The Market Price Can Be A Joke
CNN Money reports on Florida. “The last time Fortune checked in with Bob Toll, founder and CEO of luxury-home builder Toll Brothers, was in April 2005, when we dubbed him the ‘new king of the real estate boom.’ Needless to say, much has changed since then.”
“Q: Weren’t you worried about speculation in Florida and elsewhere during the boom? A: There wasn’t anything we could do about it. We would make people sign in triplicate swearing up and down that they weren’t speculators, but we couldn’t control whom the builder next door was selling to. And when the market goes south even slightly, the investor-speculator says, ‘It’s time to cash these things in.’”
“Q: Some analysts think new-home prices would have fallen even further if not for all the incentives that builders are offering.”
“A: When you start selling homes for $400,000 that were $500,000, all the homeowners who paid $500,000 are going to be in your sales office complaining, saying, ‘Why are you doing this to me? Why don’t you just put a sign on my lawn saying, ‘I’m a schmuck?’ ‘So you’ve got to give incentives instead of lowering prices because you don’t want to be rude, crude and barbaric to your clients.’”
The Palm Beach Post in Florida. “City officials want to know how much longer the developer building the Eden condo will take to get it done. Work on the four-building, condo-conversion project began four years ago, and construction permits will expire in September.”
“The silence from Eden representatives hasn’t helped. Fifteen months have passed since their last promised completion date of March 2006.”
“‘They basically played with people,’ said a condo-unit owner who asked not to be identified. ‘I just want to know what’s going on.’”
“BauerFinancial Inc.’s latest quarterly survey of financial institutions shows a 50 percent increase in the number of problematic banks nationwide, but the overall U.S. banking industry remains in strong shape, both locally and nationally.”
“Palm Beach-based Lydian Private Bank was downgraded. The bank saw its four-star superior rating from the fourth quarter of 2006 drop to a three-star average, falling off Bauer’s recommended bank list.”
“Robert Reichert, Lydian’s chief financial officer attributed the first-quarter dip to timing. He said Lydian had a large number of real estate loan originations in the first quarter but did not resell the assets until the just-ended second quarter.”
“Harbor Federal Savings Bank and Fidelity Federal Bank & Trust, formerly two of the region’s biggest banking institutions, saw their ratings drop.”
The Sun Sentinel from Florida. “American Equity Mortgage Co. is shutting its West Palm Beach office and six other offices nationwide because of the slowdown in the U.S. housing market. The move should cut about 40 jobs, leaving the company with 24 offices and about 250 employees.”
“Besides West Palm Beach, American Equity also is closing offices this month in Orlando, Cleveland, Detroit, Las Vegas, San Diego and Portland, Ore.”
The South Florida Business Journal. “Miami housing prices would have to drop 41.4 percent to return the city’s income-to-housing cost to its historical ratio, a report by John Burns Real Estate Consulting said.”
“That is further than any other major market surveyed, the report found. The consultant calculated average wages versus average costs of home ownership, including mortgage payments, property taxes and down payments, to tabulate affordability discrepancies.”
From Florida Today. “More than half of Brevard County cities lost population from 2005 to 2006, according to new estimates from the U.S. Census Bureau. The federal numbers put Cocoa’s population at 16,743 people in July 2006. That’s 369 fewer people, about 2.2 percent, than the year before and 1,328 fewer, 7.3 percent, than a decade earlier.”
“Cocoa Community Development Director John Titkanich Jr. said the one-year drop in population is closer to 200 people and is only temporary. The difference between the two years is more of a growing pain as Cocoa tears down dilapidated housing to make room for new units, Titkanich said. The demolition reduced the housing pool, but residents will return when the new structures are finished, he said.”
“‘It’s a function of redevelopment. Units were demolished for the purpose of redevelopment,’ he said.”
The New York Times from Georgia. “Despite a vibrant local economy, Atlanta homeowners are falling behind on mortgage payments and losing their homes at one of the highest rates in the nation, offering a troubling glimpse of what experts fear may be in store for other parts of the country.”
“The real estate slump here and elsewhere is likely to worsen, given that most of the adjustable rate mortgages written in the last three years will be reset with higher interest rates, said Christopher F. Thornberg, an economist in Los Angeles.”
“As a result, borrowers of an estimated $800 billion in loans will be forced in the next 12 months to 18 months to make bigger monthly payments, refinance or sell their homes.”
“A big reason the fallout is occurring faster here is a Georgia law that permits lenders to foreclose on properties more quickly than in other states. The problems include not just people losing their homes, but also sharp declines in property values, particularly in lower-income and working-class neighborhoods.”
“While wages have languished, average Atlanta families are shouldering more debt. The equity that Atlanta residents have in their homes, the value of their house minus what they owe, has dropped 14 percent since peaking in late 2005.”
“At the end of March, 6 percent of all mortgages in Georgia were more than 30 days past due, the fourth-highest rate in the nation, according to the Mortgage Bankers Association. Mississippi, Louisiana and Michigan had more loans past due.”
“Rajeev Dhawan, an economics professor at Georgia State University, has started studying the characteristics of loans on homes that are in foreclosure. His preliminary analysis of data from April shows that nearly half were for adjustable rate mortgages and many were issued in the last two years.”
“‘Everybody thought if the home prices kept going up, the lenders will keep refinancing you,’ he said.”
“(At) an auction for the three-bedroom home near Turner Field…Corey Neureuther was the winning bidder. He said it was his first real estate investment and he was surprised that others did not bid the price up at the auction. Having recently moved to Atlanta from New York, he said he became interested in buying property after learning about foreclosures in the area.”
“‘I thought for sure it would sell for $200,000 plus,’ he said. Mr. Neureuther said he thought that he could make money by renting out the house.”
“Property records show the former owner of the home took out two loans to finance 100 percent of the purchase price. She borrowed the money from Ownit Mortgage Solutions, a California company that sought bankruptcy protection in December after many of its customers defaulted on their loans. Investors who bought bonds backed by Ownit loans will bear the loss on her home.”
“Dean Williams, the president of the firm that conducted the auctions, said results of the sales in Atlanta and elsewhere in the country showed that real estate prices were inflated during the recent boom, especially in less affluent areas.”
“‘When you find out what the market price really is, it can be a joke,’ said Mr. Williams.”
The Montgomery Advertiser from Alabama. “As the water recedes, so have prices for real estate on the shores of Lake Martin, says one longtime Realtor. Agent Betty Litsey said the drought has put the brakes on a two-year surge in real estate values.”
“‘The drought has been a godsend as far as a price adjustment,’ she said.”
“Litsey said prices began skyrocketing in 2005 and continued through 2006. At the time, the price surge was a simple case of economics. ‘There was a scarcity of product in 2005, and an overabundance of buyers,’ she said. ‘It was a seller’s market.’”
“Litsey said the wave continued in 2006, with prices nearly doubling in some areas around the lake.”
“‘People paid more than they should have,’ said the veteran Realtor, who has sold real estate for more than 20 years.”
“Now, the supply of housing has exceeded demand. That market change, coupled with the drought, has stabilized prices, she said. Litsey estimates there is a 24- to 31-month supply of real estate on the market and fewer buyers on the hunt compared to two years ago.”
This is the kinda external stuff which doesn’t get factored into the derivative bets because no mathematical formula can predict the future of international political events.
But with oil @ $75.00 per barrel-hold on to your hats if the carriers let their cargo’s go.
Nobody but nobody is gonna be buyin’ houses with a war expansion going on.
http://www.jpost.com/servlet/Satellite?cid=1183980036210&pagename=JPost%2FJPArticle%2FShowFull
Good thing BB has a giant printing press to fund the war expansion, because yesterday I heard on NPR that the Iraq war tab was already at or past the Vietnam war tally…
Is that in nominal dollars, or adjusted for inflation?
Considering we never fired million dollar anythings in Vietnam I suspect the costs are far higher. Sure the jets were pricey for then, but a far cry from a cruise missile or a “smart” bomb.
I just read today the cost of the war in 30 million a month.
My take is that a lot of private contractors are soaking up most of that. In the old military they had Privates peeling potatoes at a very low cost, now with the shortage of recruits, they pay private contractors exorbinate amounts to provide the food. Also they used to have lower level enlistees drive trucks, now they pay civilian truck drivers over $150,000 to drive those trucks throught the war zone. It is just the “market value”, of doing those jobs, as opposed the ideologically “fighting for your country”. Makes it a lot more expensive war.
I just read today the cost of the war in 30 million a month.
My take is that a lot of private contractors are soaking up most of that. In the old military they had Privates peeling potatoes at a very low cost, now with the shortage of recruits, they pay private contractors exorbinate amounts to provide the food. Also they used to have lower level enlistees drive trucks, now they pay civilian truck drivers over $150,000 to drive those trucks throught the war zone. It is just the “market value”, of doing those jobs, as opposed the ideologically “fighting for your country”. Makes it a lot more expensive war.
“I just read today the cost of the war in 30 million a month.”
Um, it is officially closer to $12 billion per month. 30 million a month would be chicken feed. And the $12 billion is probably bullsh#t underestimate, too.
‘Why are you doing this to me? Why don’t you just put a sign on my lawn saying, ‘I’m a schmuck?’
priceless
Realizing you paid 2X too much for a million dollar home?
Priceless…
Actually, not priceless, it costs 1/2 a million dollars to figure that out.
Priceless, but not costless
“Actually, not priceless, it costs 1/2 a million dollars to figure that out.”
Or as our spindoctors would put it…only a paper loss. Remember Mike, real estate prices only go up and when they go down there’s no loss until you sell. I really did get fed this line of crap by a real estate “professional.”
You feel the loss every time you make a mortgage payment that is higher than it should have been.
Amen.
“You feel the loss every time you make a mortgage payment that is higher than it should have been.”
Or when the balance is higher than what the neighbor sold his house for…
“But-but… everything I’ve read in the newspaper says that real estate investing is the path to riches, and-and that real estate only goes up,…. and….that I better buy now or be priced out forever…..”
Here’s you sign.
I love Bob Toll’s quotes!
I wish the stock market took the same attitude back in 2000/2001 when I bought too many overpriced equities. Couldn’t they have just provided the new investors some incentives to keep buying the overpriced assets?
The guy has a point though. Why don’t they give him a sign saying he’s a Schmuck? It doesn’t seem too much to ask and he certainly deserves one so how about it? Then perhaps it would be OK to just lower prices instead of playing the “lower the price by incentive” game.
‘Schmuck’ sounds kind of harsh. How about ‘Putz’?
I like “sucker”.
actually he’s just a greater fool who got what’s comin to him…and btw, Toll just called these people schmucks and he has their money to prove it
Maybe they can throw the Schmuck sign in as an incentive.
….a sign on my lawn saying, ‘I’m a schmuck?’
I believe a new HBB meme has just been born.
‘So you’ve got to give incentives instead of lowering prices because you don’t want to be rude, crude and barbaric to your clients.’…
…until you run out of new incentives and still can’t sell. Then you be rude, crude and barbaric to your clients by lowering the prices.
I thought they just changed the model mix when that happens. Stop building and selling the 2800 sq ft home for $450k, and start building and selling the 2200 sq ft home for $280k.
Builders made to much money on the larger homes with plenty of fools standing in line to buy. Smaller houses now as reality sets in but to late as smart buyers don’t “buy” in a falling market when prices will be less 6 months/ 24 months from now. Always a few fools who never learned even third grade math will buy but hope lender has higher math levels now.
That’s right - it’s already happening in Centex development here on the Central Coast. Except the houses aren’t that much smaller, just a different model name and a new base price.
http://centralcoasthousingbubble.blogspot.com/2007/04/vanishing-equity-at-sheas-trilogy.html
Sorry Shea Homes, not Centex.
This is the Problem with building smaller units. Square footage is cheap. Largest costs in a Home are, land, Fixtures, etc. For example the cost of a Kitchen or bathroom. This is why builders build Big hoses when they can, the profit per SF is much higher.
People are getting sucked in when Homes are priced by the SF. Much like luxury cars and Boats.
Sorry” Big Hoses “should have been “houses” . Or should it? Lot’s of People took a Big Hosing in this Bubble.
The real reason is not that they don’t want to be rude, crude, etc…, the real reason is in the earlier part of the answer:
When you start selling homes for $400,000 that were $500,000, all the homeowners who paid $500,000 are going to be in your sales office complaining
The earlier buyers would be better off if they just lowered the prices on the new homes; that way they could at least learn a lesson.
exactly — the builders obfuscate price drops because they want to avoid nuisance lawsuits from pissed-off losers who don’t understand the concept of market value.
I think obfuscating price drops is because they want to avoid flying metal from pissed-off losers.
CNBC they’re talking about the “sub prime issue”.
“It isn’t going to just go away. It keeps popping up with bad news.”, like this is some major revelation.
They better get Cramer in there to spew insults at anyone that worries about negative factors. Where is Goldilocks when we need him? Must contain…… the truth.
Maybe Cramer and Gary Watts are off together to a vacation getaway.
Maybe they are buying large parcels of land in South America like the Bush family also? I mean lets bail on the fake ranch in Texas and go to Argentina for a 98840-acre estate. Interesting move for sure…think they know something we don’t…or maybe we do but can’t afford to just get up and bail and live in Argentina?
The ranch Bush bought is in Paraguay, not Argentina. And I do think he’s planning to bail on the US at least for a while. Paraguay has no extradiction treaty with the US. The ranchland he bought has plenty of water and is in a temperate zone–so none of that pesky global warming to worry about.
I wonder where Cheney has overseas RE holdings? Maybe a friend bought it for him and is holding it the friend’s name.
I googled, but I could not find an example where a sitting president made such a major real estate purchase in a foreign country. And in one without an extradiction treaty with the US.
(The ranch is in Paraguay, not Argentina).
No extradition for political or war crimes and The Paraguayan Senate voted last summer to “grant U.S. troops immunity from national and International Criminal Court (ICC) jurisdiction.”
Read “We hate to bring this up but the Nazis fled to Paraguay too”:
http://tinyurl.com/ykj8tj
Imagine if Cramer and Gary Watts spawned a love child together.
What would that look like?
David Lereah?
An attorney.
I’m sure cocaine kudlow will be out propping up goldilocks later today.There’s a bull market somewhere.
When all else fails in getting the sheeple to drink the trickledown koolade, wheel out Cocaine Larry.
“Weekend at Goldilock’s” starring Kudlow, “The Repo Man”, and Goldilocks (as herself). Brought to you by Vivid Entertainment.
Me, I like the pre-’92ish stuff.
Wait till they find out a high credit score does not automatically enable a buyer to make $6,000 / MO payments either when the ALT-A’s start adjusting
“‘People paid more than they should have,”
LOOP THAT!
And add a very small, sullen violin playing one sad, lonely note.
‘So you’ve got to give incentives instead of lowering prices because you don’t want to be rude, crude and barbaric to your clients.’
Are markets so dumb that they don’t see the incentives for what they are: A bit of smoke and mirrors to hide falling market prices and help the builders keep that inventory figure on the balance sheet at highly inflated levels?
markets may not be that dumb, you may may not be that dumb, but ‘people’? ‘People’ ARE that dumb.
Di-Tech told me “People are smart” this morning on CNBC. Must be true. I fell out of bed laughing when I heard someone is walking around with $200K for $999 per mo. in house equity cash “if that is what your in to”. Quick, promote that marketing genius!
Very ironic, considering Ditech’s whole business model is dependent on taking advantage of the financially illiterate.
The previous buyers are going to be mad because they didn’t get all the extras when they paid the same price.
Actually previous buyers will be mentally going “at least prices are not dropping - it’s just that in the slower market they have more leverage” because that’s what they want to hear.
Noone wants to think - “I bought at peak and lost money”.
We can rationalize just about anything if we try hard enough.
“Miami housing prices would have to drop 41.4 percent to return the city’s income-to-housing cost to its historical ratio”
“That is further than any other major market surveyed, the report found. The consultant calculated average wages versus average costs of home ownership, including mortgage payments, property taxes and down payments, to tabulate affordability discrepancies.”
Better rethink that downward move. When tabulating affordability you glaringly forgot to include insurance costs and with the changing mortgage market PMI may come back into vogue.
I agree. The quote above is a “real money” statement. And they wonder why so many people are exiting the state. Anyone who thinks the average Florida resident can afford these prices is a complete whacko.
BTW, we are well into what is usually the “rainy season” here in FLA and although there have been localized thunderstorms here and there, it is for the most part hot and rather dry for this time of year. I read an interesting article over the weekend about the history of Florida. The various sheets of water in the Everglades and other wetlands encourage cloud formation and subsequently, rain. Since so much of the state has been paved over recently, I’m not surprised at the lack of rain at this time of year.
The bubble really sucked, IMHO. I don’t know how the state is ever going to recover from this. It will become “desertified”.
Better rethink that downward move. When tabulating affordability you glaringly forgot to include insurance costs and with the changing mortgage market PMI may come back into vogue.
Your analysis pretty much plugs into the estimated 50% drop a few here on on BB have predicting for quite some time now.
Its worse in south florida because so many areas have been considered not worth living.
foreclosures have taken a hit in poor and working class neighborhoods. the bad thing is that no one is out there truly willing to move into these neighborhoods now.
that may completely bottom out selective neighborhoods. think of carol city or sistrunk or riveria beach. no one is going to move their and people where paying in the 200,000’s in 2005 for houses. now some of these areas have highest foreclosure rates in south florida. can you say under 100,000 by the end of 08?
“can you say under 100,000 by the end of 08?”
Well under, if you’re talking Sistrunk, Riviera Beach or even Carol City (Carol City used to be a halfway decent middle class area, I had a buddy who grew up there and remembers when the houses didn’t have air conditioning)
Actually, Carol City started as a very nice area. It was the early 60’s and the homes came with all built in appliances including dishwasher, sprinkler systems, excellent schools, new shopping centers. Unfortunately that only lasted until the later 60’s when it started downhill because of FHA taking over many homes and selling them off for $100 down (3 bedroom, 2 bath, carport for $15,000). That brought in the lowlifes and it went downhill from there. But initially it started off as very nice - aimed at airline employees when the carriers were based in Miami. (Pan Am, National, Eastern, etc). I know because I grew up near there.
Miami is the top of unaffordability? This person is huffing glue. There are worse markets then Miami.
“Litsey said prices began skyrocketing in 2005 and continued through 2006. At the time, the price surge was a simple case of economics. ‘There was a scarcity of product in 2005, and an overabundance of buyers,’ she said. ‘It was a seller’s market.’”
OK, that makes sense there was an overabundance of buyers and a lot of competition for few properties, and prices went up. In 2007 there is an overabundance of product and scarcity of buyers and prices are going back down, so there is no longer justification for prices to be high anymore. A property is worth what a buyer can or will pay - thats all.
“The most prized property on offer that day was a stately four-bedroom brick home in Marietta that sits on a tree-covered lot measuring three-quarters of an acre. It fetched a high bid of $646,000, about $60,000 more than the last mortgage on the property. More than 200 people turned up at the auction, and the winning bidders were a young couple, Cameron and Jamie Clayton, who are expecting a second child this year.”
And the game goes on. Marietta must be one of ‘but it’s different here’ places to live.
Sounds like the Claytons are soon-to-be foreclosed on knife catchers. Of course, they will sue saying that they were misled.
Someone should get Bob Toll to lend Tomnitz his crying towel. D.R. Horton just posted its first loss-quarter since 1995 and it looks like they’ll re-state the most recent 3 quarters? Waaaaaaaa! I’m sure as hell glad that this whole housing ‘correction’ is of limited duration and completely contained…
Yeah, I buggered-up that article when I was reading it. They aren’t re-stating anything. It appears that the magnitude of loss for this last quarter is so significant that it will erase any gains from the previous 2 quarters as well.
Repeat after Paulson, Bernanke, Bear-Stearns …:
-Housing is contained
-Subprime is contained
-Inflation is contained
Hey folks they aren’t just drinking the KoolAid, they are in a pickle now!
“Mississippians have a strange relationship with pickles. Or perhaps, Mississippians have a relationship with strange pickles.
It’s not just that they love their pickles, though they do eat an awful lot of them. Rather, it’s what they do to the pickles they eat. As in, marinating them in Kool-Aid.”
I don’t understand it. Atlanta is different!! Everyone wants to move there: rich retirees, baby boomers, rich foreigners, etc. At least, this is just a local problem since real estate is local.
Yeah, what is up with GA? I just moved here from FL and the market here seems just about as crazy as the Orlando area. We’re in Putnam County near Lake Oconee–’Georgia’s Lake Country’ which we were told MAKES THE RE MARKET DIFFERENT HERE! I point out that it’s also Georgia’s Dairy capitol and there’s a big difference between a vacation home on the water and a 3/2 in the middle of nowhere. I, personally, enjoy driving by the new subdivision being built (no houses, just an entrance and lots) next to a donkey farm. I need to take a picture and post it here.
I can’t seem to find anything about GA’s real estate market–homes sold, median price, etc. I could easlily find it in FL but not here. GAR has no info on their website. Any advice? Any thoughts on this area? If you tell me ‘it’s different there’ I may barf on my computer!
That is how GAR keeps Georgians in the dark about the real estate market so that people believe their spin campaigns. People don’t generally have access to all of the data they need to make effective home buying decisions. You have to rely on an honest Realtor(R) to give you that information.
GAR: “It’s different here” because that’s what we want you to think.
Alison, if you haven’t realized it yet, the state of Georgia is run by developers and rich people tied to development and real estate industries. The system is intentionally skewed against regular people.
MORE high priced conoz…. NOTICE NO PARKING SPACES..HUH?
David Von Spreckelsen vice president with Toll Brothers, spoke of the recently added City Living division. OneTenThird, a 100,000 s/f condominium complex between the East Village and Union Square, is a 21-story tower with 77 residential units featuring floor-to-ceiling windows and ground floor retail. To maximize the use of traditionally underutilized spaces, the cellar level is being used to add storage and recreation space and the rooftop is clear of mechanical equipment and is being subdivided and sold as cabanas. In Brooklyn’s revitalized Williamsburg area, Northside Piers has a rooftop terrace and three towers and North8 features one to three bedroom units, rooftop terraces and duplexes.
David Von Spreckelson, a vice president for Toll Brothers, the upscale home builder, who works out of New York, said his company is firmly committed to new development in the city as its business in many other housing markets has flattened.
Sales of its latest project, a 76-unit condo building near Union Square with one-to-three bedrooms ranging from $850,000 to $2.4 million, “exceeded our expectations.”
“..firmly committed to new development in the city as its business in many other housing markets has flattened.”
reminds me of a dog i had. Even as a tiny puppy he dug.. despite all manner of aversion training methods, he continued to dig.. anywhere and everywhere. Put him indoors and he’d try to dig through the carpet or linoleum.
Dogs dig to cool off. Maybe he just needed a haircut.
Whats great is this is only the begining crest of the first wave of the resets and its looking like chaos.
Wonder who will be around for the second wave?
Then it will be absolute carnage.
And it will take several years to sort out the mess
“Whats great is this is only the begining crest of the first wave of the resets and its looking like chaos.”
No the first wave already hit the shore and went largely unnoticed by the MSM, we are now in the undertow phase rapidly receding before the second wave hits.
“Now, the supply of housing has exceeded demand. That market change, coupled with the drought, has stabilized prices, she said. Litsey estimates there is a 24- to 31-month supply of real estate on the market and fewer buyers on the hunt compared to two years ago.”
Stabilized prices with 24 to 31 months of supply? I don’t think so.
Get back to me in a year on those “stable prices,” will ya?
Look at the ABX index… the bond market is falling apart. (Ok, sputtering down.) Expect in 12 months to see double the monthly inventory.
Got popcorn?
Neil
Um, we where being told about supply measured in months. Now they will start talking about supply measured in years. Look for ten years supply (or more) in certain areas in FL in another year.
Got 10% down?
Stabilized prices with 24 to 31 months of supply? I don’t think so.
Neil - I think they meant stabilized prices in perhaps 24 months of falling prices and an inventory of 48-62 months of supply!
Can you say, Wealth Destruction?
But but but..”It’s a great time to buy”
Homedebtors and the REIC will confirm this.
Baaaawahahaha
on Yahoo marque’
CDOs could be Wall Street’s next bogeyman
http://www.marketwatch.com/news/story/story.aspx?guid=%7BDFBA4993%2D031E%2D4E88%2D8F56%2D5B08FD9AA07D%7D&siteid=rss
S&P finally says subprime is mostly junk
Commentary: New methodology is death knell for the troubled industry
By MarketWatch
Last Update: 12:36 PM ET Jul 10, 2007
WASHINGTON (MarketWatch) - Standard & Poor’s just drove a huge harpoon into the heart of the mortgage credit bubble and it’s going to take a long time to clean up the mess once the beast finally dies.
S&P, one of the three main credit-rating agencies that served as enablers of the subprime mortgage boom, announced Tuesday that it would lower its ratings on 612 bonds, a small portion of the mortgage-backed securities it had given its seal of approval to.
But the bigger news is that S&P isn’t going along with the charade any more. S&P said it would change its methodology for ratings on not only hundreds of billions of dollars in residential mortgage-backed securities, but also on hundreds of billions of dollars in the more complex collateralized debt obligations based on those subprime loans.
A lot of debt will be downgraded to junk status. A lot of that debt will have to be sold at fire-sale prices. A lot of pension funds and hedge funds that once thrived on the high returns they could get from investing in subprime junk will now lose a lot of money.
S&P’s announcement is a death warrant for the subprime industry. No longer will mortgage brokers be able to help buyers lie their way into a home. Fewer stressed homeowners will be able to refinance their mortgage, thus extending and exacerbating the housing bust.
“We do not foresee the poor performance abating,” S&P said. Prices will fall, and foreclosures will rise. More mortgage fraud will be uncovered as the tide goes out.
And hedge funds will have to find another way to beat the market, if they survive this blow, that is.
Rex Nutting, Washington Bureau chief
Wow! This is HUGE news. If all of the agencies adjust ratings on these products to accurately reflect risk, what remains of alternative mortgages is OVER.
He he, change your word “risk” with “fraud” in your sentence and you are spot on.
Got 10% down?
I don’t think lenders can determine a solid market price anymore based on buyer demand . Apparently buyer demand during the run-up of prices was based on speculation , bogus marketing ,and easy money no down loans .
If a certain area goes up over 10% in one year, than the buyer should be required to put the additional over inflated amount in a higher down payment requirement by the lender . What else can lenders do when you have buyers being this stupid ,or when you do not have enough supply to meet the demand in a mania ? Lenders should of know that the demand for housing was not based on solid ,qualified end-users .
In 2005 I saw a house go up 20% in 2 months from the last sale . Fine ,let the stupid buyer put the extra money down if they think the value is that solid ,but the lenders should never of gambled like that ,(or have the seller take back a purchase money second for such quick increases in price ).
How dare the industry put people into houses they knew they couldn’t afford .
Hello…. profitability was not based on making smart and safe loans for reasonable amount of money. How can you generate 20% RoI by borrowing at 6% and lending at 6.25%??????
Money was made by lending as much as possible, to the least credit worthy people possible, with $0 down.
I borrow at 6%, lend 80/20 at 8%/12% to a person that can never pay it back, and leverge the deal 10-to-1. My hedge fund shows book profts to my clients of 20%, and since I make 20% of their profits plus 2% management fee, I’m making… 2% of $1 billion and 20% of 20% of $1 billion = $60 million a year.
What do I care if the whole thing will blow up and my clients will lose the full $1 billion? I’m slicing my $60 million off the top and get that money at a lower tax rate than my house keeper pays.
Dude, you’re thinking pennies, so you’ll always be poor. You need to be thinking in millions… as in, how can I fleece the sheeple for millions!!!
Some builders are still drinking the Koolaid. The builder I’m with still doesn’t understand that people can’t afford the homes they’re building. Their solution to the downturn is to build bigger, more expensive homes because “our customers are move-up buyers”. They don’t seem to understand when I point out that this means they are counting on multiple sales in a declining market in order to get their sale.
The fundamental problem is the majority of the inventory is affordable by the minority. Did you ever point out that every other builder is overbuilding on the high end as well? Where in the hell do they think the customers are going to come from? Did they do any market analysis?
“Build bigger, more expensive homes…” Eight years ago that would have been “It’s all about market share. Profitability comes down the road…”
“A: When you start selling homes for $400,000 that were $500,000, all the homeowners who paid $500,000 are going to be in your sales office complaining, saying, ‘Why are you doing this to me? Why don’t you just put a sign on my lawn saying, ‘I’m a schmuck?’ ‘So you’ve got to give incentives instead of lowering prices because you don’t want to be rude, crude and barbaric to your clients.’”
Much better to insult their intelligence instead.
To me, this speaks volumes about the people who would buy the $500,000 house - that they would be placated by hiding the true value of the neighbors’ houses by incentives.
A LOT of people what to deceive themselves. So I’ve noticed that when someone sells a home, for example, at $400k with $50k in cash back to the buyer… they claim to have sold their house for $400k. From what I’ve seen, they aren’t just lying… they truly come to believe the lie and it becomes their reality. People will believe what they need to believe to sleep at night. If Toll Brothers didn’t make up the lie, people would do it for themselves.
There wasn’t anything we could do about it. We would make people sign in triplicate swearing up and down that they weren’t speculators, but we couldn’t control whom the builder next door was selling to…
‘So you’ve got to give incentives instead of lowering prices because you don’t want to be rude, crude and barbaric to your clients.’
Well it is always good to know that TOLL BROS did the right thing and never sold anything to speculators, because if they did that would be rude, crude, and barbaric to their clients, and we all know TOLL BROS operates with impeccable business scruples.
Don’t yah think?
Got 10% down?
“Cocoa Community Development Director John Titkanich Jr. said the one-year drop in population is closer to 200 people and is only temporary. The difference between the two years is more of a growing pain as Cocoa tears down dilapidated housing to make room for new units, Titkanich said. The demolition reduced the housing pool, but residents will return when the new structures are finished, he said.”
“‘It’s a function of redevelopment. Units were demolished for the purpose of redevelopment,’ he said.”
Ah, the old “if we build it, they will come” scenario…
“‘Everybody thought if the home prices kept going up, the lenders will keep refinancing you,’ he said.”
This is what the Cheerleaders at the NAR kept telling the public! Unfortunately, thousands who listened to this advice are now finding out the hard way.