Some Transactions Are Being Postponed: NAR
Some housing bubble news from Wall Street and Washington. CNN Money, “Existing home sales are likely to see more declines in coming months as a key reading of pending deals fell to nearly a six-year low in May, a real estate group said Tuesday. The National Association of Realtors said its index of pending home sales, which reflects homes under contract, sank to 97.7 in May from 101.2 in April. The latest reading is 13.3 percent lower than May 2006.”
“Lawrence Yun, the Realtors’ senior economist, said home sales continue to be hit by tighter lending criteria… and a lack of buyer confidence in the market. ‘Some transactions are being postponed from mortgage market disruptions,’ he said in the group’s report. ‘But better supervised lending will put housing in a fundamentally healthier state over the long term.’”
“The Pending Home Sales Index in the West was 13.7 percent below a year ago. In the Northeast, the index is 9.6 percent lower than May 2006. The index in the South fell 15.4 percent below a year ago. In the Midwest, the index dropped 11.7 percent below May 2006.”
From Bloomberg. “Today’s report showed that the May reading was the lowest level since September 2001, when the economy was in the midst of the last recession. April pending home resales were revised to a decline of 3.5 percent.”
“‘Housing has yet to find a bottom,’ said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, whose forecast was closest to the May reading.”
From CNBC. “A really interesting report out from Karen Weaver, et al, at Deutsche Bank does a great job of showing how the national home price ‘decline’ number means absolutely nothing to the greater housing market. This report shows how local large MSA’s (metropolitan statistical areas) are ground zero for price corrections thanks to a change in the profile of the subprime borrower.”
“‘The subprime mortgage borrower was really the marginal buyer, and…the marginal buyer is the one who very much set prices so this borrower was the marginal buyer of real estate,’ says Weaver. ‘Last year for example, subprime and Alt-A was about 40% of all purchases. Now the marginal buyer, the subprime guy is running into a lot of trouble. We see foreclosures rising rapidly in that subset and that marginal buyer is now becoming the marginal seller, and that’s enough to re-price the whole housing market.’”
“These, not surprisingly, are the cities seeing some of the steepest price declines, from 8-15%, forget that 1-3% national price drop we all keep hyping.”
The Associated Press. “Here’s a scary thought about the housing market: Things may be far worse than what’s already being revealed by the troubling government and industry statistics.”
“At issue is what goes into sales price data and what does not. When those numbers are crunched, many of the incentives that sellers are using to lure buyers, including cash rebates, aren’t being included. That suggests prices may be falling faster in many markets than is now being reported.”
“Miami-based Lennar Corp., for instance, has offered to purchase furniture for buyers. Sales incentives at Lennar, one of the nation’s biggest home builders, averaged $43,700 a home in its second fiscal quarter, up from $24,700 in the similar quarter last year.”
“And it isn’t just builders piling on the incentives. It’s spilling over to the existing-home and foreclosure market, too. In Miami Shores last year a seller promised a Jaguar X-Type 3.0 sports car to anyone who would take his asking price.”
“John Devaney, who invests in subprime mortgage bonds, restricted redemptions to protect some of his Horizon Strategy hedge funds from being forced to sell assets.”
“It’s ‘a defensive move because we had an unusually high number of redemption requests and we didn’t want to be a forced seller in this market,’ Michael Gregory, a spokesman for Devaney’s United Capital Markets Holdings Inc. said yesterday.”
“One investor who wanted to withdraw accounted for about 25 percent of the funds’ money, he said. United Capital, based in Key Biscayne, Florida, oversaw $620 million in its fund group as of March 31 and $266 million in its money-losing Horizon ABS funds, an April investor letter said.”
“Assets managed by hedge funds globally more than doubled in the past five years to almost $1.6 trillion as of the first quarter, according to Hedge Fund Research.”
“While securities backed by risky loans were bought ‘by a wide range of smaller banks, pension funds, insurance companies, hedge funds, other funds and even individuals,’ hedge funds might be the ‘most exposed,’ the Bank for International Settlements said in its annual report dated June 24.”
“‘Who now holds these risks, and can they manage them adequately?’ the Basel, Switzerland-based BIS asked. ‘The honest answer is that we do not know.’”
The Seattle Times. “In April, as he shut down the 300-employee mortgage business he’d built from scratch, Layne Sapp said he hoped to find a buyer who would resuscitate MILA.”
“Instead, the Mountlake Terrace firm Monday asked the federal bankruptcy court to protect it from its creditors, joining scores of other lenders felled by the subprime-mortgage implosion.”
“Some $76 million in unsecured debt was claimed by some of the nation’s biggest lenders. Among them are Bear Stearns, with a $21 million claim; GMAC/RFC, $10.5 million; and Goldman Sachs Mortgage, $6.8 million.”
“Others with multimillion-dollar claims include Wachovia Mortgage, Deutsche Bank, Countrywide Home Loans and Indymac Bank. All have asked Mortgage Investment Lending Associates (MILA) to buy back mortgages that presumably did not meet their standards.”
“Late payments on home equity loans climbed to a 1 1/2-year high in the opening quarter of this year. The American Bankers Association reported Tuesday that late payments on home equity loans rose to 2.15 percent in the January-to-March quarter. That was up sharply from 1.92 percent in the final quarter of last year and was the highest since the late summer of 2005.”
“‘There are still signs of consumer financial distress, which will continue throughout most of this year as the worst of the housing problem works its way through the economy,’ said James Chessen, the association’s chief economist.”
The Financial Post. “Just a few weeks ago it was all sunny skies amid galloping global growth. The warnings are now flowing thick and fast.”
“Donald Coxe, global portfolio strategist for BMO Financial Group believes the market for fiendishly clever debt instruments will implode like all previous financial fashions from Third World bank loans to derivatives dreamt up by Nobel laureates.”
“‘In this decade it is collateralized debt products that seek to make risk disappear from cash markets into a tower inhabited by investment banks and hedge funds in which the shared language is algorithms,’ he wrote in his recent publication Basic Points. ‘Like all past Babels, this one will, at some point, self-destruct.’”
“Bear Stearns, and other CDO players with subprime exposure are hedged largely against the ABX index, a synthetic financial security used by investors to specifically hedge subprime risk, said Dominic Konstam, head of the interest rate group at Credit Suisse First Boston.”
“This does not mean however, that a financial institution or two may not take a hit or that the recoil in the market won’t hit investor sentiment, Mr. Konstam said.”
“The latest buzzword floating around bond desks? ‘Crediteering’ as in, ‘There will be a lot more crediteering going on,’ or more selective choice of credit.”
“‘From the Fed’s perspective that’s okay,’ he said ‘In the extreme that becomes a market failure but in its own right that’s quite healthy.’”
From Reuters. “Fidelity fund manager Anthony Bolton has likened the market in collateralised debt obligations (CDOs) to the controversial split-capital trust sector, and warned on the methods used by some activist hedge funds.”
“Bolton, one of the UK’s most respected managers, said while the development of packages of debt such as CDOs has helped spread risk, they nevertheless pose a large investment risk. ‘I still think there are major risks with these — CDOs, CLOs (collaterised loan obligations),’ he said.”
“‘They are basically based on a model, which is based on a set of assumptions. It’s very difficult to say ‘it’s always like this.’ If something goes wrong with the assumptions, it changes the model,’ he said.”
“‘It reminds me a lot of split-level investment trusts. They were based on models and assumptions, and it turned out the models were wrong and that led to the collapses. I think what will happen is that the prime brokers won’t allow valuations based on models. They will require valuations based on the market and that will be a mechanism leading to more reality,’”
“U.S. Treasury Secretary Henry Paulson said on Monday the U.S. housing market correction was ‘at or near the bottom’ although it could be some time before an upturn.”
“‘No one is forecasting when, with any degree of clarity, that the upturn is going to come other than it’s at or near the bottom,’ he said.’We are making this transition successfully (from) a growth rate that wasn’t sustainable to one that is sustainable,’ Paulson said.”
“Paulson, who was chairman of Goldman Sachs Group Inc. before taking the top Treasury post last year, said he monitored financial markets closely, and aside from the subprime situation, they remained healthy. ‘Markets are volatile,’ he said. ‘I haven’t seen a single thing that surprises me; it’s hard to surprise me.’”
“And it isn’t just builders piling on the incentives. It’s spilling over to the existing-home and foreclosure market, too. In Miami Shores last year a seller promised a Jaguar X-Type 3.0 sports car to anyone who would take his asking price.”
When the sellers start giving away Saturn 5 Rockets, I might be interested…
I owned a Jaguar a few years ago. Considering the cost to keep that piece of junk running, I’d probably lower my offer by about $10K on his house if he was throwing in the Jag.
I knew a guy who owned a shop in OC that did nothing but pull the old engines out of Jags and put in chevy short blocks instead. Apparently this was common for a while.
Does anyone get that the mortgage payment would be cheaper and the tax payment would be lower, if the buyer would just insist that the builder or seller keep the incentives an just back out the price of the incentives, from the sale price? Would somebody please explain this concept to the sheeple? And while your at it, explain it to the journalists as well, they’re just as dumb.
“At issue is what goes into sales price data and what does not. When those numbers are crunched, many of the incentives that sellers are using to lure buyers, including cash rebates, aren’t being included. That suggests prices may be falling faster in many markets than is now being reported.”
They pulled this story right out of the Housing Bubble Blog Ancient Archives file.
‘But better supervised lending will put housing in a fundamentally healthier state over the long term.’”
This new leader of the NAR sounds like another shrill.
Where were these dipsh@ts 4 years ago? These brilliant scam artists always try to make things look rosy when the bagholders cry wolf.Those people who bought the last couple years are going to be upside down for awhile why the smart people who sold into the rally laugh all the way to the bank.Who will the next round of suckers be?
I agree. The MSM is finally catching up to this blog and its posters.
No,
They’re catching up to where we were 1 year ago. We’re 1 year farther into the future at least for them.
Chuck Ponzi
There are a lot more doom and gloom reports today compared to one year ago.
Man this feels like year old deja vu…
So now I know the timeline… Zzzzzz
When the MSM talks price/rent, price/income, and ratios… then we’ll know they caught on.
Until then…
Got popcorn?
Neil
Forbes magazine last week suggested renting instead of buying, so we’re getting there (obviously the article has been pulled off their web-site by now). They have a picture series called “America’s Most Overpriced Real Estate Markets” (San Diego is numero-uno, yeah!)
I was thinking the same thing, GS.
And…
“‘The subprime mortgage borrower was really the marginal buyer, and…the marginal buyer is the one who very much set prices so this borrower was the marginal buyer of real estate,’ says Weaver. ‘Last year for example, subprime and Alt-A was about 40% of all purchases. Now the marginal buyer, the subprime guy is running into a lot of trouble. We see foreclosures rising rapidly in that subset and that marginal buyer is now becoming the marginal seller, and that’s enough to re-price the whole housing market.’”
Who, pray tell, were handing out these loans left and right?? Of course….WE all know, but the “industry” is SO passing the buck on this issue. ALL of them were seeing dollar signs, therefore, fogging mirrors, having a pulse was all that was needed to grant hundreds of thousands of dollars to people tettering on the edge.
Sickening.
BayQT~
GetStucco:
Exactly! To the AP it must be StarDate 2005.
“Today’s report showed that the May reading was the lowest level since September 2001, when the economy was in the midst of the last recession. April pending home resales were revised to a decline of 3.5 percent.”
History does not repeat itself, but the present often resonates very harmoniously with the past.
Paulson has taken to calling the bottom in housing about once a week.
One of these weeks the future will prove him right. (I am guessing this will happen about 260 or more weeks from the present.)
But Paulson won’t be at the treasury anymore
We should be so lucky…
He belongs in a carnival
How can somebody be completely wrong in their predictions week after week, and still maintain credibility? Is one not judged by their performance anymore?
That’s not fair - everybody in this administration is judged by their performance. Then they get their sentence commuted.
“I don’t know of anybody in my administration who leaked classified information. If somebody did leak classified information, I’d like to know it, and we’ll take the appropriate action.” [Bush Remarks: Chicago, Illinois, 9/30/03]
“The President has set high standards, the highest of standards for people in his administration. He’s made it very clear to people in his administration that he expects them to adhere to the highest standards of conduct. If anyone in this administration was involved in it, they would no longer be in this administration.” [White House Briefing, 9/29/03]
LOL…..
Greenspan observed that by repeating lies often enough, people will start to believe in them.
Here are what Paulson has been repeating since February’s subprime crash:
-Housing bust won’t lead to recession
-Subprime damage is contained
-The worst is behind us
-Housing is at or near bottom
Well, Greenspan didn’t exactly invent that. Check “The big lie” on Wikipedia.
Fire Paulson and save his taxpayer-funded paycheck and perks.
For a lot less, we could hire an experienced sign twirler with “The Bottom is Near” printed on sandwich boards.
I can’t believe people here are criticizing Great leader Bush. He made a BOLD decision and took BOLD action. He does not make mistakes and nobody from his administration makes false statements. It’s just that sometimes events change the truth of what was said. And sometimes they just don’t remember. Should people really go to jail for memory loss?
Let’s all rejoice that the DECIDER governs us with such measured judgment.
(in case you didn’t know, that was sarcasm.)
In case you didn’t know, this is the HOUSING bubble blog…
And when has that stopped anybody?
You missed a great conversation on US-built trucks yesterday…..
No surprise that with such corruption and cluelessness at the top, it trickles down through the rest of society as well.
1950’s: Mouseketeer
2000’s: Crediteer
“The latest buzzword floating around bond desks? ‘Crediteering’ as in, ‘There will be a lot more crediteering going on,’ or more selective choice of credit.”
‘Crediteering’ rhymes with ‘buccaneering,’ and is a fitting aftermath to the subprime lending debacle.
buc·ca·neer·ing
adj.
Showing boldness and enterprise, as in business, often to the point of recklessness or unscrupulousness.
http://www.answers.com/topic/buccaneering
How about RACKETEERING?
racketeering
n. the federal crime of conspiring to organize to commit crimes, particularly as a regular business (”organized crime” or “the Mafia”).
Seems to fit…
2008: Debtiteer
When I first read that, I thought it was a contraction of credit + profiteering, but buccaneering a pretty good fit too.
buccaneer — isn’t that about what corn will cost in a few years with all the ethanol plants gobbling it up?
I sure hope so. We’ll go back to using sugar in products instead of high fructose corn syrup.
Where does a pirate keep his buccaneers?
On the side of his buccan’ head!
It was 75c an ear in my neighborhood earlier this year, so we’re almost there
C-R-E,D-I-T, E-EE E-EE R.
Foreclosed house! owner F*ucked !
Foreclosed house! owner F*ucked !
Forever let us hold our sales price high!
High! High! High!
Ever notice about conspiracy? Let’s see Cons Piracy. Now it makes sense.
HAHAHAHAHA…good thing I wasn’t drinking anything…this is a company laptop.
I think what will happen is that the prime brokers won’t allow valuations based on models. They will require valuations based on the market and that will be a mechanism leading to more reality,’”
Pardon me while I laugh cynically.
There is no “mark to market” where there is no market.
Recently, bids were offered for Bear Stearns on CLOs for 30 cents on the valuation dollar.
Imagine a fund losing 70% of its value immediately.
That’s a crash by any measure.
Chuck Ponzi
I liked the comment about the prime brokers. That was funny.
Here’s a little something from one of my expensive pay services
Derivatives Dirty Little Secrets Revealed
Author: Jim Sinclair
Dear CIGAs,
The dirty little secret is out. That secret is that trillions of dollars in over the counter derivatives simply have no market.
The meltdown in sub-prime mortgages has exposed the fragile underbelly of the financial world. When news like this gets published in London ’s Financial Times you can be assured that the world now knows what it has suspected but did not want to believe.
OTC Derivatives have accounted for so much income to the investment banking firms that they convinced themselves (and you) of the validity of these weapons of financial mass destruction that are unfunded special performance obligations simply floating in cyberspace.
Remember this about Over The Counter Derivatives:
They have no regulation.
They have no standards.
Without standards there can be no viable market.
They are unlisted
They are traded by private treaty negotiation
They are valued by “Mark to Model” which is a total cartoon.
They have no financial guarantee such as a clearing house.
They are unfunded special performance contracts floating in cyberspace. All funds in the OTC Derivatives are taken out as spreads and commissions.
More than 50% of the earnings of major international investment banks come from granting in private treaty negotiations these instruments of mass financial destruction.
The financial performance of the specific performance contract called OTC Derivatives depends on the financial capacity of the loser in the transaction.
Control has been loose in the interest sensitive OTC Derivatives because of multiple dealings outside of the initiating two until no one knows who has what.
The replacement value of these instruments is in the multi trillions of dollars.
The size of this is more than 2 Trillion dollars in replacement cost. The massive expansion has come in interest sensitive and debt guarantee instruments. Those are the most vulnerable.
From this point the character of the over the counter derivatives only gets worse.
Gold is all in the dollar and eventually gold and base metals shares are all in gold and base metals, period. Yes, those with derivative risk are dicey but those without will shine.
The US dollar has tanked, not for the popular excuse which is comparative interest rates. It is the meltdown that is now occurring under wraps in OTC derivates. The immediate impact you can count on is an expansion of international liquidity to offset a financial disaster, while the central banks seek to merge the failed international investment houses and other financial institutions.
The rub here is that the value of these weapons of mass financial destruction is simply too big to be resolved without there being blood in the streets
My feeling is that three strikes and the dollar is out. I see .7200 on the USDX as the first PO once the .8050 level is broken on the downside which it will be.
This is short, not sweet, but the entire story. All else is noise and nonsense.
More than 50% of the earnings of major international investment banks come from granting in private treaty negotiations these instruments of mass financial destruction.
If you believe this will come apart, some leap puts on your favorite sleazball IB might buy you your next house!
Time to short Mr. Eddie Lampert?
“Without standards there can be no viable market.”
This is frankly, absurd. Viability has never in the history of business depended on standards. Fairness, yes. Accuracy, yes. But viability? Standards are what prevents the fool-in-the-market from being a total jackass. But viable markets consisting of jackasses are as old as time.
Let’s hope all the pimps on WallSt go down big time as their scams are discovered and crash. The cancer has to be removed one way or another.
I keep getting warnings about the imminent collapse of the MBS market too, from various financial advisory pseudo spam that shows up on my e-mail. For the most part, it makes sense, but the one thing they always leave out is, how to either profit from it, or at least protect yourself from it?
After about 30 attempts over the last several years, it finally looks like I can post, which is good because I work at a top 20 builder and wanted to give out the inside scoop for some time. It is complete denial here and everyone wants to believe the turn around is immanent. Very little has been done to adjust to the market - no changes to the McMansion designs, the completely inefficient compartmentalized organization, mortgage financing options or debt structure. Nothing was gained from the record run-up during the boom. About the only thing that has been done is a few land options were written off.
I hope everyone has a good 4th.
While I think that you meant “imminent”, immanent would also be a good choice:
2. Philosophy. (of a mental act) taking place within the mind of the subject and having no effect outside of it.
So, yes, the recovery is indeed “immanent”
I thought it didn’t look right. I guess spell check can only do so much.
Welcome aboard the good ship HBB, Devildog! Looking forward to your insightful commentary.
Yeah! Give us the dirt!
Dan Fitzpatrick (ex-homebuilding exec) wrote about this a year ago on Realmoney and I posted it here last summer.
Bottom line: the people at the switch were in high school in the 80s. They’ve never known anything but EZ money. They don’t know how to manage in a crisis. They don’t even know how to identify a crisis!
Devildog
I guess you are now with KB. Supposedly, they are starting to build smaller homes….at least that’s what they are telling the media.
http://www.forbes.com/feeds/ap/2007/06/29/ap3873578.html
“KB Home is discovering that less could be more when it comes to luring skittish buyers in a housing slump.
In recent months, the company has rolled out a new line of smaller, more affordable homes that it hopes will jump-start sagging sales.”
BayQT~
No, not with KB. Thank goodness for small favors. They are finally starting to realize something is wrong here, but if they’d listened to me 2 years ago we’d be sitting pretty righ now instead of taking a 40% loss to our revenue.
Lennar???
He’s gotta be Florida-based. Homebuilder dum-dums here are slow on the uptake when it comes to the propensity of buyers to shell out for junk.
Critical analysis says “Top-20 homebuilder” means 11-20. Otherwise it would be top 10. So the real big boys such as Lennar, KB, Pulte, Horton, Centex, etc. are out.
Pulte fired 60-80% of it’s construction management staff in Florida within the past 30 days.
They know they’re dead; but they can’t let every skeleton go now or they’ll be known by the investors who’ll pull the chain when they’re obviously dead.
Those kept on are twiddling their thumbs, waiting for the next cycle.
Yep, that all this market needs is more inventory from builders in strange places that will end up being vacant housing .
kindling
Welcome Devildog, glad you could finally log on. Keep posting the great info!
Methinks it may be better not to ID his employer under the circumstances…
maybe it’s just my imagination, but builders seem to build for the sake of building.
good 4th to you too
“Paulson, who was chairman of Goldman Sachs Group Inc. before taking the top Treasury post last year, said he monitored financial markets closely, and aside from the subprime situation, they remained healthy. ‘Markets are volatile,’ he said. ‘I haven’t seen a single thing that surprises me; it’s hard to surprise me.’”
Famous last words.
“‘Markets are volatile,’ he said. ‘I haven’t seen a single thing that surprises me; it’s hard to surprise me.’”
He won’t be ’surprised’, what comes next will simply be ‘unexpected’.
So he wasn’t surprised by the sub-prime meltdown, yet he’s been treas. Secretary for almost a year…was he offering any warnings or fixes, or was he just content to sit back and watch?
I’ve done some searches, and can’t find (so far) a single article where he warned about sub-prime mortgages…and now this guy is predicting a bottom?
“it’s hard to surprise me.”
Yes, That echos what General Custer said right before the battle of Littlebighorn.
I’m pretty sure Paulson knows what’s going on. One thing about those ex-Goldman guys. They’re smarter than hell. That doesn’t mean he can admit it. I mean, can you picture the Secretary of the Treasury coming out and saying, “You know what, housing is in deep sh!t and we’re all f***ed.” Not gonna happen. Doesn’t mean he doesn’t think so, just can’t admit it.
I agree with you, gab. The guy is smart enough to know who signs the paycheck and what they need to hear to get that paycheck.
I agree. I think Paulson is very smart, and frankly, I’m glad he’s the guy trying to negotiate with the Chinese on currency related issues–you don’t get to where he got without being smart and tough.
On housing, it’s like he’s the captain of a clipper ship in hurricane force winds. He can’t change the winds, and he doesn’t know if there is anything he can do to keep the ship from capsizing. The only hope he has is to convince the whole crew that everything will be OK and that the wind is letting up. Otherwise, panic sets in, and the ship is sure to go down.
No, he’s the captain of the Titanic who gets into the lifeboats with the crew and takes off after he convinces the passengers to stay in the ballroom and listen to some nice music.
Paulson is a member of the Working Group, a.k.a. Plunge Protection Team. Their Prime Directive; maintain investor confidence. This fact makes his statements irrelevant.
Found some interesting data on the National Association of Homebuilders’ website. This Excel chart shows median home prices and median incomes for various regions from 1996 to Q1 of 2007.
The increase in the ratio of price to income is pretty stunning. Even though we all knew this to be the case, it is still impressive to see it in the NAHB numbers.
http://www.nahb.org/fileUpload_details.aspx?contentid=34325
For example, the ratio of median price to median income in the D.C. area pretty much hovers at 2-to-1 from 1996 to Q1 of 2002, then it shoots up to 3-to-1 in Q1 of ‘04, peaks at 4.8-to-1 in Q1 of 2006 and falls back to 4-to-1 in Q1 of 2007. Let’s be generous and assume that D.C. trends back to a 3-to-1 ratio, that’s a 25% reduction in the median price. If it goes back to the historical 2-to-1, then median prices would drop 50%!
Los Angeles is worse. Median price to median income went up from 3.5 to 1 in the late 90s to a stunning 8.5 to 1 in Q1 of 2007. Even if L.A. hits a low at 4.25 to 1, that is a 50% reduction in the median price. If it actually went back to 3.5 to 1, a 60% decrease in the median price would be in order. Wow!
Hope these numbers help everyone figure out exactly where we are in the current real estate cycle. Hint: nowhere near the bottom.
That’s pretty interesting. Are the % reduction in median prices you calculated from the peak or from current? If from the current, that pretty much jives with other things I’ve seen concerning DC. I would be surprised to see us drop all the way back to a 2:1 ratio but a 3:1 ratio seems pretty reasonable. Just my opinion of course.
3 to 1 in DC
permanent employment is a powerful factor
inventroy is starting to turn in my hood 22151
Flatffplan,
All things being equal, I’d expect permanent employment to have the opposite effect on that ratio. Job security should make one more willing to take on bigger debts.
Bm
I looked Sacramento # over and compared it to some datasets we have here (only to 2004). Looks pretty close and I like having some of the downside estimates.
Gwyn, can you post the Sacramento info somewhere in a generic format? I don’t have an application that can open the link.
The percent reductions are calculated from the last numbers available (Q1 of 2007), not the peak (Q2 2006). If the numbers were calculated from the peak to the historical averages, the percentage decline would be greater.
I thought the 2 to 1 median price to income ratio was low as well, but those in fact ARE the historical numbers. Question is: why is there a historical trend of 2 to 1, and what has changed now that we wouldn’t go back to those ratios?
Major change: people get more “utility” from their houses today than in the past, thanks to entertainment, internet, greater demand for privacy, etc. Thus price to income should naturally be somewhat higher than, say, in the 1960s. That’s one reason why I like price/rent better as a yardstick.
Not to be labeled as a housing bull, but it would be very interesting to factor in interest rates–say, 30-year fixed payment on the median house relative to incomes. This may temper expectations on how much housing will fall in many markets.
The difference between a 6% and a 9% fixed is 33%. So, no, interest rate changes can not remotely account for the run-up.
Yes, but they can cushion some of the downside…
prices must eventually match affordability in the depressed economy of the near future.
Factoring in a little downward overshoot I’m gonna guess they bottom out at about 2-1 or lower.
Wow, look at the total lack of income growth in L.A.
Over the entire 11+ year period, incomes rise a total of 31.6%, less than 3%/yr, while median housing prices rise 332.3%, along with at least doubling food and energy prices if not tripling or more.
After accounting for inflation in this period, this obviously means hugely negative real income growth over an extended period of time, while the economy was ostensibly “booming.” I am awed, and begin to doubt the integrity and goals of the system even more than I did before…
Actually, I guess it’s only an increase of 232.3%… but the point stands…
Based on rents, I can see prices coming down close to 50% in DC metro.
United Capital Markets Holdings Inc. has stopped honoring refunds to investors in some of the firm’s Horizon Strategy group hedge funds that invested in subprime-mortgage bonds, Bloomberg reported on its Web site on Tuesday.
The funds hold most of the firm’s assets under management, which stood at about $619 million as of March, according to the report.
http://news.yahoo.com/s/nm/20070703/bs_nm/subprime_unitedcapital_dc_1;_ylt=AhXRgCOAiEwQwsZ4OteTNAaz1g4B
“U.S. Treasury Secretary Henry Paulson said on Monday the U.S. housing market correction was ‘at or near the bottom’…
He is exactly right. You just have to translate..”At or near the bottom…” Let’s see, when I’m doing my business in the morning, what is “at or near my bottom?” The toilet. Paulson is saying housing is in the toilet. We all know that. He is right.
It is truly amazing, I went from the perception of economists to be smart and respectable and truth telling machines driven by accuracy. Now I look at them and after the first few letters I find myself rolling my eyes and muttering shill under my breath.
However, that is like so many professions, it is hard to find one that has excelled in their profession and are better now than before. Think about it…kinda weird.
This article won’t do much for your perception of economists:
http://researchmag.asu.edu/2007/06/dispelling_7_macroeconomic_myt.html
That article makes me embarrassed to be an alumnus of that particular university.
Austrians are the only economists who are worth a damn. All the others are paid shills and government apologists. Go read Mises, Hayek, Rothbard, or Hans-Hermann Hoppe and see what an intellectual giant who happens to also be an economist looks like
“John Devaney, who invests in subprime mortgage bonds, restricted redemptions to protect some of his Horizon Strategy hedge funds from being forced to sell assets.”
“It’s ‘a defensive move because we had an unusually high number of redemption requests and we didn’t want to be a forced seller in this market,’ Michael Gregory, a spokesman for Devaney’s United Capital Markets Holdings Inc. said yesterday.”
I predicted two weeks ago that there will ultimately be $750B in foreclosure losses to be spread around the banks, hedge funds, and investors. There will ulitimately be 100 meltdowns all as big as Bear Sterns. This is just a small one.
Housing in the toilet? Believe the NAR on the number of homes on the market? I took some back streets through Belleair Bluffs on my way to our storage facility. I counted 13 For Sale By Owner signs within about 8 blocks! Stick a fork in Florida. It’s done.
There are a ton of FSBO homes out there right now. They’re quite obviously trying to get around the realtors commissions, and who could really blame them? Inventory levels are phenomenal.
It may be that realtors are telling homeowners they won’t take an overpriced listing…Nah, that can’t be the case!
The is the case for the beter agents. The big listing agents get tired of unrealistic sellers screaming at them and turn away listings that they can’t sell. In the big offices listings cost you money because your broker charges you to advertise your POS listings. There is no sense taking on a listing that you know won’t sell. The beating agent’s take from FS as the listings sit can be quite uncomfortable.
HAHAH am I the first with “FS”? Do I get a prize?
Ha! The bandit signs throughout the lower half of the state are nearly uncountable now.
Long article on how the investment community dumps its “toxic waste” on institutions, funds, and you.
http://news.goldseek.com/GoldSeek/1183475130.php
http://www.larouchepub.com/other/2007/3426toxic_waste_banks.html
“Wall Street’s Toxic Waste” is a very apt description of the CDO holdings.
So the hedge funds print up worthless documents, like they do at Kinkos, and sell them to investors for millions of dollars. I need to get into the printing business.
So the hedge funds print up worthless documents, and sell them to investors for millions of dollars. Now I understand what hedge funds do. I need to get into the printing business.
Test
“One investor who wanted to withdraw accounted for about 25 percent of the funds’ money, he said. United Capital, based in Key Biscayne, Florida, oversaw $620 million in its fund group as of March 31 and $266 million in its money-losing Horizon ABS funds, an April investor letter said.”
So am I to gather that some dolt investor gave these idiots somewhere in the neighborhood of 100+million to buy subprime CDO’s? Man, THAT is going to leave a mark. I think just out of general principle I would have to go over and get rid of the hedgefund manager and his family if he lost me a 100 million of my money.
I realize that all of this risk stuff is covered in the prospectus, personal responsibility and all of that. Regardless, I think some of these hotshots hedge fund managers are going to go missing.
Yeah, in FL that investor could easily be a Columbian “businessman”?
“Lawrence Yun, the Realtors’ senior economist, said home sales continue to be hit by tighter lending criteria… and a lack of buyer confidence in the market.
I’m starting to miss David Liar-er. His comments were just as dopey but he seeemed to make far fewer of them.
Carry on, oh Larry Yun…
Lereah’s work ain’t done.
Carry on my wayward Yun,
There’ll be sales when you are done
Lay your weary stats to rest
Don’t you talk no more
caustic soda, totally funny. made my day.
You guys are SO ancient (loved em).
“Lawrence Yun, the Realtors’ senior economist, said home sales continue to be hit by tighter lending criteria… and a lack of buyer confidence in the market.”
OK, reasons for the slowdown in sales:
1) Tighter lending criteria
2) Lack of buyer confidence
When will these REIC cheerleader clowns ever say “sales are being hit by the high prices.”? Ever? Nah. It’s always a good time to buiy, right?
Agree. When will they say that housing prices should be around 2000 prices plus inflation.
Spoke to a friend the other day and they said they were looking for a house and they made an offer one. I just flat out told him, “it’s your funeral”. He didn’t appreciate that but it’s the truth. He’s buying a 800K house and I know for sure he makes much less than I do. crazy!
People who own a home will tell you that you should buy, RE always goes up, tax deduction, blah, blah, blah.
Yet, when you ask them what they think of housing prices? They’ll say they’re f’ing crazy high, they wouldn’t pay that, and they couldn’t afford to buy they house where they currently live.
If he has not bought yet and will listen to you, please show him the math. Make a bet that he will be foreclosed and possibly bankrupt within 2 years. That will ruin his life.
I was out in the IE yesterday and I’ve never seen so many poorly constructed dumps in the middle of nowhere (SH 18 outside of Victorville) asking so much money. Those meth labs in the hi-desert must be churning out product by the ton for those builders to smoke.
What do you mean, they’re right there in empty houses in undersold subdivisions, with no one to check on them… only a matter of time ’til the fires start…
Do the sellers of CDO’s really think that these big money investors ,like insurance companies ,are not going to sue over the models the industry relied on to rate this junk paper .Insurance companies have always invested in long term home loans and insurance companies don’t like to be fooled .
heh.. These rock solid conservative insurance co’s and institutions look foolish because they were foolish, imho.
This CDO thing was a well disguised threat. Nobody will accept the blame and I don’t think any of the players will succeed in laying it off on someone else.
Check this out real life current Ponzi scheme…
http://www.latimes.com/business/la-fi-ponzi3jul03,1,3481494.story?coll=la-headlines-business
All most celebraties do is look at how much they’re going to get paid for the endorsements.
“John Devaney, who invests in subprime mortgage bonds, restricted redemptions to protect some of his Horizon Strategy hedge funds from being forced to sell assets.”
“It’s ‘a defensive move because we had an unusually high number of redemption requests and we didn’t want to be a forced seller in this market,’ Michael Gregory, a spokesman for Devaney’s United Capital Markets Holdings Inc. said yesterday.”
It’s called a “run on the fund” John. Thats been know to happen to banks when depositors figure out there’s not enough money to go around.
From Marketwatch…
WASHINGTON (MarketWatch) — The U.S. housing market weakened further in May, as contract signings on sales of previously owned homes fell 3.5% to the lowest level since September 2001, the National Association of Realtors reported Tuesday.
Pending sales are down 13.3% compared with a year earlier and are down 23% from the peak in early 2005.
“This is horrendous,” wrote Ian Shepherdson, chief U.S. economist for High Frequency Economics. “These numbers give the lie to the idea that any sort of recovery, or even stabilization, is underway in the housing market. In fact, it continues to deteriorate, rapidly.”
AAAAAAAAAAAAAAAAHHHHHHHHHHHGGGGGGGGGGGGG!!!!!!!!!
I can imagine this story as a Far Side cartoon.
The link:
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B94EE1219%2D3F7D%2D4930%2D90EE%2D60B6078A06FC%7D&siteid=nwhpf
There prediction that the market was stabilizing was based on mortgage applications. As we all known on this blog, the mortgage applications numbers only appeared to be higher because: 1) a small number of buyers were making multiple applications in light of tightened credit standards, and 2) the survey only covers the larger lenders, and as the little guys imploded the larger lenders left standing gained market share.
This stuff reall isn’t that hard, how come these economists just don’t get it?
The report shows home sales aren’t nearly as strong as the weekly data on mortgage applications implies. “We had originally thought that the pick-up in mortgage purchase applications was a sign that the decline in home re-sales might be tapering off, but this morning’s report indicates that the number of actual transactions in the pipeline is still dwindling,” wrote Lou Crandall, chief economist for Wrightson ICAP
Well, yeh, everyone is still trying to get in on the American dream with a mortgage, before all the subprimes are shut off. I bet 75% of people who apply for a mortgage actually do not qualify.
Yep, those subprimers are about to be “priced out forever” for real.
Don’t worry if they aren’t yet priced out, they will end up foreclosed in a year or two and will wish they indeed got priced out. Let those fools play with suicide loans, itll just drive house prices down faster and make the bottom lower. Those who have patience and wait for the bottom shall be rewarded.
Why don’t they report mortgages actually issued, instead of mortgage applications?
I have a friend who rents a house in Watts (don’t ask). Says there’s 5-7 houses for sale on each block. One seller dropped the price of a duplex from $550K to $350K. Says people can’t make the payments, market’s going down. Why didn’t they all just buy on the Westside where prices are more stable, I wonder?
LOL, that is.
Watts! Are the houses protected by barbed wire! $350,000 in Watt! HA HA
“Hey, Lamont! How much you think we can get for the Sanford Arms?”
Ok, no suprise party for Paulson.
It’s Enron all over again but on a larger scale that will affect everyone. Horizon Strategy hedge fund decides not to allow redemptions. Bears Stearns did the same a few weeks ago. Enron restricted employees from selling shares while the stock was in free fall. Stopping redemptions is a way to provide false support for the hedge funds just like Enron thought.
If the redemptions went forward it would result in the true value of the Collateralised Debt Obligations (CDOs) (overate rated mortgages bundled and sold) on the open market. Right now the value is set by assumptions, by who knows, which are inflated to show better performance of the hedge funds. Once the value (losses) on the CDO’s are established by the market there will be major hit to the markets and the investor that can’t get their money out are going to eat it. You will be hearing more and more hedge funds putting a stop to redemptions. Enron will be nothing compared to the failure of some of there hedge funds involve in CDO’s.
’We are making this transition successfully (from) a growth rate that wasn’t sustainable to one that is sustainable,’ Paulson said.
LOL, so a negative growth rate is sustainable. That’s comforting.