a useless Ivy League “degree”.
“I think I’ll send Ben Jones $50 for ‘tuition’.”
Now that’s the right idea! Ben and his posters have educated me, too, and have saved me a ton of money by forestalling a house purchase that would have been disastrous.
Hopefully none of the regulars here will let Ben’s rare call for donations go unrewarded.
Let me give you a real world example of how this blog helped me.
I have a customer who started a heavy equipment retail business. When he told me two months ago about his business plans I warned him that construction was going to take a dump in California and to be careful about the type of units he was going to stock and not too pay too much for earthmoving equipment because the builders are going to be flooding the market.
Now, 2 months later the guy is impressed with my foresight. I have his business for life.
saved me a ton of money by forestalling a house purchase that would have been disastrous.
My brother against my advice bought in late ‘05 on the northshore in Mazzholeland.
The town he bought in has a regional school goin’ into the
financial crapper. One town’s constituency has decided they’ve had enough tax money flushed down the teacher benefit and special ed rat-holes.
Values down 27.5% in the last year.
At the moment by my calculations his CURRENT loss is around $118k.
Huh? I thought real estate always went up!
Wish he listened to you. I have given others advice and those who don’t listen end the same fate. Ive told dozens not to buy houses at current prices. I told my parent’s friends not to spend $172k on a villa that won’t be worth more than $120k once the market bottoms out. Its sad, they are retirement age but broke because of this purchase.
Ben should archive all these daily blog comments and put the better comments together in 10 or 15 years in a book as a real look at the days before the SHTF… wouldn’t it be interesting to have something like this to read that detailed the Great Depression from the person on the street?
I’ve developed knowledge that some suit with a 4 year Harvard degree doesn’t have. I think I’ll send Ben Jones $50 for “tuition”. That beats the hell out of spending $100,000 for a useless Ivy League “degree”.
Your comment is validated by the endless streams of quotes which come from Ben’s MSM posting’s.
Every time I read one, it’s like I’m thinking, How fookin’ brilliant. statement.
Seems this POV was made on the HBB a couple years ago.
And who’s payin’ these turkeys for this dated drivel?
My thoughts exactly. Only a moron would have missed what is happening and going to happen. Our entire financial market is nothing more than a hollow shell filled with crap. Unexpected my a$$. I really enjoyed reading that the analysts were estimating profits of $0.07/share, while actually it came in at a loss of almost $2/share. Whoops, guess you screwed up on that one boys! What a pathetic joke. How could they be sooooo wrong? It’s like a weatherman giving a live report for sunshine when there is an enormous hurricane viewable in the background.
“It’s like a weatherman giving a live report for sunshine when there is an enormous hurricane viewable in the background.”
And vehemently denying that a hurricane even exists, going so far as to repudiate the very word.
The “unexpected” language must be part of a new propaganda campagin by the Powers to Be. Here it is again:
Miami-based Lennar, the largest U.S. homebuilder, reported an unexpected loss for the quarter ended May 31 and said losses may persist into the next three months. New orders last quarter dropped 31 percent even as incentives rose 77 percent.
http://tinyurl.com/248bvz
Every time I read one of these daily posts, I check to see if the stock market is crashing, and am surprised if it isn’t. To this, per Bloomberg, add rising inflation, slowing growth, and higher oil prices.
Oil over $70 today. Bullish, to be sure.
“Every time I read one of these daily posts, I check to see if the stock market is crashing, and am surprised if it isn’t. ”
Man I’m glad I’m not the only one that happens to. Sometimes when I read the blog I feel like we’re in some parallel universe from that which others are experiencing. It feels so surreal on so many days. But reality’s gotta strike sometime. The momentum is gathering steam.
mmmm, crow sure does taste good:
Senate blocks immigration bill
http://news.yahoo.com/s/ap/20070628/ap_on_go_pr_wh/congress_immigration
Yup, those Senators just did a job that millions of Americans WOULD do.
What is even worse is that the bill was sponsored by Teddy Kennedy. I guess all those years of hard drinking, driving and diving really clouded his better judgement. The guy is so ossified, that he should be put in a wax museum….
True dat. I just heard him blathering on CSPAN about how “we can vote our hopes, or we can vote our fears.”
Please. The guy sounds like a Smart Girl running for junior class president.
He just needs the Emo glasses, pigtails and a smokin’ Catholic schoolgirl’s outfit. Hey, now! I’m gettin’ myself all hot and bothered. Then again, it’d all be draped on Ted Kennedy. Hot look though. LOL
The guy is so ossified, that he should be put in a wax museum….
That is true, but he still is “a really good seeeennnngggerrrrr!”
Wow - this gives me hope that we haven’t been completely taken over by corporations. Everyone I talked to absolutely hated the ideas in that amnesty bill (something only corporate america could love..)
I didn’t love the bill, but I dislike more the thoughts of millions in illegality. You cannot move the majority back without making the US into a police state, so they will probably stay in a permament gray state, a good growing ground for alienation and crime.
You cannot move the majority back without making the US into a police state
You mean we’re not there yet?
Probable Cause to stop and search your car?
WTF is that?
All hail Wal-Mart Nation.
i posted my solution before.. let the illegals find and export themselves.
They come here for jobs.
If you’re illegal and manage to find a job, report your new employer to the INS and receive a cash bounty, say $10,000 and a plane ticket home.
Employer reimburses INS and henceforth hires only legal workers ..
no jobs .. no fence needed.. no net cost to taxpayers.
wow joey, that actually sounds like a pretty good idea. The ol’ criminal turned informant model.
Yes, if they offered whistleblower cash to ANYONE reporting illegal alien employment then the job market for them would disappear overnight. As little as $500 a head (paid for by the offending company) would start a new California gold rush.
without making the US into a police state
Been living in a cave since 2001, fella? For non-citizens, the US is a police state. Just one with very selective enforcement. If your name is Jose rather than Achmed, Uncle Sam will leave you alone.
I was dreading the new REIC spin had the bill passed: “Quick! Buy a house before the millions of newly made legal immigrants do…”
yeah the immigration bill failed!
guess what, nothings changed. Illegals still milk whatever they can out of the system, and we get to export more jobs.
sing me a really happy song. something like, Mao Reminisces about his days in Southern China, CVB
OT, from the Economist’s blog:
How bad is it?
“FELIX SALMON has a really terrific primer on the threat to the market for Collateralised Debt Obligations (CDOs) posed by the Bear Stearns meltdown.
“First, there’s the risk that holders of subprime mortgages will default on their loans. This is a known and relatively easy to quantify risk. Subprime mortgages issued in 2005 and 2006 already have high default rates, and those rates are likely to rise even higher when the mortgages reach their second birthday and higher adjustable rates start kicking in. The problem is that the connection between subprime default rates, on the one hand, and CDO valuations and default rates, on the other, is so complex that it’s very difficult to say in a simple sense that a rise in mortgage defaults will lead to a rise in CDO defaults. It’s worth remembering that the key risk in the market for any mortgage-backed security is not default risk but prepayment risk, and that a high mortgage default rate, in and of itself, is not necessarily particularly worrisome from the point of view of a CDO holder.
“Second, there’s the risk that CDO tranches, especially the riskier equity tranches and the ones with relatively low credit ratings, will start to default. It’s very unclear, to me at least, whether this has happened yet, but I suspect that most of the worries are that it might happen in the future. A key problem here is one of transparency: with many CDOs investing largely in other CDOs, it’s very difficult often to get a handle on what the underlying cashflows are and how likely they are to be impaired.
“Third, there’s the discount which investors are currently demanding in order to buy illiquid securities with precious little transparency. There’s talk in the market that triple-A rated CDO tranches – which, we can reasonably assume, are very unlikely to actually default – are getting bids at 270 basis points over Treasuries, or more. That huge spread is not a credit spread; rather, it’s a good old-fashioned wide bid-offer spread on extremely illiquid securities. CDOs are similar in some ways to private equity, in that they tie up money for a long period of time and hope to provide excess returns over that time. They’re not designed to be instruments which can be liquidated easily or quickly. If investors start being forced to liquidate their CDOs, then the price they receive might well be much lower than the actual credit risk on those CDOs might suggest.
“Fourth, there’s what used to be called rollover risk. If investors start liquidating their CDOs, that means there’s going to be a pretty large supply of cheap CDOs on the secondary market. In turn that means that there’s going to be much less demand for expensive CDOs on the primary market. And the steady stream of billions of dollars which has been flowing until now from CDO investors all the way, ultimately, to private equity shops, homeowners, and other consumers of credit will dry up. This is the credit crunch that many people are so worried about. And it can happen even if CDOs don’t get liquidated en masse, if investors simply lose their appetite for new ones.”
Would normal run of the mill corporations (outside the housing, securities, banking and mortgage industry) have CDO’s sitting in marketable securities on their B/S?
They may, but it is more likely that they are in their pensions and 401Ks.
“It’s worth remembering that the key risk in the market for any mortgage-backed security is not default risk but prepayment risk, and that a high mortgage default rate, in and of itself, is not necessarily particularly worrisome from the point of view of a CDO holder.”
Didn’t know that — assuming it’s corect.
I’d be interested to hear if this is true or not. From the point of view of return on money, I can see how you wouldn’t get as much if they paid it off early. However, if I loaned out large sums of money I think I’d lose a lot more sleep over not getting most of the money back vs. getting all of it back early.
Chip,
Felix is correct that prepayment is the key risk. It’s also important to remember that default is the ultimate prepayment (default terminates the expected cashflow similar to prepayment). Many astute risk modelers are increasing their prepayment assumption due to increasing defaults.
Those suckers. All right then, I will borrow $1 billion and “prepay” them by not paying a penny. LOL>
“…default is the ultimate prepayment…”
Jim — thanks — that’s the part I didn’t know, relative to the terminology.
It’s also important to remember that default is the ultimate prepayment (default terminates the expected cashflow similar to prepayment).
That’s absurd. Default is non-payment, not prepayment. If a debt is prepaid you lose the expected future interest payments, but you can just take the money and make a new loan. If the rate on the new loan is lower you will take some hit on the interest payments - but note rates are going up, not down today.
“market for any mortgage-backed security is not default risk”
I’m assuming they are making the asumption that the property behind the mortgage has a solid value. Hee, hee, hee.
“Second, there’s the risk that CDO tranches, especially the riskier equity tranches and the ones with relatively low credit ratings, will start to default. It’s very unclear, to me at least, whether this has happened yet, but I suspect that most of the worries are that it might happen in the future.”
I have already shown where the 07-1 “A” tranche of ABX.HE is down significantly (from the high 90’s down to the low 80’s). That’s the “A” tranche, not the “equity” tranche. Is the future now?
It’s worth remembering that the key risk in the market for any mortgage-backed security is not default risk but prepayment risk, and that a high mortgage default rate, in and of itself, is not necessarily particularly worrisome from the point of view of a CDO holder.
So, are you saying that my AAA loan, 800 fico, and the 300K in equity I just extricated are adding to the damage? If so, sweet? The loans most likely to repay, sell and rent, thereby increasing the % of questionable loans in the CDO. double sweet!
I thought of a new game, Housing article bingo words like unexpected, softening, etc. After we make the list of appropriate words and the article of the day that uses the most “wins” … ok, I have too much time on my hands this week. I know.
I started doing a tequila shot for every time I saw “snapped up” in an article. 2 years ago I was plastered constantly, now I’m on the way to clean and sober !
I also nominate “gobbled up”.
This one is going fast!!! in the terminal perky cheerleader voice But I love the shot idea, we can turn the real estate advertisments “on demand” on and play drinking games!!! I don’t know if comcast has them everywhere but they are good for a laugh
I used to puke every time I read how “savvy” a buyer was. I think it was actually an acronym for Stupid, Arrogant, Vain, Vapid, Young.
Well, get used to hearing it for awhile longer, as savvy buyers will snap up homes at the low, low price of 5% off 2005 prices.
LOL 5% off is nothing! I am expecting 50% off in some areas(i.e 300k becomes 150k)
While on the flip side the flippers are now plastered on a daily basis to escape reality. I heard the new line up for next season on the episode guide for property ladder Episode 1: “How to hang your self from that exposed beam”, Episode 2: “Paint remover, more than just for removing paint now!” seems to have a dark and suicide overtone next season…
LMAO!
This strikes me as the gem bit of news in this thread:
“‘In light of increased delinquencies, REO and loan losses, we believe it is prudent to aggressively liquidate REOs in this market,’ said CEO Joseph R. Tomkinson.”
First true warning shot in the next leg down. When REO holders begin marking up their losses and start wholesale auction reductions in inventory, we have seen the cat stop bouncing.
Maybe this will act as an enema to loosen up the REO blockage over there at Countrywide. After all, it doesn’t help one’s bottom line to panic last.
My thinking exactly.
“bottom line”
That wasn’t a pun tied to the “enema” imagery, was it?
BTW, I calculated Countrywide’s REO for California alone to be 9.7B. That’s 548K Q4 median X 1765 REO currently listed.
I agree, it’s a total breath of fresh air to see somebody is getting real about “liquidating REO’s”. Feels like we’re getting to the “last one out’s a rotten egg” point on a lot of credit fronts.
‘Housing affordability challenges
It all aboput affordability. Prices are to damn high.
Slice 50% off bubble markets. then i maybuy
50% is a tough and bitter pill to swallow, because you have to remember… let’s use 100k because it is easy to work with. If a house goes up 50% then declines 50% it loses more than the original number. So if it is 150k on the way up we are looking at 75k for a 50% loss and we are 25k under the original 100k and 25% off the original price. This I do not think will happen I think that they will reset to original asking prices pre-bubble, so look for 2002 or 2003 prices.
Here in PHX, houses went up by 100% over 3 years. 20%, then 50%, then 20%. Compound it, and it is 100%…
This is why I’m expecting a 40-50% drop in prices over the next few years. 11 months supply of houses in MLS!!! PMI rates us the second most likely market for a fall. Second highest % of loans that are sub-prime. Highest % consturction economy in the country.
Story out yesterday is that a year ago, economic growth was limited by office space. First quarter of this year, 1.7 million sq ft of office space was completed. 1.2 million of it is still empty. Another 4 million sqft opening in the next 3 quarters.
Add on top of that, record amount of new retail space scheduled to open in the next 18 months.
Our construction economy is TOAST!!!
So….you’re telling me there is a chance then?
“they will reset to original asking prices pre-bubble, so look for 2002 or 2003 prices.”
So you are arguing FOR a 50% drop in SoCal, eh? Make up your mind.
Well figure 50% in the most retarded markets for sure. Beach and actually valued property will hold it’s value, then again if like we saw 15 mil vs 2 mil is happening how do you even guess at the median with that? I suspect OC, non coastal will drop 50%, just like in the 90’s, however I doubt they will dip below pre-bubble prices and property that didn’t enjoy ridiculous price jumps would drop 25-35%. And so it was written in prophecy! =)
When is the start of the bubble? IMHO it is 1987 with some minor dips, a massive acceleration starting in 1995 and continuing to 2005. In 1999 economic papers were written discussing the RE bubble, In 2002 MSM articles came out discussing the RE bubble and when it would burst. Well it is deflating and it has years of deflation left.
however I doubt they will dip below pre-bubble prices
Why not? I fully expect them to drop quite a bit below pre-bubble (97) prices, and I’ve got a boatload of reasons.
If prices got back to 2002 prices around here, I’d be all over it. I’d love to own but not at the prices today and not at the 5% price reductions that some of the RE economists are suggesting either.
Even 2002 prices are still too high. What you do is plug in 1995 to 2000 prices then calculate 4% appreciation. For instance, if a house cost $100k in 1998, it should cost $160k in 2010. If prices are much more than $160k in 2010 it is probably still overpriced as houses historically have been shown to appreciate half to two percent above inflation and our inflation is 2-2.5%
Houses is a lot of bubble markets went up at least 200%…. Lose 50% and your house is still 50% overpriced - inflation adjustment ignored. (100k goes to 300k then to 150k.)
I agree after 50% reduction in prices, I may buy. But not likely. Like my good buddy Gary in Southern California “50% off, its in the bag.” In some markets, I expect to see 80% price reductions. Many areas in California are going to see more than 60%+ price reductions (Stockton et al). Real Estate bubbles are not going to collapse like stock market bubbles, they are longer, more painful and much more expensive. Housing is not liquid now and the lack of liquidity is only going to get worse as the lenders tighten requirements. Lack of liquidity and a consumer that is tapped out = falling pricing.
I agree Hoz. 50% off brings us nowhere near where prices were before this started and lending was still sane. 50% off is a start, but 60-80% is more like it to get back in line with incomes and a lending system that doesn’t threaten to destroy the whole world economy.
It was a doozy going up and now it’ll be a doozy going down. The only difference is when we reach bottom, we’ll be back to reality. Reaching the top was the height of insanity.
Another thing to remember is that the tighter the credit standards are, there are exponentially fewer morons in the buyer pool. Honestly how many fiscal illiterates have 760+ FICO’s. The smarter and smaller the buyer pool, the tougher it will be to sell to them. They burned through a 12 year supply of fools in less than 3 years.
I for one will not enter the market until the price of the homes in my demographic age and income brakcet reach the reasonable criteria of 20% down, 28-30% MPTI range. That works out to 55-65% in So Cal.
In some markets, I expect to see 80% price reductions.
My thoughts exactly. This was an extraordinary boom, and it will be an extraordinary bust. Homes don’t sell well in a depression.
Real Estate bubbles are not going to collapse like stock market bubbles, they are longer, more painful and much more expensive.
Precisely.
Losing 50% of the $400K you bought in stocks is horrible, but it’s simply money gone.
Losing 50% of a $400K house you bought with no money down means that you will be taking that loss with every paycheck going forward. And, because you probably maxed yourself out, there’s no financial wiggle room to dig yourself out.
With an 100% loan and a 30+ percent drop in price on a massively overpriced home, even the bottom feeders will realize that foreclosure is a better form of torture.
Look out below!
“Capital One Financial Corp., the largest independent U.S. credit card issuer, is cutting 2,000 jobs, or about 6 percent of its workforce, amid mounting loan losses and a slowdown in the mortgage industry.”
How can they cut 2000 jobs when the bottom is ‘IN’ and the rebound is just around the corner? NOT.
I take the blame for some of this trouble at Crap-ital One. Why? Because I keep returning their fabulous offers in the very post-paid envelope that they sent to me.
Unsigned and taped to a brick I hope.
This is interesting:
“Capital One faced pressure to cut costs as new foreclosures set a record in the first quarter after it acquired GreenPoint Mortgage Funding Inc. through its $13.6 billion purchase of North Fork Bank in December.”
Now Greenpoint does 2 things: Alt-A and commercial. Commercial should be fine, so these foreclosures are at the hands of the Alt-A dept. Also, it’s interesting because gp does 2nds and helocs, which are being exposed as very risky loans nowadays. In fact, the murkier side of the credit crunch is that lenders will do the first 80% to sketchy borrowers knowing they still get the house as collateral. But the borrower needs to find someone still who will do a standalone 2nd for the rest of the loan amount.
Now it’s enticing from the lender’s perspective to do the 2nd because you can absolutely murder the borrower on interest rate, but in case of default your money is dead and you don’t get to keep even a single granite countertop. If the market for 2nds dries up, there is a pretty gaping vacuum in credit.
RE: they still get the house as collateral
What makes you think the house has collateral value with all the bogus appraisal reports floating around.
In the last down-turn, I was reportin’ negative values due to the cost of demolition exceeding site value.
Fookin’ places were lead paint loaded pigsties.
hehehe…The REO department’s would absolutely lose it, when they got one of those.
Shoulda seen the one where one guy was using his excess acreage as a waste oil dump…
Wooweeeeee………turned that one over to the heavy hitters.
Hey hd74man, I totally agree with you! They are making suckers’ bets. Just keep in mind that 6 months ago, they were giving out 100% stated neg-am loans like cotton candy to kids at a carnival.
This is like the 2nd stop on the 4 year Worldwide Full Doc & Down Payment Comeback Tour. Except we don’t get to go to the shows, we just read about carnage in the headlines and infer what must have happened by the vanquished’s original contribution to the show.
adjas~
Lemme tell ya the absolute dregs took over the appraisal biz in the last 4 years.
In order to ferret out “environmentally impacted” properties-for real or in the future you had to due your d&d and stay real viligent.
Redential toxic clean-up’s can cost anywhere from a few thousand to hundreds of thousands.
I can guarantee you, there’s scores of these types of properties that have been underwritten due to lender coercion and shoddy appraisal work.
These CDO sharpies think they got it all figured out.
But after my time in the appraisal biz I can say with certainty-if you think you’ve seen the most screwed up property you can imagine…
Just wait until next week.
Hopefully this means fewer of those stupid Viking commercials.
For the first time in a while I’m actually excited about what the next few years hold in terms of moving the family “up” to a bigger house. I’m in a 3/2 bought in 2001, paid 175. I’d like to get a newer (late 1990s) 5/2.5 in south Chandler/Ocitillo, which right now are going for 480-600 - crazy. When these places are at 300-400 in 2009 or 2010, I’ll gladly sell my house for 230 - 250 to make the move, instead of the 330 is was “worth” in 2005, according to a sales price on the same model house one street over. I’ll be buying from a bank of course - no emotions, clean and quick.
So you think the 5/2.5 will drop 37% from current level (presumedly down 10% from peak), but your 3/2 will only drop 30% from peak? If yours peaked at $330K, then I think 2 years from now, you’ll be selling for $185K-195K, not $230K-250K.
All the same, percentages being equal the drop from the top is farther than the drop from the middle. He still wins in absolute dollars.
true…
I think the bigger homes will be toast (almost literally) here in a few years. The incomes def don’t support those, and who wants the liability when it comes to utilities?
Recall from architectural history that the Victorian era was followed by the Arts and Crafts era. In other words, mansions were usurped by bungalows.
Recall from architectural history that the Victorian era was followed by the Arts and Crafts era. In other words, mansions were usurped by bungalows.
And lots of people, including myself, like the bungalows a whole lot more than Victorian architecture. Can’t wait for the McMansion era to be over. Someday they’ll stop building cookie-cutter “colonials” (no stucco in VT)…ugh.
Except he should begin to save an augmented down payment. If he doesn’t have $80k for the $400k home, it may be tough to finance in a few years.
Why do you want so much space? I wouldn’t want to pay so much for cooling. Do you really feel “limited” by your current house? Or is it just marketing, keeping up with the Jonses etc…?
I’m not saying that you are trying to “keep up” but just wondering what is really driving that urge…
I really don’t want any more than about 2500 square feet, but in a more modern, better insulated house with a better floorplan. I’m in 1800 sqft now. Kids and home office need room. The utilities should actually be the same assuming better windows, higher SEER AC, etc.
I do think that the percentage drops on the big places will be more than on the small places, for the very “keeping up with the Joneses” effect you mention. During the hype, having the 5/2.5 was more important than a 3/2. Whether the drop is 30%, 40%, or 50%, at the end I’m in for 175 plus whatever else for the bigger house. And when I bought I did pay probably about 10% under “market value” since the owners had already moved to PA and were somewhat desperate.
One last thing - the next purchase will be from a bank, for cash.
dude, they are already in the mid 300’s and in foreclosure.
check this one out:
3220 E SILVERWOOD DR Phoenix 85048-7257
4/2.5, 2224 sq.ft, 1987, REO $327,900
i’m in N phx, so arn’t sure of exactly which area you are talking about, but use this just as a price point in your analysis.
its gonna be fun.
just a suggestion for Ben: can we have a BBoard/thread setup as a local hangout?
got cash?
Where did you find that listing?
AZMLS, from a *gasp* realtor.
got cash?
Looks like you’re off on your size….
http://azcentral.2.homescape.com/SCS/search_api.jsp?filter_mls_id=2752868&reporting_search_name=Channel+Web%2FMLS+ID
I think he’s looking for something bigger than 1800 sqft. and newer than 20 years old.
hmm, interesting, my data was from the MLS. chances are they had stale info at homescape.com (doesn’t show the price reduction as well), and got updated yesterday on MLS,
there is alot more of this kind of stuff coming down the pike. patience, my friend, is gonna payoff.
got cash?
>>>3220 E SILVERWOOD
The assessor has it at 2,224 square feet. That is likely close to the real number based on nearby houses.
Of course, it sold for $180K in June, 2001. Almost $330K for the now bank-owned house in June, 2007 ? I don’t think so. Here is a better representation of the historical Phoenix price trend, $137,500 paid for this same place in March, 1994. So, if there was 5% appreciation each year, that should be about $193K in 2001. The actual sales figure was $180K. Throw in some inflation and there you have it, Phoenix area housing is a place to live and maybe a decent forced savings plan.
The price leaps of 04-05 were irrational. There were plenty of folks moving to the Salt River Valley between ‘94 and ‘01, and yet there was no doubling of prices or related lending bubble nonsense.
Interestingly, the foreclosed former owners were the ones who bought at $180K in 2001. The Trustee Sale purchase price by the bank was $380K in 2007. I know that $200K in “equity” borrowing pales in comparison to California numbers, but really, an average borrowing of $33K per year of ownership? Geez.
I’m hoping to buy a 2/2 condo in Tempe to retire in. Doesn’t have to be new, but would like to be within a mile of Mill St. The lowest price I’ve seen on realtor.com is around $150K. Does anyone think I’ll be able to pick one up for around $100K in the next couple years? I’m willing to wait.
Off topic - a real estate speculative whizz-kid “firend” of mine recently bought off-plan condo in Panama telling everyone how much money he was going to make.
Does anyone have any comments on Panamian real estate?
Thanks
Yes ,they are not making any more Panama and uhm, it’s a good time to buy and sell. I doubt he got a good deal as RE everywhere depends on easy credit unless he paid with cash.
Panama?
We’ll, there has been some discussion as to expanding, improving the Canal. If that happens, maybe….maybe that will improve the economic situation in Panama.
It’s a very poor country.
I was born in Panama. Loved it there growing up when the population of the whole country was under 1 million. It is 3.5 million now and the infrastructure has not kept pace. Driving is hell. Living there is not much fun. My mother and sister still do. I don’t envy them.
I have friends that also bought over in Panama City. They say that the RE has gone up 50% since they bought. I asked them who would buy their expensive condo? The answer was blank stares. You see except for a very small, and composed mostly of bankers, Panama has a very limited “buyer pool” Most people live in comfortable poverty, while some, have more than enough. Few people that have money want to live in a condo, they would rather live in an expansive villa outside town…
Latam is the same all over… No/few middle class, tiny upper class with 99.99999% of the wealth, and a very large very poor uneducated lower class.
Most people live in comfortable poverty
Is this the same as voluntary simplicity?
No, Most people have food to eat as it grows naturally. You can pretty much climb up a banana tree and pick your fruit for the day, go out catch some fish, and sleep the rest of the day. Money is really not that necessary.
Having lived in Latam for a number of years, poor people in the farms, and near the ocean rarely had food/health issues. Those came to light when they moved to the cities, and the cities no longer provided healthy natural easy to gather food. Then you see famine and slums.
It is a whole different attitute. Think about it as a hunter-gatherer culture that suddenly gets inmersed in NYC…
The UN reports that half the world’s population will be living in urban areas by the end of 2008.
That seems to be a problem is it not? I abhorr cities. They are dirty, ugly, impersonal, and overall not attractive. I live in one most of my life, and fortunately I was not in poverty. Given a chance to choose, I would live poor next to the ocean with ez access to fruits, veggies, and fish, than in a city. Living poor/destitute in a city is very tough. I would also eschew northern climates like Boston, or NY, and would chose a nice tropical/ subtropical location that provices food year round. You see, I think that our next crisis is not going to be housing, but food and water. Looking at Africa, and the way that famine suddenly spreads, and crops die, I see that we are at the brink of the abyss. I would hate to have to grow anything around here in New England. I guess that maybe we are in for a rude awakening?
pinch-a-penny-
It ain’t as easy as collecting bananas off trees year round, but you *can* survive in New England growing your own food. Remember, people did just that up there for centuries.
Key concepts: root cellars, canning and drying. We had beautiful gardens in Maine and canned tons of food each summer (kind of fun really) and even managed to dry stuff despite the cloudy, damp weather. Potatoes, root crops and even apples keep well for much of the year.
Or, you could just move to Panama….:-)
pinch-a-penny-
It ain’t as easy as collecting bananas off trees year round, but you *can* survive in New England growing your own food. Remember, people did just that up there for centuries.
Key concepts: root cellars, canning and drying. We had beautiful gardens in Maine and canned tons of food each summer (kind of fun really) and even managed to dry stuff despite the cloudy, damp weather. Potatoes, root crops and even apples keep well for much of the year.
Or, you could just move to Panama….:-)
Living poor/destitute in a city is very tough
I’ve been poor in the city and the country. Country poverty is harder. Have you ever carried a week’s worth of groceries on a montain bike? In the city, you can usually ride a bus somewhere.
“I asked them who would buy their expensive condo?”
Well, Gazzer’s greator fool friend, of course. Duhhhhhhhh!!!
Actually the whole country is very well educated ( much better than U.S.) but that is the problem. There aren’t enough good jobs available to put that education to use, so there is a lot of frustration.
phew, good thing US is anti-immigrant. Else, some SA or CA young educated worker might actually come here.
Why anyone would buy real estate in South America is beyond me. Number one, the gov’t could change their laws regarding ownership at any time and your investment disappears. Or worse, all cozy in your little beach villa, you or one of your family members disappears at the hands of some gang of militants or whatever….
I’m safer in my wife’s fishing “villa” in Brazil than half the cities in the US. Buzios or Miami Beach? No contest. Some of the nicest people on earth, hell even the militants are friendly. Guess they know they won’t get anything from my family or gov’t if they snatch me up. Yes, the Brazilian gov’t has a lot of corruption, but read up on Eminent Domain here and it all looks about the same. Try it, then knock it.
I’ll pass. Friendly militants? That’s one I haven’t heard. Here in Phoenix, Leandro Barbosa of the Phx Suns has mentioned on a few occasions that his family in Brazil is in constant threat of being kidnapped because they know he is very well off here in the States.
Oh, I forgot to mention that most of LATAM is also having a RE bubble like the one in Cali, and AZ. They are building all these huge buildings all over the place, with 100s, and 1000s of condos. Problem is like here that the incomes do not support the prices being asked. I.E. in Bogota, they have built out the northern half of the city in huge condo buildings with around 100K asking prices. Problem is that the median income is closer to 10K a year. Also traffic is a living hell. There are not enough streets, services are dismal, expensive and unreliable. Governement and businesses are corrupt, and there are no jobs.
Those huge buildings in Panama City, R.P. were mostly built by “drug money” andlargly sit empty and dark. That is probably a good thing because the streets would not be able to support the increased traffic if they were occupied.
Two words that concern me about owning any piece of dirt in Central/South America.
Political Stability
Not for me.
In the near future Panama is going to get pulled under by the US. They are 100% tied to the US Dollar. If the dollar tanks, their banking system chases it down also.
In the long term, the Tran-Texas highway will connect brand new super panamax terminals in Mexico and allow Mexican truck drivers NON-STOP hauling to KANSAS!!! P.S. They don’t use low-sulfur diesel in Mexico and these trucks will evolve to carry gigantic tanks so they won’t have to fill up in the US.
This along with a significant drop in demand for imports will kill any traffic for the new larger locks.
Their only salvation would be the advent of persistent violence and turmoil in the Persian Gulf and Indian Ocean. Then all the asian freight will choose to reach Europe through the locks.
“Analyst Stephen Kim said Beazer also stands out for its unwillingness to abandon land options.”
“‘We suspect that this unwillingness to walk from land options is due to the very large deposits the company used to hold those options,’ Kim wrote. ‘Thus, we suspect that Beazer may experience belated write-offs and/or a more sluggish margin recovery due to higher cost basis land than its peers.’”
“With many predicting the battered housing market will get worse before it gets better, home builders’ cash flows stand to take a further hit due to rising home-inventory levels and investments in risky land assets, according to analysts at Deutsche Bank.”
The land grab by these builders over the course of the past several years can only be described as the mother of manias. The prices they paid, or agreed to pay through options were, in many cases, absolutely ridiculous. And, the amount of land they are sitting on (including options) is absurdly excessive. It’s really coming back to haunt them. How they could believe that there was a market for the number of homes it would take to build out the land is beyond comprehension. These @$$hole$ deserve to go BK.
These @$$hole$ deserve to go BK.
Awww… don’t be so hard on the Beazer.
Hmmm. Wondering. Are land options recorded @ county recorder’s office? I’d like to build my next house. Mayhaps (the next 18 months?) there’ll be upside-down builders with excess land, tied up with assumable options that a cash-laden gent might pick up for pennies…?
Depends on where you are (as in, not in Manhattan) — I think there’s an excellent chance you can find a great deal on a building lot, but I also think it’s most likely you’ll get that deal from either a small builder or from a low owner who failed to flip or build. The big guys aren’t likely to sell off a lot at a time unless maybe there are just one two left in a subdivision.
low owner = lot owner
Find a master planned community that has some “custom lots”. These are generally the best lots in the subdivision. If the master planned community developer is hitting a cash crunch, they might be willing to wheel and deal on some of these lots.
The Telegraph article is written by my favorite active/living investigative journalist, Ambrose Evans-Pritchard, an Englishman who for many years was based in the US and did political reporting. He totally pissed off first the Democrats and then the Republicans — my kinda’ guy. His research into whatever he followed was always relentless and timely, and he was beholden to no one. I hope that he grabs hold of the MBS-Wall St. trouble and digs deeply into it, in the continuing-series style for which he was known here.
LOL, Chip I have enjoyed your comments and your insight, but I have yet to find anything written by Mr. Evans-Pritchard credible. I have googled his “sources”, I have seen multiple misquotes and his recent articles on the BIS were deliberately taken out of the context of the original source “BIS annual report 2007″. IMHO that is shoddy journalism and suitable for the Weekly World News.
Hoz — prior to the article in today’s links, I had read only his political reporting. Best I recall, it was accurate — he was a leading-edge tipster about whatever the politicians were doing wrong and that was underreported in the MSM. If you find his reporting on the business world/housing market to be inaccurate, I’ll read his future pieces more closely. Never hurts to see things through a different set of eyes.
Breaking news, Maricopa county (Phoenix minus some of the exurbs), just broke 54,000 houses on the market. We jumped from 52,000 to 53,700 over a couple weeks, then bounced between 53,200 and 53,700 for a month. Well, we just did the break out of that range.
I’ve been tracking houses for sell in my zip (85306) in Glendale AZ. I’ve expected to see a shift down in prices. I missed last week as I was out of town. Today shows the shift down is accelerating.
>300K 300-250 250-200 200-150
>300K 300-250 250-200 200-150
It’s too hot in PHX.
Yeah I’m done going out for lunch - too hot to get in the car. Still better than winter (though not by much)
Usually inventory drops at the beginning of the month (listings expire)… don’t get too excited when it happens in July. Of course, if we don’t drop it means we are really in trouble :).
300K+ 300-250 250-200 200-150 150K- Total
5/10/2007 20 34 52 20 1 127
5/17/2007 20 39 52 22 3 136
5/24/2007 21 39 56 22 3 141
6/1/2007 22 47 62 20 3 154
6/7/2007 22 48 59 17 4 150
6/14/2007 23 47 59 19 4 152
6/28/2007 22 39 68 22 3 154
Looks like those in the 200-250 range need to get realistic and drop their prices…
nice, is that just for 85306?
where are you getting the data from?
“Business spending uncertain as durable goods orders slide”
LA Times:
http://tinyurl.com/3347qv
“Orders for durable goods, items meant to last at least three years, slid a more-than-expected 2.8% after a 1.1% rise in April, a Commerce Department report showed.
It was the first drop since January and reflected weak demand for a wide array of products, including goods that businesses need to expand.”
“Flagging business investment would add to the uncertainty in the housing market, limiting the economy’s ability to bounce back from the first quarter’s sluggish 0.6% annual growth rate.”
Sung to the sound of the School House Rock song “Conjunction Junction”:
“Contraction-traction, what’s your faction? Hooking up buyers, if you’re verrrry careful…”
Comment by Patricio
2007-06-28 10:34:52
50% is a tough and bitter pill to swallow, because you have to remember… let’s use 100k because it is easy to work with. If a house goes up 50% then declines 50% it loses more than the original number. So if it is 150k on the way up we are looking at 75k for a 50% loss and we are 25k under the original 100k and 25% off the original price. This I do not think will happen I think that they will reset to original asking prices pre-bubble, so look for 2002 or 2003 prices.
well when the avg dump i mean shack i mean house “was” selling for $700-$800k and 5-6 years ago went for about $325-375k I think 50% is quite doable.
Breaking news, Maricopa county (Phoenix minus some of the exurbs), just broke 54,000 houses on the market.
CHEERS! LOL!
Wow, that’s just insane. That amounts to housing at least 200,000 people or so. Considering that Maricopa County had a total of 1.48 million housing units as of 2005, that’s a pretty sizable percentage of the total stock currently for sale.
Yeah and the bottom is in…..Keep dreaming saddlebaggers.
Don’t mean to change the subject, however-
I have heard rummors to the effect that few Senators have read S.1639. Please look at sec 413 and StopSSP:North American Union blog and their interperation. I hope I am not to insane in thinking there is a connection between S.1639 and SPP being pushed by GW Bush with the leaders of Mexico and Canada. It appears that the prime beneficiaries of such a union is the corporate elite, in particular the banking and brokerage industry- As they say, the Us has gone beyond an informational age to a financial age/economy.
S.1639, sec.413- Immigration Bill
http://thomas.loc.gov/cgi-bin/query/F?c110:1:./temp/~c110zNz6hP:e541288:
June 27, 2007
Democrat Suspects New Senate Amnesty Bill Will Leads To Establishment Of “North American Union”
posted by Lee
By Donald A. Collins
With the Senate on the verge of regurgitating a huge amnesty bill and the House of Representatives likely just waiting to bring up a twin measure, this Democrat is cringing with disbelief at the perfidy and chutzpah of these elected officials.
Stop SSP: North American Union
http://stopspp.com/stopspp/?p=223
Nice. CFO… shredding… papers. How much of this is going on nationwide?
Probably quite a bit. Recall that in its final weeks, Enron’s shredders were VERY busy.
Heebner on CNBC right now… $1.5 trillion in “high risk loans” (sub-prime + AltA) to face hundreds of billion of dollars in losses.
Bad news on Alt-A is leaking out!!!!
They followed with a piece about how it will take 18 months to 2 years for the current mortgage credit contraction to run its course.
He said that Bear Sterns wasn’t a problem in the underlying securities, but rather a crisis of confidence as investors wanted out but the CDOs couldn’t be liquidated.
And I’d love to ask… And why could they not liquidate the CDOs if there was no issue with the underlying securities…. hmmmmmm????
I think what he meant is that it wasn’t triggered by drop in the “book value” of the assets. Rather, it was triggered by an assumed drop in the value by investors, that wanted out.
http://www.chicagomag.com/Radar/Deal-Estate/June-2007/Housing-Bulletin-a-Marking-Down-House-Prices/
Call it a wave of price cuts or a market adjustment, but there is no way to mask the fact that people selling residential real estate locally have been dropping their asking prices in droves. Deal Estate combed through data from the Multiple Listing Service of Northern Illinois and found that one out of three single-family homes sold in the Chicago area so far this month were bought only after the initial asking price dropped at least once.
Solid data for comparisons to past years is not available, but several real-estate agents who have made sales this month agree that price cuts are unusually common right now. “What’s happening is that people who priced their homes in early spring are coming down now anywhere from 5 to 10 percent,” says Mary Duncan, the sales manager at Prudential Elite Realtors in Naperville.
Duncan says that those higher springtime asking prices—hers and others—were predicated on estimates that the market would perk up as the weather warmed. That hasn’t happened, and so sellers keep revising their prices downward. “You have to get the fluff out of the price, and then it sells,” says Carol McGregor, a Barrington Realty Company agent who cut the asking price on a 13-room home in Barrington Hills from $1,374,900 to $1,250,000 before sellling it this month for $1,070,0000.
After a sluggish 2006 and a (thus far) slow-moving 2007, how much fluff is there? “We’re back at 2005 prices again,” says Arlene Fields, a Baird & Warner agent in Lake Zurich. In the past few weeks, Fields has recommended that the sellers of two different properties ask approximately the same as the homes were likely worth two years ago. One home belongs to a couple that transferred here two years ago; now, having been transferred once again, they are essentially asking what they paid for the place back then. The second residence is a newly constructed house that has a twin next door, which sold, in 2005, for $299,900. After listing the newer house last fall at $334,900, Fields has dropped the asking price—to $299,900.
More news about the credit bubble. This time from BIS. Copy of the article from The Telegraph.
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.
“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.
The BIS, the ultimate bank of central bankers, pointed to a confluence a worrying signs, citing mass issuance of new-fangled credit instruments, soaring levels of household debt, extreme appetite for risk shown by investors, and entrenched imbalances in the world currency system.
“Behind each set of concerns lurks the common factor of highly accommodating financial conditions. Tail events affecting the global economy might at some point have much higher costs than is commonly supposed,” it said.
The BIS said China may have repeated the disastrous errors made by Japan in the 1980s when Tokyo let rip with excess liquidity.
“The Chinese economy seems to be demonstrating very similar, disquieting symptoms,” it said, citing ballooning credit, an asset boom, and “massive investments” in heavy industry.
Some 40pc of China’s state-owned enterprises are loss-making, exposing the banking system to likely stress in a downturn.
It said China’s growth was “unstable, unbalanced, uncoordinated and unsustainable”, borrowing a line from Chinese premier Wen Jiabao
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 built 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 bank said it was far from clear whether the US would be able to shrug off the consequences of its latest imbalances, citing a current account deficit running at 6.5pc of GDP, a rise in US external liabilities by over $4 trillion from 2001 to 2005, and an unprecedented drop in the savings rate. “The dollar clearly remains vulnerable to a sudden loss of private sector confidence,” it said.
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.
CDO’s are bond-like packages of mortgages and other forms of debt. The BIS said banks transfer the exposure to buyers of the securities, giving them little incentive to assess risk or carry out due diligence.
Mergers and takeovers reached $4.1 trillion worldwide last year.
Leveraged buy-outs touched $753bn, with an average debt/cash flow ratio hitting a record 5:4.
“Sooner or later the credit cycle will turn and default rates will begin to rise,” said the bank.
“The levels of leverage employed in private equity transactions have raised questions about their longer-term sustainability. The strategy depends on the availability of cheap funding,” it said.
That may not last much longer.
Is this another Ambrose Evans-Pritchard POS?
Or, as to the question on which we both presumably agree, is it accurate? Think I saw a link to this on on Prudent Bear, but not sure.
Chip - I found the source and it is Ambrose Evans-Pritchards article taken out of context from the BIS annual report.
In the report the BIS gives a number of scenarios ‘what ifs’ and in one of the what ifs Ambrose Evans-Pritchard is taking statements.
From the opening to the report:
“The favourable global economic performance seen in recent years extended into the period under review. Global growth was strong and there were even welcome signs of better balanced demand…” I do not think this is all that negative of a summary from the BIS.
Telegraph article
http://tinyurl.com/35moqq
BIS annual report
http://tinyurl.com/ys3chd
Statement #1: “What’s happening is that people who priced their homes in early spring are coming down now anywhere from 5 to 10 percent”
Statement #2: “You have to get the fluff out of the price, and then it sells,” says Carol McGregor, a Barrington Realty Company agent who cut the asking price on a 13-room home in Barrington Hills from $1,374,900 to $1,250,000 before sellling it this month for $1,070,0000.
Can someone help me with my math here? Is a reduction of $300K on a $1.3M price closer to a 5% or a 10% reduction? /snark
LOL — 22% was a pretty large bit of “fluff.”
“You have to get the fluff out of the price, and then it sells,” says Carol McGregor, a Barrington Realty Company agent …
What the fluff is Carol talking about? Sounds obscene.
If so, Carol please get the fluff out of the price.
Don’t mind me, i’m just a curious little Englishman. But i really must thank Ben for this blog which i consider to be the best on the web for the relevent topics.
Let me also congratulate all the contributors for their intelligent,witty, well written comments with all the foresight,experience and knowledge they covey.Puts our “edukation” system to shame, it really does.
Believe me that from a UK perspective this all makes facinating reading folks. Keep up the good work.
Ah well, i guess it’s time for me to go back to surfing those overpriced UK Property websites. ce la vie!
I saw a BBC video on Google about suicides and credit card debt in Britain - must say you Brits seem to take debt much more seriously than we do over here…thanks for your post.
“A key problem here is one of transparency: with many CDOs investing largely in other CDOs, it’s very difficult often to get a handle on what the underlying cashflows are and how likely they are to be impaired.”
This is pure insanity.