It Was Time For A Correction
It’s desk clearing time for this blogger. “Real-estate developer Tony Porter and others at his company described his vision for a 2,000-lot residential and retail development called the Village of Penland. But the developer said he needed investors to launch the project in time to catch the real-estate wave. The suits allege they used inflated appraisals and phony down payments and performed other misdeeds to cheat investors and mislead the banks.”
“No houses have been built. Weeds are invading the lawn at the empty sales office. Payments stopped on many loans in April or May, according to borrowers and court records. ‘I feel like an idiot now,’ says Henry Gerrits, an engineer in Cary, N.C., who worked with Mr. Porter to borrow $375,000 and then invested it in Penland, purchasing four vacant lots.”
“It was an opportunity that comes along just once in while, a chance to get in on the Las Vegas-area real estate boom, a major development on valuable land in the Nevada desert. Investor Dr. Jonathan Horne says, ‘He promised truck stops, roads, electricity, water.’”
“Investors say they weren’t getting their promised returns and that deal with the Vegas mayor and others? Vescor defaulted on the loan. The land’s in foreclosure. Dr. Horne paid a visit to Vescor President Val Southwick. ‘We asked where the money went. He said it was gone,’ Horne says.”
“Poznan easily led the way in terms of price growth for flats in June with property values rising on average by 9%. The city broke another price threshold last month, according to data from redNet Property Group.”
“In contrast to the last few months, prices actually dropped in a few cities, although only in the case of Wroclaw was there any significant devaluation. Prices in Poland’s two cheapest large cities – Lodz and Katowice – rose by less than 2%.”
“The only major urban centre in June where flats could still be bought for less than PLN 5,000 (€1,333) per m² was Katowice, although this situation is not likely to last for long as it is precisely here that the highest price growth is expected in the near future. So far this year approx. 16,000 new flats have been built for sale in Poland’s main cities.”
“Up to 10,000 first-time buyers who bought homes over the past year are experiencing negative equity - meaning they now owe more than their home is worth. This means that up to 10,000 borrowers have taken out 100 per cent mortgages since the property market began to peak last summer, based on data provided by the Irish Banking Federation.”
“Rutherford County had 1,168 foreclosures in 2006 compared to 957 the previous year, a 22 percent increase. Tennessee had 36,796 foreclosures, (up) 33 percent from 2005. Real estate agent Betsey Taylor noted the rise of 100 percent loans. ‘They are getting the loans with no money down, and that sometimes creates a problem later,’ she said.”
“‘Low interest rates and sub-prime lending allowed them (individuals with a low credit rating and low incomes) to get into a home, but they didn’t think about the future,’ said Wendell Mandrell, CEO of Guaranty Trust Mortgage. ‘Now they are going to have to pay the piper.’”
“There’s no slowdown in the foreclosure wave hitting the Dallas-Fort Worth area. The number of homes facing foreclosure in North Texas was up 31 percent in the latest report. Some areas saw an even bigger spike. In Tarrant County, foreclosures were up 50 percent.”
“Just under half of the homes posted for foreclosure each month are actually sold at auction. ‘Some loans that were taken out a bit ago have yet to reset’ with higher payments, said Gail Cunningham of Consumer Credit Counseling Service of Greater Dallas. ‘We could just be seeing the tip of the iceberg.’”
“The number of defaulted properties in Nevada County has doubled in the past year, according to figures from the county recorder’s office. Since January lenders have issued 253 notices of default in the county. That’s up from last year, when lenders issued 124 notices during the same time period, according to recorded documents.”
“According to the Intermountain MLS, 1,047 homes were sold in the Valley last month, compared with 1,402 in 2004, a year that industry members say typifies a normal market.”
“‘What we saw in 2005 and 2006 was an aberration,’ said associate broker Shaun Tracy. ‘We’ve gone back in time (to 2004). That was calmer time — a time when people could say ‘I don’t have to make a decision today.’ That’s the way it was in 2004, ‘03, ‘02, ‘01 and for many years before that.’”
“Nampa Building Safety Director Dennis Davis blamed Canyon County’s falling median home prices on a ‘perfect storm’ consisting of a glut of homes on the market and the loss of outside investment capital.”
“‘It was time for a correction,’ Davis said. ‘And probably healthier, too.’”
“Aside from being Oregon’s capital city, Salem doesn’t have much to boast about. But, like Longview, the real estate market there is buzzing. For-sale signs litter front yards and the local paper is fat with ads for homes.”
“‘The Pacific Northwest was a little bit late coming to the party,’ said Andrew Leventis, an economist with a federal housing agency. ‘The extreme appreciation over the past five or six years in the country only just began in the Northwest a few years ago.’”
“Still, some observers caution smaller Western markets are far from immune from the same forces that have tanked housing markets across the country.”
“‘It’s pretty plain to me that the same patterns that have played out in all these other inflated markets are playing out in the Northwest,’ said Ben Jones, a consultant who runs www.thehousingbubbleblog.com. ‘It’s almost unavoidable. They (builders) are going to continue to build until there is no longer any profit in it.’”
“I write in response to letter from Gord Archibald, executive director of the Association of Regina Realtors, regarding ‘markets at work.’ I have been watching the letters about real estate over the past few months and agree with earlier writers that such drastic housing increases are not a good thing.”
“Archibald asks, ‘Can we just not accept that the real estate market reflects the confidence that newcomers are exhibiting in our community in the most tangible way by choosing to make Regina their home?’”
“I find it deeply disturbing that someone would say we should accept what someone says without question.”
“One needs look no further than our giant neighbour to the south to see what booming house prices can mean. It seems that the U.S. housing market was fueled by investors. House prices started to surge and people started to get the ‘wealth effect. Even builders jumped in to keep up with the demand.”
“But as usual, people get greedy and homes started becoming unaffordable. Values start to plateau and, in some cases, even drop. People are no longer feeling the ‘wealth effect’ and cool their spending habits.”
“So is this really ‘markets at work’? Or are we headed down the same path as the U.S.? I guess only time will tell, but to ‘just accept’ that does not seem like a wise option.”
My thanks to those who support this blog. Please check back this weekend for news, your market observations and topics.
Ben Jones quoting a story with a quote from Ben Jones — congratulations Ben!!
Yes Ben, you are reaching new heights with that one. Tell it like it is. Congrats.
from the article:
“On a recent sunny afternoon a real estate agent showed the couple a three-bedroom, two-bathroom, pale-blue home in a subdivision in south Salem, with a list price of $184,500. A small but trim backyard, large living room and kitchen tiles caught the couple’s eye.”\
a sunny day and a hungry first time buyer with 20% down can still finance 190k in the GREAT STATE OF OREGON!!
on 2 25k incomes.
I give it 6 months until the out of state flippers make the Pacific Northwest bubble up just like every other formerly affordable area. They’ll absolutely be part of the bubble bursting, but it will just start later (and end later).
Most ruthless foreclosure states
Laws vary widely from state to state. Do you know what kind of mortgage you have?
By Les Christie, CNNMoney.com staff writer
July 20 2007: 12:11 PM EDT
NEW YORK (CNNMoney.com) — In Alabama, late-paying homeowners can lose their properties to foreclosure at breathtaking speed - as little as 30 days after a delinquency notice is published.
In New York State, the process can drag on for well more than a year.
With foreclosures spiking around the nation, homeowners should learn the foreclosure laws in their states - what you don’t know can hurt you.
“The foreclosure laws tend to be very parochial,” said Lawrence Jacobson, a real estate attorney in Los Angeles.
http://money.cnn.com/2007/07/19/real_estate/foreclosure_by_the_state/index.htm?cnn=yes
This seems like it would make state to state comparisons very difficult. Alabama would have more REO and New York more “subject to sale”. Here in Michigan (another slow to process state) we have a multitude in all categories.
Link to top 500 zip code leads to pattern top 10 states
http://money.cnn.com/2007/06/18/real_estate/foreclosures_hardest_hit_zips/index.htm?postversion=2007061915
4 rust belt: OH, IN, IL, MI
2 Boom States in bible belt: GA, TN
2 Boom sunbelt second home states: FL and AZ
1 has gone bust before: CO
1 In its own category: CA
“‘It’s pretty plain to me that the same patterns that have played out in all these other inflated markets are playing out in the Northwest,’ said Ben Jones…..‘It’s almost unavoidable. They (builders) are going to continue to build until there is no longer any profit in it.’”
Finally. A voice of reason. This guy should start a blog or something.
Im not so sure,
bubble markets in Oregon will play out:
Ashland, Bend, Portland, Grants Pass, even Eugene…..wil see lower prices as the funny money dries up…
Im predicting 70k rentals in 18 months in those same small towns that now are priced at 150-190k……the court house steps are just getting fired up.
oops,
I agree with Ben.
I really, REALLY hope you’re right.
We still have tiny 1/1, depression era homes listed at $150k here in Pullman, WA. They would rent for $500/mo, $600/mo if completely remodeled… so price is 250 times rent. When these little buggers get down to $75k then we have a normal market.
I wouldnt pay more than $35k for those. Can get a 3-4 bedroom house in NW Pennsylvania for $50k or less.
http://biz.yahoo.com/bizj/070720/1494963.html?.v=1
Countrywide CEO doesn’t see mortgage rebound until 2009
Friday July 20, 5:18 pm ET
Countrywide Financial Corp. CEO Angelo Mozilo told those attending the California Mortgage Bankers Association conference in San Francisco this week that he expects more trouble for the mortgage industry this year and next.
He sees a rebound in 2009, marking a retreat from his comments earlier this year that the industry would start turning around in 2008.
“We’re going through an enormous correction period, and we have a long way to go,” Mozilo said. “This is just the beginning of the process.”
But leave it one of the nation’s largest mortgage lenders to see a silver lining to the subprime mortgage mess. Mozilo told his audience, “If this thing is really bad, it could bring down interest rates.”
Countrywide (NYSE: CFC - News) and Washington Mutual (NYSE: WM - News) have reportedly dropped hybrid mortgages in which rates are fixed for two or three years and then adjust for the remainder of the loan. Investors on Wall Street have little interest in buying such loans from lenders given the turmoil sweeping through the subprime market.
Mozilo also took a jab at Standard & Poor’s and Moody’s at the conference, where the two ratings agencies canceled a panel discussion, according to a report in Friday’s American Banker. The ratings agencies are suffering from their decision to assign securities backed by subprime mortgages AA and, in some cases, their highest rating of AAA, which is typically reserved for the strongest of companies such as Wells Fargo and General Electric.
“The reason I suspect they canceled the panel is because they got it wrong,” Mozilo said.
“marking a retreat from his comments earlier this year that the industry would start turning around in 2008.”
“RUN AWAY!!!”
“Perhaps if we run away more?”
Feeling better about my small short psn with CFC. Glad I missed the cover price today. Earnings out on Tuesday…
And when they bring down interest rates, Bronzillo, gold goes through the roof. Perhaps the gold market is sensing something already.
Got gold?
SHHH!, you’ll harsh Brad’s high with that kind of talk!
Wow, things are certainly starting to look gloomy. Luckily, I just got this e-mail from a high-ranking Nigerian offical who needs help getting bales and bales of cash out of the country, so it appears I’ll be OK.
And Ed McMahon says that I already might be a winner, so it’s all good.
Looking like a beautiful weekend in SF. Looking forward to counting For Sale signs on my bike ride…
Uh-oh, looks like MrBubble is another member of the “Count the For Sale Signs” Bicycle Club. Here’s a shout out from the Tucson chapter.
I got that same letter, so please don’t interfere with my deal. I’d hate to split the windfall, as I already picked out my stainless, granite and travertine.
I got one from Iraq.
I’m Viox AND I think I was molested by a priest. I’ll be doing tumbled travertine and SubZero in my new house….
Hey, I got an email telling me that I won the British lottery - all I have to do is send them a little info and I can collect my millions. So, I guess I’ll be OK, too.
I won fifty pounds on the British Premium bonds last fall
All those letters you guys got are scams! *rolleyes*
It is a variant on the Nigerian scam. Apparently some guy reversed the trick and stole their money. Of course, they are looking for him, and know where he lives …
Difference between an Angelo and Sylvia prediction is zero. Both are full of it.
http://www.sylvia.org/home/index.cfm
I’m sticking with Mistress Cleo!
‘I feel like an idiot now,’ says Henry Gerrits, an engineer in Cary, N.C.,
How many times do people have to touch the hot stove, before they stop sticking our their hand?
It’s one thing to get burnt on a house you are planning to live, as you can’t always perfectly time the personal residence decision, but why do folks always let greed get the better of them? Do they ever just stop and look around and ask whether or not things make sense? I really don’t think it is that hard to spot BIG bubbles. No, you can’t always spot the top nor the bottom, but c’mon…four lots with mortgages.
The temptation to get something (actually a lot of something) for nothing is too great for some people to resist. Why work and save when all that is needed are connections with the right people who know where the secret money tree is growing?
Its like I tell people who subscribe to investment newsletters: “If those guys really had valuable insider knowledge, why in the world would they share it with you for a few measly bucks?”
investment newsletters = Charmin
But Charmin is actually soft and pliable.
Rabbit cage liner is more like it.
investment newsletters, who needs these, when you have WIZETRADE or TrendTrading
Or the HBB!
“a chance to get in on the Las Vegas-area real estate boom, a major development on valuable land in the Nevada desert. ”
Is that last part an oxymoron?
“valuable land in the Nevada desert”
go easy on the guy, all the swamp land in Florida was taken
It glows in the dark!
I’m also reminded of driving north out of Vegas on I15 and passing the “Valley of Fire” exit. Of course its valuable, you can cook an egg without the need for gas or electricty!
I’ve done the drive from Vegas to Reno (along 95). When we (my mother and I) asked the locals where they went to the grocery store, the response involved “fillin’ up the ice chest”. Valuable land?!
And, since it glows in the dark, think of how much electricity you’ll save in lighting costs!
LOL!!!!!!!!!!!!!
Interest rate risk spreads blew out again today. While treasuries rallied, dropping the yield on the 10-year bond to 4.95% junk bonds continued to crater. The federal government can borrow 7 basis points more cheaply than yesterday. Junk issuers cost to borrow rose 13 bp today as measured by the Bloomberg High Yield Index.
That is a huge increase in the spread. It’s pretty clear that bond investors are shunning risk and a full-fledged flight to quality is underway. Risky borrowers are being forced to pay higher and higher rates, even as treasury rates fall.
This is going to add to the devastation in subprime and alt-A. It should kick off the first leg of real destruction in other high-risk credit markets.
And we’d be lucky if a half a percentage of the American population understood what you just said. The financial illiteracy in this country is mind boggling — yet we will elect a President in 2008 and “economics” will be a primary topic of the debates.
Even if only half a percent get it, keep the stats coming. I like to think that a higher percentage of Ben’s readers follow these things than the average random selection of zero-net-worth mall shoppers.
Suzanne
I’m sorry about the jargon. Been working in the financial industry too long apparently. If you have any suggestions on how the information could be made more comprehensible, please fire away. I’m never deliberately confusing except when doing consulting.
I don’t think there’s any reason to explain things here. We all get it. But I think basis points will never make it to Joe. You see Joe has trouble with plain old percentages. Well, and risks taking is not something he likes either. He claims he doesn’t take risks. He’s an “all in” kind of guy, and he doesn’t question 15% returns for “sure things” — and when things fall apart its always someone else’s fault. He barely understands the stock market, because of his 401K he’s trained to think the only financial market is the stock markets of the world. He knows it too crazy to understand because stocks go up on bad news he expected and they go down on the good news he expected. He doesn’t understand corporate finance through bond, convertibles, swaps, warrants or even options (unless he happens to get them). He doesn’t care if company issue tons of debt and dilute his shares because he’s oblivious to anything but the stock price. He believes ditech when they tell him “people are smart” and “equity” is wasted just sitting in your home. And there is unlimited resources when it comes to health care, it is only greedy corporations, insurance and drug companies that artificially control access to health care for profit. In fact, health care should be free like water and air.
Just point out that a basis point is a hundredth of one percent, or .0001. Everything else you said is pretty basic.
I have a major in physics and a minor in math, plus I took some econ. I can handle the math; I’m just unfamiliar with the jargon. Took me a couple of goes to remember what a basis point was, and a few visits to Google.
basis point 0.001
Sure about that math
0.001 is one tenth of one percent.
a basis point is one-one hundredth of one percent.
1/100th of 1% .. 1/100 of 1/100 .. four decimal places.
So, if one percent is 0.01, a basis point is 0.0001
and if i’m wrong even after proofreading this, i deserve to be punished severely..
Another 300 days like that and I’ll consider buying some junk bonds again
Question for the board, how does the increase in Corp borrowing impact 2006 pension regulations? I believe pensions are to move away from tie to 10 yr and move to corp bonds. Was this a plan by Gov to reduce liability of SS?
I’m pretty glad I bought a position in SRS (an ETF that’s double-short on the Dow Jones US Real Estate Index) a week ago. It’s up almost 4% since I bought it a week ago. I plan on keeping it 6 months to 1 year - hopefully it continues to perform, but you never know.
But I guess that makes me an official housing bear.
Slippage will get you long term, but as long as the gains are good, you shouldn’t have to worry.
What is slippage, why will it get them and why is it bad (if it is)?
I think it’s like ’shrinkage’ only worse.
Seriously, it’s probably referring to fees causing ETFs to underperform their benchmark over the long-term.
Being short on a sector in the short term is bad enough, being short long term is a sure way to get killed. Also, there is a cost ratio associated with the ETF’s management. But I’m OK with it for the time being.
Had I bought SRS 6 months ago when it came out of course I’d be doing better. But for the time being, I’ll just have to wait and see. I like my odds. Especially since I have balanced long positions.
FWIW this is the first time I’ve officially had a “short” position.
first time short, something Ive never been, sounds like a trend..who is this guy Ben?
Given the direction housing’s taking, IMO there’s no downside to SRS for the next few years. As I just stated over on CR earlier, a majority of the HBs will be bankrupt before this is all over.
“‘What we saw in 2005 and 2006 was an aberration,’ said associate broker Shaun Tracy. ‘We’ve gone back in time (to 2004). That was calmer time — a time when people could say ‘I don’t have to make a decision today.’ That’s the way it was in 2004, ‘03, ‘02, ‘01 and for many years before that.’”
THis must be a NAR talking point, we keep hearing about how things are returning to 2004 “normality”. As someone who was looking at homes in 2004, I can state emphatically that RE was nuts in 2004 and the “way back machine” is just starting to accelerate… WHen the dial stops spinning we’ll be partying like it’s 1999.
absolutely, here in MASS, I think the latter half of 04, all of 05, 06, 07 have been slow.
I think 01, 02 and 03 were the really crazy years..
We’re going back to 1995. Non-normal year (in LA, prices dropped hard after the Northridge quake).
But I agree, 03 and 04 were crazy… 01? Depends on the region.
We’ll demand from years in the future was consumed in 2003/2004/2005/2006 and 2007. Not exactly time to buy…
I think because of the lack of savings (and lack of disgrace of a foreclosure) we won’t have a slow Japanese downturn. But it will still take time to get through the system. I think there will be a buying window earlier than other bloggers… but lets see. My window doesn’t “open” for two years.
Got popcorn?
Neil
My window is open now, but the checkbook ain’t. I watch the listings everyday, because one just never knows.
I think if I saw a 1999 or earlier price or something really nice, I’d consider it.
While it’s not different here, every area is different in some sort of way. I’m not optimistic enough to be thinking of a 50% cut. I’ll take 25% - 35% off of the peak pricing. For example, I don’t think we’ll be seeing well built, nicely located single family homes (2600 sq ft, 4 bed, 2.5 bath, 2 car garage, 1/2 - 1 acre lots) within 25 miles of Boston, getting down to $300k - $350k. It’d be awesome for me, but I just don’t see it.
300 to 350
thats a 6 figure couple.
I’m not optimistic enough to be thinking of a 50% cut.
Why not — seriously? What has changed in Boston during the boom besides housing prices?
- Did the median income double? No.
- Did the population skyrocket? No.
- Did everyone inherit a million dollars? No.
If anything, prices should go down below prior prices, simply due to the fallout of the coming bust. The resulting fundamentals will be far worse, not better.
So again, why?
Massachusetts prices will not really crater until defense spending gets hammered. Mass is suffering already because of the Greenspan boom, but, again, it won’t go down all the way until defense in the region is cut.
Don’t forget that Mass has a lot of double income couples, hitting the six figure mark. It’s the single income people (who bought with suicide loans ‘04-’06) who are going down in flames in Massachusetts. Back to renting like you should have been all along.
With the uptick in crime, there should be some deals in Dorchester soon. (With new commuter rail stations opening, I wouldn’t necessarily consider this a stupid buy.)
A six-figure income couple (around $100K total) should pay no more than $350K, and that’s after putting 20%+ down, IMHO. We’ve all had our realities tested by this bubble. It will be an interesting decade ahead of us.
I agree. Even when I bought my first home in 2000, if you weren’t putting an offer in the week it went on the market, it was gone.
Here in Pullman, colleagues tell me that in 2000 they had to bid on new construction foundations and many had buyer’s remorse after signing on the dotted line. RE here was seriously depressed from the early-1980’s through most of the 90’s (350 homes on the market in 1983, more than double our current inventory for a much smaller town). By 2000 it was a seller’s market. Then in 2004 we started seeing double digit appreciation.
House prices started taking off in 1998 so we should be back to that price plus adjust for inflation. Bottom in 2010?
“But as usual, people get greedy and homes started becoming unaffordable. Values start to plateau and, in some cases, even drop. People are no longer feeling the ‘wealth effect’ and cool their spending habits.”
- What’s this? in some cases the price can actually drop?
No, no, no. That must be a mistake. I read repeatedly in the newspapers (so it must be true) that “Real estate always goes up” and that I had to “Buy now or be priced out forever.” I mean, it’s not like they’re making any more land, and the population keeps increasing, so obviously prices can ONLY go up.
No, that must have been a typo..
I don’t need to worry about money. Plenty of people are telling me they are giving me millions for work I didn’t do, or request. Now, if they were only real and not part of some scam where they are trolling for idiots. Kind of sounds like the housing market for the last few years, and the efforts to see if anymore idiots that have a box of money and sense of the STUPID. Now, only if Peter were real - and had such money.
I wish to inform you that I concluded this transaction suscessfully
with an LONDON lady and I am currently residing in London with
my family. I want to inform you I would like to compensate you
with the sum of US$950,000.00 for your efforts in trying to assist
me with this transaction but later it did not work out between us.
I dropped the (cheque in bank draft) with my secretary named
Barri Alex Uchesin.
I did this out of sympathy for your efforts and I hope you
will be satisfied afterall,despite the fact that you did not believe
me.
I advise you to contact him immediately through his e-mail
address: alexuchechi2@yahoo.fr for the delivery of the bank draft to you.
I hope you will have a nice life with my token of compensation for
your efforts and God bless you.
Regards
Peter Ogonma
The four banks now are demanding that Ms. Shields make the loan payments, totaling about $9,000 a month. “This whole thing has really traumatized me,” she says. “I had great credit, I pay my debts. This isn’t how I do business
It is now.
“‘The Pacific Northwest was a little bit late coming to the party,’ said Andrew Leventis, an economist with a federal housing agency. ‘The extreme appreciation over the past five or six years in the country only just began in the Northwest a few years ago.’”
This guy wants to low ball the number of years homes have appreciated in the PNW. In my neck of the PNW price appreciation has been strong since the summer of 2003. That’s 4 years - not a “few”. Is he trying to say that people in the PNW have been more prudent to not overeat low interest rate loans, ARM’s & Heloc’s? Sorry, we have not.
seattle is the north north pacific northwest
bubbling into Canada….however, if you parked 30k in canadian dollars a year ago, your comin home with 28.? US
July 20, 1969
209
is that right after super bowl 2009 or in the late spring-just want to be ready
info provided with our tax dollars - bet they’re wrong
“the few places in the country where housing prices are growing at double-digit rates, according to a recent federal study.
Here’s a report about the housing bubble Australian style……..damn it sounds very similar to the American one. NO it’s not different here.
http://www.news.com.au/heraldsun/story/0,21985,22106785-664,00.html
The pounding that the housing market is taking in SoCal reminds me of a nuclear bomb going off in reverse slowmo. First the outlying marginal areas get hit, like SanDee, Sac, Bakersfield, Palmcaster, Victorville. Next it works its way in and San Berdu, Riverside, Ventura get smacked. The grand finale, epicenter of shattered earth, the most radioactive devastation finally lands its punch in the hollowland represented by the OC and the LA.
Good analogy, the physics is right on, except what is not understood is this is the detonator explosives, not the nuke … That comes later in the form of credit tighter than … better stop there, but you get the point.
But Gary Watts said 7% is in the bag for 2007.
Or are we (Regina, Saskatchewan) headed down the same path as the U.S.?
Nah. Everyone wants to live here, we’re running out of land, and the weather is so much better than the US.