The Numbers Are The Numbers
Some housing bubble news from Wall Street and Washington. Associated Press, “Sales of new homes fell in June by the largest amount in five months as the housing industry continued to struggle with its worst downturn in 16 years. The Commerce Department reported that sales of new single-family homes dropped by 6.6 percent last month to a seasonally adjusted annual rate of 834,000 units.”
“The decline was more than triple what had been expected and was the largest percentage drop since sales fell by 12.7 percent in January. Sales are now 22.3 percent below the level of a year ago.”
“The median price of a new home sold last month dropped to $237,900, down by 2.2 percent from a year ago. It was the biggest year-over-year price drop since a 6.5 percent fall in April.”
From MarketWatch. “Inventories of unsold homes were unchanged at 537,000. Inventories are down 5% compared with a year earlier, indicating that builders are having only modest success in working off excess homes for sale.”
From Dow Jones. “Regionally last month, new-home sales decreased 27.1% in the Northeast, 22.5% in the West, and 17.1% in the Midwest. Demand rose 7.6% in the South.”
“An estimated 77,000 homes were actually sold in June, down from 82,000 in May, based on figures not seasonally adjusted.”
“D.R. Horton Inc. said it swung to a quarterly loss of $823.8 million. The home builder said its third-quarter results, for the period ended June 30, included pretax charges of $835.8 million for inventory impairments and $16.2 million related to write-offs on land options it’s abandoning.”
“D.R. Horton has taken over the dubious distinction of absorbing the biggest quarterly land-related write-off so far in this housing downturn, topping Pulte Homes Inc.’s roughly $750 million pretax charge announced last week. Factoring in D.R. Horton’s goodwill charge, the quarterly total was nearly $1.3 billion.”
“‘Excluding the goodwill, the land impairment alone was significantly greater than the $200 million to $400 million we believe most people were expecting,’ wrote Morgan Stanley analyst Robert Stevenson in a research note.”
“‘The question now and for the next few quarters regarding D.R. Horton is whether management is just being conservative and taking the ‘big bath’ now when the home-builder stocks are getting pummeled anyway, and will realize smaller impairments in future quarters (and possibly benefit from some reversals), or if this is a more bearish signal regarding D.R. Horton’s management and operating strategies,’ he added.”
“The company blamed the loss on the persistent housing slump that has left a glut of unsold homes on the market, forcing sharp price reductions. Looking ahead, Horton did not give any indication about when the market may turn.”
“‘We believe that market conditions will continue to be challenging, and our quarter-end impairment evaluations incorporated our more cautious outlook for the industry,’ Chairman Donald Horton said in a statement.”
From Bloomberg. “Pulte Homes Inc., the third-largest U.S. home builder, reported on Wednesday a second-quarter net loss after sales tumbled and the company wrote down the value of land as the housing slump deepened.”
“The net loss in the three months ending June 30 was $507.6 million. Revenue slid 40 percent to $2 billion, Bloomfield Hills, Mich.-based Pulte Homes said in a statement.”
“Pulte recorded charges, including those for land impairments and write-downs on joint ventures, of $749.4 million before tax. The average sales price for a Pulte home fell 4 percent to about $320,000 in the quarter, the company said on July 17.”
“The second quarter also included about $40 million of restructuring expenses as Pulte announced plans to fire 16 percent of its workforce after earlier cutting 25 percent.”
From Reuters. “Beazer Homes USA Inc., facing a deteriorating U.S. housing market and federal investigations into lending practices, posted a quarterly loss on Thursday as the builder took charges for inventory and goodwill impairments and abandonment of land option contracts.”
“For the third quarter ended June 30, Beazer posted a net loss of $123.0 million. The company said the latest quarter’s results included charges of $188.5 million. A substantial portion of the charges relate to the write-down of the value of operations in Northern California, Nevada and Florida.”
“Would-be home buyers canceled their orders at the rate of 36 percent, higher than the 29 percent in the prior quarter. New orders for homes fell 30 percent in the quarter to 3,055.”
“‘Most housing markets across the country continue to be characterized by an oversupply of both new and resale home inventory, reduced levels of consumer demand for new homes and aggressive price competition among home builders,’ CEO Ian McCarthy said in a statement.”
The Street.com. “Ryland Group…reported steep second-quarter losses, as expected, as land impairment charges and higher selling costs cut into the homebuilders’ profits. Ryland posted a loss of $52.4 million. Ryland recorded $147 million of inventory impairment charges tied to land investments.”
“The company’s revenue fell 38% from last year to $740 million. New orders declined 17%, as the company previously reported.”
“M.D.C. Holdings, Inc. today announced a net loss for the quarter ended June 30, 2007 of $106.1 million, which included pre-tax charges of $161.1 million for asset impairments and $6.4 million for write-offs of deposits and pre-acquisition costs associated with land option contracts the Company does not intend to pursue.”
“Net loss for the six months ended June 30, 2007 was $200.5 million, which included pre-tax charges of $302.5 million for asset impairments and $10.5 million for write-offs of deposits and pre-acquisition costs associated with land option contracts the Company does not intend to pursue.”
“‘Overall, the market for new homes stinks … liquidity is getting sucked out of the system,’ said Alex Vallecillo, senior portfolio analyst with Allegiant Asset Management, which has $30 billion in total assets under management. ‘Mortgages are going to be tougher to come by, more expensive. The buyers are basically drying up.’”
“With sales plunging, home builders are now writing down the value of their unsold homes and the land they have bought for future development. The lower value is reflected in each builder’s tangible book value, what a company could get if forced to hold a fire sale.”
“‘The market believes these guys are going to be writing down their book values in the next quarter or two — or more,’ Vallecillo said.”
From CNBC. “‘Moody’s predicts that from it’s peak in 2005, the national median home price will fall about 9% before stabilizing next summer,’ said Steve Liesman, CNBC’s senior economic correspondent. ‘That means the price has further to drop than it already has.’”
“According to Liesman, Moody’s Mark Zandi sees a ’stunning erosion in credit quality.’”
From Realty Check. “The builders will tell you they’ve weathered downturns before, and they will certainly weather this one. But what’s troubling is that there’s this strange tone among so many of the analysts that I talk to: this feeling that this downturn is unlike any other because of the credit factor.”
“Most housing corrections are based on fundamental broader economic issues, like a nationwide recession or massive job losses. We don’t have that now. It’s all about fear and credit. And until both of those settle, housing won’t either.”
The Washington Post. “The head of Freddie Mac has a bearish outlook for the housing market. ‘I think on a national level the whole housing market has another year and a half of tough times ahead of it,’ Richard F. Syron, CEO said in an interview Wednesday.”
“‘I think it will get materially more severe,’ he said. ‘I think we’ll probably see in real terms . . . housing prices will go down.’”
The Record. “Demand for new housing is still declining and won’t start to rebound until 2008, the chief economist of the National Association of Home Builders said Wednesday.”
“‘The big question is: Is this ball still rolling downhill? I think it is,’ said the economist, David Seiders, in his midyear forecast for the home-construction industry. ‘We’re dealing with some major problems out there.’”
“Seiders said the housing market began sliding in 2005, in reaction to the boom that dramatically inflated prices in the first half of this decade. ‘That destroyed affordability,’ he said.”
“And ‘unanticipated and sudden turmoil’ in the sub-prime mortgage market this year has further weakened the outlook for the rest of this year and 2008, Seiders said.”
“Seiders forecast that the new-house market won’t return to normal levels until 2010 or 2011. ‘We’re looking for a fairly slow climb out of this hole,’ he said.”
“Absolute Capital Group Ltd., an Australian hedge fund that invests in collateralized debt obligations, suspended withdrawals from two of its funds after forecasting losses amid a rout in U.S. subprime mortgages.”
“Basis Capital’s investments included the unrated portions of CDOs, the first in line for losses when borrowers fall behind on mortgage payments. ‘There’s probably more pain to come,’ said Michael Birch, who helps manage $133 million at a Sydney-based hedge fund.”
“The risk of owning bonds of Wall Street firms surged as concerns escalated that investment banks will be hurt by rising losses from subprime mortgages and a freeze in demand for corporate debt.”
“Credit-default swaps on $10 million of Goldman Sachs Group Inc. bonds jumped as much as $18,000 to a record $85,000, according to broker Phoenix Partners Group. Bear Stearns Cos. credit swaps surged as much as $29,000 to $110,000, also a new high. Lehman Brothers Holdings Inc. climbed as much as $24,000 to $104,000.”
From Business Week. “First, it was the second half of 2007. Then it was 2008. Now analysts are saying the national housing market may not rebound until 2009.”
“Despite the ugly national picture, Realtors are forging ahead, turning the focus to local real estate markets and buying opportunities—and blaming the media for the continued decline in home sales.”
“‘The numbers are the numbers,’ says Tom Kunz, CEO of Century21 Real Estate, a division of privately held Realogy. ‘People are going to come home tonight, have dinner, turn on the TV, and see that home sales declined. They’re going to look at that and say ‘Hell, I’ll sit on the fence.’”
How ’bout them stocks?
Rising credit fears rock equity markets
By Anuj Gangahar and Michael Mackenzie in New York
Published: July 26 2007 14:14 | Last updated: July 26 2007 17:47
Wall Street stocks declined sharply in early trade in New York as disappointing company earnings and housing data compounded growing fear over the state of the US credit market.
UK and European stocks were also hit by concerns that tighter credit conditions could slow the corporate buy-out boom.
In Europe, the FTSE Eurofirst 300 index of leading European shares fell 4.67 points or 0.3 per cent to 1566.96. The Dax shed 0.3 per cent to 7669.70 while the Cac-40 lost 0.4 per cent to 5811.31.
London’s FTSE 100 fell 103 points to 6,350.40, a loss of 1.6 per cent, as heavily weighted financial stocks and miners all lost ground.
Bad earnings news from the housing sector continued as DR Horton, the homebuilder, reported its first-ever quarterly loss. Its shares were down 3.7 per cent at $16.83. Beazer Homes also posted a $123m quarterly loss, sending its shares down 7.7 per cent at $15.73. This followed second quarter losses reported late on Wednesday from Pulte Homes, whose shares sank 4.7 per cent to $19.70 and Ryland Group, which fell 0.4 per cent to $32.79.
”The credit market does not feel great. Liquidity and sentiment are the worst since 2002,” said Tom Murphy, corporate sector team leader at Ameriprise Financial. He said the speed of the repricing seen in credit valuations and the decline in liquidity had made investors question their overall investment thesis.
http://www.ft.com/cms/s/84d0395e-3af5-11dc-8f9e-0000779fd2ac.html
Yes, but people are still buying iPods.
But they aren’t buying iPhones…
Yes, and my aapl is still doing quite well.
Amen to that. I think owning Apple is better than gold, especially since it’s easier to carry around and stick in yor pocket.
Buy SCUR before earnings today.
I second the call to buy SCUR prior to closing. Earnings are reported after hours at 4.30pm EST.
Wait a minute! How do we know you’re not the CEO of SCUR trying to chat up your own stock? If the CEO of Whole Foods can do it…
SCUR down after reporting.
Unfortunately, I expect a bounce tomorrow, possible even this afternoon. We are deeply oversold short-term and the GDP number tomorrow will be up even if the statisticians don’t manipulate it. Final demand GDP was up 1.5% in Q1 but drawdown of inventories pushed the reported GDP down to 0.7%. I would expect final demand to be down or maybe flat with Q1, but there was a massive buildup of inventories in Q2. They rebuilt what was sold of the prior quarter and then some. So, we could easily see a headline number of 2.5% or more.
That’ll get the blind bulls back to their Pavlovian ‘buy the dips’ mentality. Should run out of steam quick but that’s the most likely scenario. With statistical sleight of hand, they might push the reported GDP above 3%. Ugh.
There is also the need to levy the inflation tax. One of the best ways to levy an inflation tax is to exercise the Greenspan Put when the stock market is showing signs of weakness. Everyone feels better when the stock market is going up…
Dow and S&P both under the 50 dma heading for the 200 dma. That’s where you’ll see the “real” PPT would be my guess.
Agreed…
sideways trading for the foreseeable future, just long enough to finish W’s term and inaugurate Hillary. Then the market drops, housing burns, etc… and the repubs can say “it’s all her fault!!”.
Pass the popcorn!
“the blind bulls” aren’t buying stocks. Companies are buying back their own stocks at record paces, and there are no secondaries and IPO to balance out the contraction.
While what you say is true, we also have record levels of margin debt lend out by the NYSE member firms to their brokerage clients - nearly 40% above the April 2000 peak as of the most recent data from 2 months ago. That seems to indicate pretty wild bullishness from the retail investor as well. It’s not either retail buyers or financial engineers, it’s both - or it has been until now. The debt markets are now refusing to fund financial engineering.
This is looking like Feb. 27, probably a hedge fund blowout. At -500, I’ll be 100% out.
I worry about that margin debt. At what point do we start getting significant margin calls? My threshold is 13,000 (on the Dow, assuming the Nasdaq drops a similar amount).
Oh my… its down to 13,366 as I typed…
But I’m not expecting a crash… yet. Not during the summer. If stocks do crash during the summer… I’m signing up for TJ’s class of advanced bearishness.
Got popcorn? Foreign investments for the 401k?
Neil
“Not during the summer.”
That’s what I was thinking. Maybe October, like all the others?
“Foreign investments for the 401k?”
FDIVX is diving with the rest of the mutuals - worldwide markets are going to tank along with America’s, it seems. So much for the problem being “contained” to the U.S.
Many of the companies that are buying back their own stock have financed the buybacks with company debt that will adjust with prevailing market conditions. Unless there is incredible unforeseen growth in the companies economic position they will not be able to service the debt in 4 years. Generally, I do not buy into companies that are buying back their own stock. There should always better places to put moneys to generate growth than in your own stock.
Also a huge pop in Treasuries today in an obvious flight to quality move. And boy to they have a lot to flee from. Add stocks to the ongoing meltdown in the risky end of the bond market and the only place to run to is either Treasuries or cash.
10-year yield has fallen to 4.79% - down 11 basis points (0.11%). That would imply a price gain of about 0.75%, which is an enormous one-day move for stodgy bonds.
The only intraday read I can easily get on junk bonds is the HYG, a junk bond ETF. It is down 2.5% on the day right now. Sucks to be a high-risk borrower or even worse a heavily-leveraged high-risk borrower right now.
“Treasuries or cash”
PM? FX?
If PM = precious metals, then no. Both gold and silver are down sharply. I expect that since we have credit-driven inflation and the credit pyramid seems to be collapsing under its own weight that metals will follow and that seems to be the case so far in this decline.
For similar reasons, I expect the dollar to rally for a while. They will get more valuable as the margin calls shrink the available pool of them. Add that to crowded trades shorting the dollar and you have the potential for a really spectacular reversal in the short-term.
“Both gold and silver are down sharply.”
Buy the dips.
Gold down sharply? Well it is at the 50 DMA, and I am nibbling. Betting on a liquidity crisis is betting against Helicopter Ben Bernanke; that is a bet you will lose. The dollar is toast.
We are already in a liquidity crisis. I don’t have to bet on one, it’s here right now. Gold at this point is a bet that the Fed can fix the ongoing crisis. Their credit pumps and other inflationary tools are largely broken. If you can show me what avenue they will use to inflate the money supply, I can certainly be persuaded. But with CDO, CLO, LBO and other leveraged products seeing almost no demand how can they pump up the credit markets?
If they actually start to print physical currency, it will be obvious very quickly. That would also be incredibly foolish, since it would take us down the hyperinflationary path. At this point, literal printing presses seem the only way out for Bernanke and Co.
The government didn’t invent that alphabet soup of derivatives, the banks did. As for what TPTB can do the Fed can cut rates. They can buy the market directly, any market. They’ve been buying their own bonds, and if they want to they can buy stocks, even the housing market. Do you really think they will let the stock market crash, the housing market completely collapse? The last 80 years of inflation have taught that they can and will inflate. Just look at the direction of the dollar over time.
I don’t have to go back 80 years, just 6 or 7. The Fed embarked on its campaign of emergency rate cuts in January of 2001 and stocks continued to tank for another 20 to 26 months. Fed funds went from 6.25% to 2.00% by November 2001 and even from there that bottom was a year away for the large-caps and longer for the Nasdaq.
Yes, they can ultimately reignite credit inflation. But even with a far less damaged banking system, it took roughly 2 years from the time they started to turn the financial markets around. Given the larger size and scope of this bubble and the damage to the credit markets, it could take a lot longer this time and they haven’t even started yet.
Deflation? Short term yes (houses). Intermediat term and long term no: http://en.wikipedia.org/wiki/Ghawar
We’re running out of cheap oil. Repeat after me: “oil is a finite resource.”
Oil prices normally fall in a recession. I know this is irrelevant to the case at hand, because we have been repeatedly reassured that a soft landing is on the way, but I just thought I would mention this in case there is ever again a recession in our lifetimes…
Guys, in my humble opinion the inflation-vs-deflation will be key question for those of us who would like to come out ahead of the sheeple in these coming days. As the THBB crowd, we are already ahead in many ways by not having become FBs. But I think as the housing/credit bubbles start impacting the real economy we are going to have to uses smarts to make sure we don’t get taken under by the current.
Personally so far I am all cash right now, as the Precious Meetals still seem corallated to the general market’s tides. But I agree with the other posters that as soon as the Fed starts the physical printing presses, the PMs will part ways with the other vehicles and will resume their safe-haven status. The question is if and when the Fed will choose to start the presses and fire-up the helicopters. Hopefully we can keep each other in the know.
PS. I just made my first donation to THHB about two weeks ago after two years of reading it and benefiting from it. Thank you Ben (and fellow posters) for all your efforts.
Deflation? Short term yes (houses). Intermediat term and long term no: http://en.wikipedia.org/wiki/Ghawar
We’re running out of cheap oil. Repeat after me: “oil is a finite resource.”
Even if you are right about oil shortage, high oil prices are still deflationary for the overall economy. Think high oil prices are similar to high interest rates - they dampen the economic growth => deflation. Seriously, why would a high price for a barrel of oil somehow translate to your higher salarary (a requirement for the general inflation)? Nonsense.
““Treasuries or cash”
PM? FX? ”
Hoping you mean something other than USD when you say “cash”.
Cash is trash. The USD bounce is over, yen is moving up.
Have you guys tried using everbank before? Is that the best way to get out of $US. I don’t know much about fx, but it seems the way to go…
Dammit Jim, I’m a saver not an investor!
Treasury yields finished down 13 basis points (0.13%) to 4.78% on the 10-year. The Bloomberg High Yield Index finished at 9.48%, 32 basis points higher on the day. Flight to quality coming out of both junk bonds and stocks, into Treasuries. The market for risky debt is being absolutely slaughtered. The HYG junk bond ETF lost 1.4% today and the Vanguard High Yield Fund dropped just over 1%. Total losses in these funds are in the 8% range over the last 8 weeks and these mostly carry the better class of junk bonds.
Stupidly easy and cheap debt has fueled a whole series of bubble which are now in serious danger. Watch for international RE to get pounded and soon.
Bill in Phx,
Is it time to start dollar-cost-averaging into Vanguard’s High Yield Junk Bond fund yet? (I will commence this strategy soon enough…)
It must be really bad. Paulson is trying to reassure us again that the ’subprime problem’ is no threat to the overall economy. They only do that when they are really worried.
One small problem here:
“The Boy Who Cried Wolf”
http://www.storyarts.org/library/aesops/stories/boy.html
“Paulson said the U.S. economy was healthy and global expansion was strong and said that was comforting but suggested it also had led investors to be less cautious.” July 26, 2007
November, 1929
“Any lack of confidence in the economic future or the basic strength of business in the United States is foolish.”
Herbert Hoover
Down down 320 points and going. Look at WCI. below $8 now.
That Carl Icahn deal is looking pretty good.
He bought in at $22. Can we say decimate? LOL
Hi offer was to buy the company at $22, right? Does he own any shares at this point?
BHAW: Blind luck but I am feeling pretty smug about my 17.5 Puts that I bought tuesday. My business school training came to some use on interperating their financials. They are going bankrupt, I just don’t know when.
Anyhow today was a hell of a drop and I just wish the options were more liquid as my sell to close limit is sitting there. There is pretty big spread between bid and ask. Like 2005 buyers i have a paper gain but unlike them, I know it isn’t in the bag till I close.
I’d like to reenter but with not so much time premium.
Welcome to D+1. Tonight, you will hear the soothing voices of experts providing their considered opinion that it is inevitable for a market which has been this hot for so long to have “adjustments” and that the market is “fundamentally sound.” Tomorrow you will witness Wall Street gurus, who are actually realizing that there is no way out other than down, taking whatever shorts they can get and leading a concerted charge for the exits.
That’s certainly been the situation over the past few years when we’ve had some nice drops.
I’ve taken the words of our wise Hoz (not investment advice
) and sold 100% of my longs this time. Maybe, just maybe, this time **is** different?
Good luck to all our traders!
Clarification…not to sell longs, but that he believed credit really was shrinking for real this time.
The (very) long-awaited housing bear “credit event”.
There are stocks that I am long (just not in the US). It is still a world wide party - we weren’t invited and the party givers threw the gate crashers out.
“IMF raises world economic growth to 5.2 percent this year” China’s economic growth raised to 11.2%. If the US was removed from IMF calculations world economic growth is over 6.5%.
The longs I sold were international ETFs (Asia, South Africa, intl energy, etc.). They took a big hit today & I admit to getting emotional about it.
Absolutely agree that international is the way to go after the main “credit event”.
Again…THANK YOU for all your words of wisdom & knowledge, Hoz. I have learned quite a bit from you.
Down down 320 points and going.
Beaucoup holes being blown thru the BB propogandist BS that everything relative to housing is contained.
Liar, liar pants on fire.
PPT to the rescue!!!
Dow down 250 points… you can’t let the decline scare ALL the sheeple at once. Mozillo and Toll still haven’t sold all their shares! Easy does it, dude.
Wife called to let me know DJIA was off 300+ pts. i assured her the closing level would be off by less than 200 pts.
Turn those machines back on!
lmao
get back in there and sell!!!!!!!!!!!
GS, I do not believe the S & P will bounce. Lots of margin liquidation and the liquidation will continue to meet margins.
Hoz — thanks for the (non PPT-based
) explanation of why gold often craters on big downward movements on headline U.S. stock indexes. The explanation sounds very plausible, given record reported levels of margin debt used to gamble on the proposition that “The stock market always goes up.”
Gs, If this downward move is “real”, the PPT (if it is a viable function of the US government) does not have the currency to stop, halt or hinder the move.
The Bank of Japan said, they had no idea how much money was loaned out for the “carry trade”, but that they thought it was less than $1T.
The currency markets are 100X the size of the US stock markets. Currency margins must be met daily and in some cases hourly. I have seen people walked off the trading floor. to their bank to withdraw funds. to meet inter day margin calls.
Who needs currency when one has a bully pulpit and close ties to IBs armed with “dark matter?”
From CNBC. “‘Moody’s predicts that from it’s peak in 2005, the national median home price will fall about 9% before stabilizing next summer,’ said Steve Liesman, CNBC’s senior economic correspondent. ‘That means the price has further to drop than it already has.’”
Bwaha ha ha ha…
9% drop after a 300% increase? Riiiiight, pass the kool-aid!
Prices are ALREADY down 20%+ in many bubbly towns. I think this idiot is way late to the party.
If the Fed can create enough inflation soon enough, nominal prices may not have to fall by that much. But I still predict that real prices will revert to historic norms (e.g., LA home prices were recently at 12X income; they were at 6X income back in 1998…).
I’ve found Dr Robert Shiller’s research to be very useful. His study of 120 years of housing data suggests that we are about 60% above trend right now, so a 35-40% decline in real prices would get us back to the long-term trend. Could easily take the form of a quick 20% drop followed by a decade of flat nominal prices, while inflation eats away the real value. Hawaii saw something very much like this in the 1990s after the Japanese buying frenzy ended.
The FED needs to create wage inflation. I don’t think they can do that.
Liesman? Bwahahahaha
They’re talking about the national median. 9% is significant. How much did the national median increase over the last 5/6 years? Does someone have the numbers?
I’d say we’ve finally reached the tipping point. It’s kind of surreal watching it all unfold.
“reached the tipping point.”
I think it is a precursor…the big one doesn’t hit for 3-9 months (IMHO).
I tend to agree with arroyogrande.
Yeah, it won’t be a very Merry Christmas for many. A silent spring followed by a rough summer followed by a black October and topped off with 4Q pink slips?
Bingo! The next terrorist attack in the West will be the real tipping point.
I don’t know, that would just provide justification for all sorts of easy credit fixes from congress. Foreclosure moratoriums, grants, etc.
“hat would just provide justification for all sorts of easy credit fixes from congress”
Agreed. I don’t think the real tipping point will be an attack. I just think that there is just too much latent optimism in stocks (kool aid)…the real tipping point wil lbe when investors see Goldilocks take a few more heavy punches to the gut…and with what we suspect about the coming ARM resets and bogusness about “containment”, those punches are coming pretty soon (again, I say 3-9 months).
I think spring 2008 will be the tipping point… too many lemmings still drinking the kool aid. One more silent spring will do the trick.
Another tipping point: Housing and mortgage stocks down another 50%. Not even the lamest sheep will touch ‘em. THAT’s when you buy and bet on a rebound.
Why not today as the tipping point?
50 minutes to go in an all day down session.
the big one doesn’t hit for 3-9 months (IMHO)
The grasshoppers fiddle and play in July and August.
It’s when those late October winds start blowing thru tree’s devoid of leaves that the realization dawns on everybody that the easy living of summer is gone and it’s time to fill those heating fuel oil tanks.
Always a disconcerting feeling.
The big one indeed.
“Oh, this is the big one! You hear that, Elizabeth?! I’m coming to join you, honey!”
http://en.wikipedia.org/wiki/Fred_Sanford
Speaking of surreal
“‘Mortgages are going to be tougher to come by, more expensive. The buyers are basically drying up.’”
So what does Centex do? It raises prices in the developments in my area _twice_ ! Do they really think they’ll scare the last buyers into believing that prices are going up so buy now?
I’m guessing they are offering some huge discounts if you actually talk to them but those increases still look ridiculous.
That was Ara Hovnanian’s advice a week or two back as well.
“So what does Centex do? It raises prices in the developments in my area _twice_”
What was the builder that was suggesting that all of the builders collude and raise prices all at once to change buyers’ sentiment? Was it Hov?
Think it was HOV. What is funny is that the other major builder in this planned community is KB and they have cut their prices repeatedly, from 410 to 352 on home I’d mildly interested in if it wasn’t for the HOA.
Think just makes Centex look really stupid.
They probably hired one them fancy game theorist / behavioral economanical doctoratresses that told them “Price is signal”
I’d like to punch the next idiot who asks me about game theory.
I don’t get why everyone is freaking out now, specifically. I mean, the fact that there are millions of overextended borrowers, voodoo loans, etc. are facts that have been publicly available and discussed on this board for years now, why did everyone decide to notice all of this now?
Becasue they can’t sell the paper.
So, like, when does this translate into, you know, some sweet deals on cheap houses and apartment buildings?
When the banks have to start marking to market and it affects their earnings.
Yeah, I’m monitoring REOs here, the banks have a very steep learning curve to undergo.
“When the banks have to start marking to market and it affects their earnings.”
As the REO’s build they’re going to have to liquidate. Isn’t Countrywide sitting on like 50,000 properties right now?
I don’t know how many REOs they have, but I check prices for bankowned properties from Indymac, Downey and Countrywide, weekly, plus Leo Nordine’s website, also Realtytrac, and numbers are increasing but prices still high. That won’t last.
RE: Countrywide,
From the Countrywide Foreclosure Blog:
http://countrywide-foreclosures.blogspot.com/
“10,203 Homes Offered For Sale on Countrywide Financial’s Website”
“Total Asking Price: $2,036,110,172
(As of July 22, 2007)”
$2B worth of houses (in “book value”, “mark to book”), just sitting around growing weeds, requiring taxes to be paid, etc.
And this on a company with a market cap of only $17B.
“So, like, when does this translate into, you know, some sweet deals on cheap houses and apartment buildings?”
Kip hasn’t done flipping anything today.
Napoleon, don’t be jealous because I’ve been chatting on line with hot babes, all day long.
The Chinese bankers finally got to chapter 7 of the American Financial system in their weekend classes.
Classic.
How do you say “Holy [bleep]!” in Mandarin?
圣洁胡扯 - no kidding!
I learn something new every day.
What happens when they get to Chapter 11
You call this “freaking out”??? LOL, you must be younger than I thought.
This is just the prelude to the prelude of the “Housing of Horrors” show… Read up on tulips, 1929, etc.
And wake me up in three or four years when NO ONE will say the names Suzanne!, Lereah and Mozillo without spitting first.
Don’t forget Greenspan.
Because, with a “Goldilocks economy”, no one thought that it mattered much.
Wasn’t there a “Simpsons” episode once where Goldilocks got eaten by the bears? I think we’re living it.
Yeah, with all the bad news flying around today, I sure am glad that Bernanke said that Subprime problems are contained.
That makes me feel much better.
They’re saying on Minyanville re: dealers of structured products, not enough traders who have operated in a low liquidity environment to clean up the mess, young ones used to abundant liquidity and always having a bid, no markets in some cases . . . no kidding! Let’s see how this current bunch of “equity traders” fare in a 2001-2002 style liquidity environment. I loved it! You actually needed skill in those days!
Tx: Did you see that the guys from Amaranth might have to pay 280 MM in fines for energy market manipulation?
I hope so and I wish that Hunter guy would be banned from the markets like Henry Blodgett is.
Michael Millikan is a better example, not just a banning but some orange suit time.
“‘The big question is: Is this ball still rolling downhill? I think it is,’ said the economist, David Seiders, in his midyear forecast for the home-construction industry. ‘We’re dealing with some major problems out there.’”
The big question is, with all of yesterday’s bulls piling on with gloomy commentary about the housing outlook, who is still brave or dumb enough to buy an overpriced home?
the new buzz word, “it’s contained”
That term is so early-2007…
“it’s contained”
Except they forgot to specify the size of the container!
Gotta love that smell of microwave popcorn in the ‘mornin…
“There’s a lot of worries about the financing end,” said Arthur Cashin, UBS director of floor operations. “There’s $300 billion supposedly around in deals that have to be financed. You have something out there that’s got me a little worried and everybody’s running from it. They’re counting the life jackets now.”
This was on CNBC. Life jackets for everyone! No life boat and water is 35 degrees…………
Then the music stopped
When I looked the café was empty
Then I heard José say
“Man you know you’re in trouble plenty”
Jay & The Americans
Come A Little Bit Closer
Jay & The Americans
Come A Little Bit Closer
Crossin’ the plains of North Dakota on a X-country motorcycle jaunt, I just couldn’t get that song out of my head.
Just a great tune.
“First, it was the second half of 2007. Then it was 2008. Now analysts are saying the national housing market may not rebound until 2009.”
In 2008, they will say it may not rebound until 2009.
In 2009, they will say it may not rebound until 2010.
In 2010, they will say it may not rebound until 2011.
…
To-morrow, and to-morrow, and to-morrow,
Creeps in this petty pace from day to day,
To the last syllable of recorded time;
And all our yesterdays have lighted fools
The way to dusty death.
Here’s more poetry:
“April 2008 is the cruelest month…”
Watch what happens when there’s no “spring bounce” next year.
Oh, there’ll be a spring bounce for sure… it’ll just be coming off the nuclear crater of winter 07-08 and leading into the vacant abyss of 2008-2010.
They’ve got to sell that REO sometime!
In 2011 they will say it will go down forever. That’s when we start buying, right?
2011, that’s a good year, gives me a few more years to keep building up my personal vulture fund warchest. Keep the FBs coming
Hey GS. Those lines are the best of the thread. First it was us bloggers estimating it will be later, rather than sooner, for the housing market to recover :2008, 2009, …2012, 2013…
Now mainstream economists are starting to think the same thing!
“This downturn is unlike any other because of the credit factor.”
No sh!t, Sherlock?
“And this old world is a new world
And a bold world
For me
And I’m feeling good” (hat tip to Nina Simone while watching the Dow)
“I’m walkin’ on sunshine……OH YEAH!…….I’m walkin’ on sunshine……..”
“D.R. Horton Inc. said it swung to a quarterly loss of $823.8 million.”
So the analysts expected a loss of $.38 per share. They got a loss of $3.20 per share. How can I get one of those jobs? On a related note, is this the end of DR Horton?
Horton has a pretty good balance sheet so I doubt they go down. Many other builders are not so fortunate. Take Hovnanian for example. Their cash position is not so good, they have a lot of liabilities and they’ve barely begun to write down the cost of their land - so the assets on the BS are very overvalued. I expect a number of bankruptcies of public companies by next year.
Is it just me or are all the major homebuilders now below their 52 week lows?
Buy the dips.
Problem is you never know if a dip is a dip until after it rebounds. “Buy the dips” is like saying “hindsight is 20/20″ - it works fine if you have a time machine, but save that there’s no practical application.
E.g. one would have been tempted a couple of days ago to buy homebuilders based on an apparent short-term bottom. If so - one would be really hurtin’ right now, since it was really just a head fake before an even stronger leg down.
My philosophy anyhow. I trade a lot but do it long-term (6 months to 5 year holds) based on fundamentals rather than short-term movements, mainly because it’s a hobby and not my job. It’s served me pretty well though.
Packman,
Do you have any books to recommend? Just found this site the other day, renting and saving money and want to learn more about the stock market. Thanks
I guess I am starting with the Intelligent Investor and
Common Stocks and Uncommon Profits. Also does anyone use/read fool.com? Thanks
Crap talk on MSNBC Today Show this morning… there was this realtor saying… we are already at the bottom.. buy now or it will be late and you will end up paying more when the market picks up….
On CNN there is this article in which it says “Home Builders cannot reduce the price coz the the buyers who already bought at a higher price will be offeneded. So instead of lowering the price they are offerrning incentives…” Who the F*** wants the incentives…. The prices have almost doubled in some areas… why the should the people who did not buy pay more….they are just deceiving the innocent… such people should be lashed in public places for thier lies..
They need to stick it to the idiots who bought to teach them a lesson. That prices do drop so don’t overpay.
I think lashing them in private places would probably hurt more…
CNN also had this paragraph. First time I’ve seen it in MSM. They’re not lying, just ignorant.
The government figures may not fully reflect the softness in new home prices, as roughly three-quarters of builders surveyed by their trade group say they are offering incentives such as covering closing costs or offering home features for free in order to support sales.
Just adding up the assorted losses in this thread…
Looks like around $2 Billion+ went away, today.
So what exactly is the Plunge Protection Team or PPT?
Google it.
Or ask DC_Too to offer his expert (though unsupported) opinion.
You’re just trying to get GetStucco & DC_Too to go at it again.
The primary cause of crashes - are booms and since it was a super-boom - watch out on the downside
Puts on BSC, FED, DSL, IMB looking good again. Thanks Ben and blog,
it was tough hanging on to these puts the last quarter, but
the info and knowledge here has been compelling, now they are
paying off.
Realtors are forging ahead, turning the focus to local real estate markets and buying opportunities—and blaming the media for the continued decline in home sales.”
Screw the real estate industry, they act like spoiled brats. It’s the medias fault? Grow up chump and get ready to learn a little something about how the real world works. You will take your lumps and like it! Now piss off.
Just remember, All Real Estate is Local! (Get your copy at discount now, before it becomes a collector’s item.)
All Real Estate Is Local: What You Need to Know to Profit in Real Estate - in a Buyer’s and a Seller’s Market (Hardcover)
by David Lereah (Author)
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Only 4 reviews!! I’m ashamed of us THBBers.
On 2/2/07, I set up a hypothetical portfolio of 1000 shares each of BZH (Beazer Homes) RYL (Ryland Homes) and TOL (Toll Bros). Total cost = $138,800. As of 1:17 EST today, portfolio value = $70,100. Total loss = 49.52%. I’m sure glad it was hypothetical!
In the category of ancient HBB predictions…
“D.R. Horton has taken over the dubious distinction of absorbing the biggest quarterly land-related write-off so far in this housing downturn, topping Pulte Homes Inc.’s roughly $750 million pretax charge announced last week. Factoring in D.R. Horton’s goodwill charge, the quarterly total was nearly $1.3 billion.”
Okay, here goes my stab in the dark, well maybe not so dark since I am here and enlightened by all of your collective wisdom.
The reason these shills keep saying buy now is because, let’s face it, it is just like W after 9/11 telling everyone to shop. This economy produces nothing of real value. The only hope sellers of anything, but in this case, RE, have is to keep pumping that line.
“Buy now or be priced out forever.” Or, “Prices have never been better” or “Rates are only going to get higher, so you better buy.”
Fear is all they have left since the entire economy, esp. RE, is based on smoke and mirrors. The problem is word has slowly and finally leaked out of this bubble that things aren’t as peachy as the REIC would like us all to believe. While there are still some FBs out there buying with God only knows what, it appears from what I am reading here and there that the word is getting out that this is not only the beginning of what in all likelihood and based on REAL, not doctored numbers, is a already a recession, but a recession that may get even severly worse, if not a full on depression.
Let’s face it, we here, as well as, a few honest voices in the forest have already pointed out this entire economy is debt-based. Well, obviously to us, when the credit dries up, look out. Economic activity will slow.
I have long argued that a depression is needed, although, I would like to say I don’t hope for one. However, if this bubble plays out the way most of us think it will, I think the best we can hope for is a deep, deep recession. On the other hand, BB and Co. might just drop money on all of us. The only problem with that is that no one outside our borders will want it!
1. There’s no more money left to drop.
2. China, oh lovely China, how we now owe our lives to thee.
3. Real estate is a sham industry operated by those girls who used to talk about you behind your back in high school.
4. The Dow will become irrelevant soon. Just ask any Florida homeowner if they give a crap about the Dow.
5. 9/11 touched us all. The housing bubble might bankrupt us all.
3. So true
4. They will when their portfolio craters (again). Things are going to s*** in retiree land soon.
“This economy produces nothing of real value.”
Not true. You are overstating the case.
We make great weapons.
and special effects for movies.
A little Snow Crash for the HBB:
————————————
This is America. People do whatever the f**k they feel like doing, you got a problem with that? Because they have a right to. And because they have guns and no one can f**king stop them. As a result, this country has one of the worst economies in the world. When it gets down to it — talking trade balances here — once we’ve brain-drained all our technology into other countries, once things have evened out, they’re making cars in Bolivia and microwave ovens in Tadzhikistan and selling them here — once our edge in natural resources has been made irrelevant by giant Hong Kong ships and dirigibles that can ship North Dakota all the way to New Zealand for a nickel — once the Invisible Hand has taken all those historical inequities and smeared them out into a broad global layer of what a Pakistani brickmaker would consider to be prosperity — y’know what? There’s only four things we do better than anyone else
music
movies
microcode (software)
high-speed pizza delivery
The Deliverator used to make software. Still does, sometimes. But if life were a mellow elementary school run by well-meaning education Ph.D.s, the Deliverator’s report card would say: “Hiro is so bright and creative but needs to work harder on his cooperation skills.”
I am not even sure we do the music, movies, and software coding the best anymore…
We are also good in competitive eating. 64 hot dogs in 12 minutes is nothing to sneeze at, boys.
Well, this kinda stuff gets my attention. I’m 70% out of short term short positions. I think we’ve seen the top but this is getting a bit excessive
GS, that was my point a couple days ago. People are extrapolating this credit bubble beyond all reason and saying this economy produces nothing of real value.
There are many people who do not invest a significant amount of their net worth in the stock market but do useful work. I can only give examples: One - a sister in the medical field. Another sister is a caregiver in assisted living homes. They do not invest. Their jobs won’t go away if the Dow falls to 9,000, 7,000, or 5,000.
And that point I made was when I was rudely called an idiot. It was unwarranted and I’m still upset. I assume that poster is full of hate.
You are still boo-hooing about that? Get over it. You are pretty good at dishing it out. There are some posters who haven’t returned here after one particularly nasty exchange with you.
I agree, we still do make stuff here, they just don’t sell it at Wal-Mart or Target. The problem is that we buy far more than we sell to our “trading partners”.
Actually, their jobs are in jeopardy given a sufficient drop in the US economy. There are scenarios in which nobody could afford their services. Remeber, most of the US economy is now a “service.” What happens when nobody wants or can afford those services?
Excellent post KIA. We must remember the difference between producing something and servicing something. That is what I mean. Also, remember that I said “produce something of value.” Heck, we produce baseball cards that have a dollar price tag, but is it REALLY valuable.
See, my maternal grandpa, who lived as a 20-something through the depression had a singled test for value. He used to ask me can you eat it. The man wasn never rich by material means. But he never starved and he survived. He knew what it was to literally have nothing and start over. Same for my dad, who grew up as a teen, also during the GD.
Both of these men never had debt except for a home. Too them the thought of eating out or buying stocks with HELOCs was unfathomable, let alone even done. Still,
they never would have gone into debt for a meal. Better to skip it than owe + interest on a whopper.
See, that is what I am getting at. A few weeks ago I posted about Saturn selling 27K cars. Well, what a joke. I own 2 Saturns, but not at that price. Heck, for another 10-15K I can get a decent used or stripped down vette. That is what I mean about producing something of value. Now, I will readily admit the vette is something of value, even if upkeep is pricey.
However, let us not confuse produce witrh service. I will not even argue that this country provides a ton of valuable service, even if we import many of the people to do it, i.e. Philippinas as nurses.
Lastly, I also agree that affordability could become an issue. Heck, you want to live to be 100, but retire at 45. Great, did you save enough or do you have income-producing assets? What about quality of life. Not great at a hundred if you are spending 10K a day on hospital and nursing.
Just some thoughts.
I would also like to add that besides food, housing is valuable, but not at current levels. Additionally, energy, specifically oil, is valuable. How many of us use it, even minus the car? Lotta oil needed to keep the G8s going like we are. Ask China and India. With that said, look at the amount of food and oil we produce. We already know that we import far more oil than we produce. Not a good sign if you ask me and it sure doesn’t seem that anyone is really trying to set up any alternatives ON A MASSIVE scale. Sure, I moved closer to work. Great, I can get to work on foot, if need be, but what about the food that gets to my local grocer? Where is the energy needed to produce it and get it to me? In the past this country did produce materials of value. Again, that is what I am trying to get at.
In fact, you guys got all over me and that is fine, but no one mentioned what these things were. A few mentioned the 4 Ms, another McMansions, and another weapons. Great. We can keep running the world on those.
Bottom line for me is I just don’t see how we can keep running the economy on massive debt, corruption, entitlements, too many wanting to retire at 50 and live to 100 (all while traveling the world), and with the massive outsourcing and in-servicing. You cannot hold this large of an economy together with that recipe.
Just my humble opine.
The problem with the housing bubble for me is that it has massively diverted resources (malinvestment) into a non-tradeable, durable consumer good: housing. Housing can’t be traded with other countries; so the housing bubble has ultimately made U.S. consumers/producers less well off. Once the malinvestment is liquidated, the U.S. could be on a much stronger economic foundation, assuming that there are no attempts to re-inflate the bubble. However, the “hangover” after this drunken party of credit expansion might be an ugly and painful one.
“The only problem with that is that no one outside our borders will want it!”
Well, then we’ll just have to make the things we need ourselves. The only reason “this economy produces nothing of real value” (which isn’t at all true, btw) is that our currency is valuable enough to buy foreign products at prices cheaper than our producers’. If the dollar were to crash as you theorize, that would no longer be true. Korean steel would become more expensive than American steel, which would then get bought again. Ditto foreign cars: American designers are perfectly capable of creating exciting cars (hell, a fair number of foreign cars are largely designed by Americans); the problem is that non-unionized foreign manufacturers keep a lid on what American carmakers can charge, which forces them to cut corners. (And even so, I think the Saturn Aura is superior to the Camry.)
The problems we have with trade deficits aren’t structural; Americans have the technological and cultural capability of making everything we used to.
It isn’t the union, it’s management.
Toyota and Honda build cars for the US market in the US with unionized US labor, with less defects than GM, Chrysler, and Ford.
Same worker, same union (UAW), different result?
MANAGEMENT
NO, that is not true. There are NO unionized employees in any Toyota, Honda, Nissan, Hyundai, or Kia plants. The UAW is only in US companies’ plants. SO YES, It is the Union.
I’m pretty sure most of Toyota’s U.S. plants are non-union.
I’d cough up the blippin’ $1500 extra if the American cars didn’t start breaking down in 3 years time. I think there are a few others out there that might be thinkin’ the same. I’m not a union fan but personnally that extra $1500 is not what keeps me off the American car lots.
Exactly, CarrieAnn.
I would also gladly pay $1,500 more to have an American healthy and well-employed.
We also bought a Japanese car over an American car because of SAFETY reasons (superior quality is icing on the cake). Naturally, we paid more for it than a comparable U.S. car.
It’s not always about the money.
Americans have the technological and cultural capability of making everything we used to.”
Everyone else has the capablility of making everything we used to, also. Why should the Koreans buy our cars when they can make their own? The world has caught up to us, you see.
“Why should the Koreans buy our cars when they can make their own?”
The same reason Americans buy Hyundais. Depending on exchange rates and other things, sometimes it makes perfect sense to buy an import rather than a domestic. Are you familiar with the concept of comparative advantage?
“The problems we have with trade deficits aren’t structural; Americans have the technological and cultural capability of making everything we used to.”
But we no longer have sufficient energy resources…..If the dollar continues to tank, how will we pay for our every increasing imported oil and natural gas to rebuild our industrial base????
Assuming “rebuilding our industrial base” would be a petroleum-intensive investment (and I’m not sure it would), if the dollar declined so much that American demand could only be satisfied with domestic production, investment in re-industrialization would crowd out other demand for domestic petroleum production (of which there is still a lot). That would clobber commuters, airlines, etc., but to think that a lack of oil would prevent the re-starting of industrial production ignores the fact that when something really needs to get done, it tends to get done.
There are 300 million people in this country. They need food, shelter, clothing, and so forth. That’s a huge market. If the dollar were to completely tank, the suppliers best positioned to supply that market would be American producers, who would jump at the chance to compete in a market that cheap foreign competition has shut them out of for the past few decades. Not only that, but American exports — and again, we sell tons of those; we just import even more — would get a huge boost.
Things tend to balance out. A good motto is that things are never as good as a Realtor says, but never as bad as a total doomsayer says, either.
That whole scenario works provided you have the energy and jobs that pay people enough to buy.
Have you read the history of the Great Depression? ‘Cause you really should.
If our industrial base needs to be rebuilt, it’ll be 30 years coming. Good luck with that - I’ll leave first.
All the Japanese, Korean, and German carmakers are unionized in their home countries, too.
The difference is not unions, it’s that all concerned (union and management) don’t think the world owes them a living.
I see this part of thread has really opened a can of worms and we have gotten to see some sides of posters we normally don’t. SOme of us might have to take this out to the flagpole at 3 o’clock. Just kiddin’.
This from Minyanville via Merrill (David Rosenberg)
“New home sales are now officially down 40% from the cycle peak reached in July 2005 - now just five percentage points away from surpassing the peak-to-trough move during the vicious cycle of the early 1990s; and seven percentage points from breaking the slide in the early 1980s downturn. This cycle has already broken the 34% aggregate decline in the early 1970s, so we are basically on the precipice of seeing the very worst housing cycle of all time.”
“Since the Fed hinted at the start of the new year that the worst of the housing downturn was over, the roof has caved in on new home sales to the tune of a 33% annual rate.”
“Since the Fed hinted at the start of the new year that the worst of the housing downturn was over, the roof has caved in on new home sales to the tune of a 33% annual rate.”
Given that history, and based on what they’ve said recently (still not bearish enough), I’d say declining sales percentages should easily eclipse that remaining 7% in short order.
Mission Accomplished….
I think we just moved to the top of the third inning.
Still in the first inning - bottom of the first 2 outs.
“Since the Fed hinted at the start of the new year that the worst of the housing downturn was over, the roof has caved in on new home sales to the tune of a 33% annual rate.”
It ain’t over till it’s over.
– Yogi Berra –
FED funds rate is being priced in. Wont help.
Credit Crunch continues, too little too late.
Hedge Fund Blow ups accelerate….sorry bout that billion.
Housing will be in total and absolute lockdown come late Fall. people, its Panic time…Rich Man Panic.
I need to get some bananas stored up for the long cold winter…….uuhhhhgg.
And even more from marketwatch.com on how builder stocks are doing today.
http://www.marketwatch.com/news/story/impairment-charges-continue-knock-home-builder/story.aspx?guid=%7B9D750FA3%2D5139%2D44D7%2D973A%2D4D20FFE4E683%7D
WCI now down 20% on the day. Hovnavian down just 5% — I guess that Bear Stearns analyst who ranked them as an “outperform” was right, afterall — at least compared to WCI !
Lots o’ red numbers today.
How can the market bottom soothsayers say that a 9% decrease will be the max ? This 9% is such a exact figure but they don’t seem to explain the basis for it . I would think that if one really wanted to determine the bottom they would have to determine what would the market be at if the local market borrowers really qualified for the loans .It should be easy to figure what the demand would be if you base it on the affordability index in any given area . Given what the true affordability is ,it would take years to get rid of the excess inventory ,so prices would have to drop more than 9% to move the standing inventory .
Unless all these sellers hold on to their property for 5 to 10 year ,what factor is going to reduce the supply of home at the current price levels ,if you assume the borrowers really has to qualify for the loan . I don’t get it .
I have done that in MA, and the numbers are downright scary. Median Income in my town is a bout 60K a year for a family of four. Median house price ***should*** be around 186K, taking into account a 20% downpayment of 36K, and a loan of 150K or 2.5 times the median income. Average price right now is about 320K, so you are looking at around a 50% decline to get to a level that makes sense to buy based upon historical down payments and ability to repay, but as all things oveshoot the median, it could even go lower that that, taking into accoune how many future buyers bought in the last 5 years, and how many people are stuck repairing their credit (unable to get a loan).
Is the traditional “rule” that the sales price should be 2.5x income or the mortgage amount should be 2.5x income?
I think that it is the mortgage. After all if you saved all your money and came up with something like 200K you could possibly afford a 350K house on a 60K salary… I believe that it has to do more with how much payments you can handle a month combined with an expectation that you will pay off the mortgage. That is why certain things like high CC debt, or large car payments will lower your ability to qualify for prime mortgages, and in the last 3 years those people should have been told to keep working, and pay off your current obligations before you get into a house. Problem was that they were not told that therefore now we have lots and lots of foreclosures.
“10-year yield has fallen to 4.79% - down 11 basis points (0.11%). That would imply a price gain of about 0.75%, which is an enormous one-day move for stodgy bonds.”
Doesn’t this mean existing ARMs don’t move up as much? Or are those rates indexed to LIBOR?
Yes many will default.
Yes, mortgage rates will rise for new mortgages due to a higher risk premium.
But in addition to suffering more losses, holders of existing ARMs will get less interest if everyone flees to Treasuries, no?
A few BPS ticks will not help out many of those with ARMs over the long term. The problem is that they bought homes they will never be able to pay off over the long run. Even payment-option ARMs with initial payment rates at less than interest eventually reset to fully amortizing loans (and generally over less than thirty years!).
Lower interest rates tend to go hand-in-hand with deflation and lower labor market income out of which to make payments on a crushing future debt burden.
Total noob question, but what is the “kool-aid” everyone refers to?
On 18 November 1978, more than 900 people died in the largest mass murder/suicide in American history. Most of the deaths occurred in a jungle encampment in Guyana, South America, where members of a group called Peoples Temple lived in a utopian community and agricultural project known as Jonestown. Most died after drinking a fruit punch laced with cyanide and tranquilizers, although some may have been injected; two residents died of gunshot wounds. Earlier that day a few other residents of the group had assassinated a U.S. congressman along with three members of the media and a departing Jonestown resident. And in Guyana’s capital city of Georgetown, yet another member of the group killed her three children and then herself after receiving word of the deaths in Jonestown. In all, 918 Americans lost their lives that day.
Since that time, Jonestown and its leader Jim Jones have entered American discourse as code for the dangers of cults and cult leaders. The expression “drinking the Kool-Aid”—which means both blindly jumping on the bandwagon, and being a team player—is one manifestation of this.
They had a Dicken’s of a time explaining that one to us the next day in Sunday School I can tell you.
http://en.wikipedia.org/wiki/Jim_Jones
http://en.wikipedia.org/wiki/Peoples_Temple
Remember Jim Jones, and the Peoples Temple, and the mass suicide?
“Jonestown Massacre - Later that day, Jones ordered his congregation to drink cyanide-laced Flavor Aid.”
Drinking the Kool-Aide is synonymous with taking as truth whatever the powers that be tell you.
For example, if the National Association of Realtors tells you “real estate prices always go up”, and you believe them even with data showing you otherwise, you are considered a Kool-Aide drinker (ie they told you to “just drink the damn colored liquid”, and you did).
http://en.wikipedia.org/wiki/Jonestown#Mass_murder.2Fsuicide
http://en.wikipedia.org/wiki/Kool-Aid#.22Drinking_the_Kool-Aid.22
I’m guessing you’re younger than 35.
28 in fact!
The comments from David Rosenberg at Merrill Lynch are always right on the money. Dave has been bearish on this market for almost two years now, but no one seems to be listening to him. He simply tells you the truth in regards to how bad the market really is today and how we are about ready to take a huge dive off the cliff.
Bearish for almost two years? I’ts good that no one was listening to him. Think how much gain they would have missed out on.
Given enough time, any forecast will come true.
Bearish does not mean sitting in cash. You do realize that foreign markets, PM’s, etc. have outperformed the US markets the last two years?
Looks like the annualized rate of new home sales fell to 400k or less during 1982-3 and 1991. There is still plenty of downside from the 834k rate reported this month before we hit bottom. The past lows of 400k should probably be adjusted for population growth, but we should also take into account the reduced pool of first-time home buyers over the next few years since so many people who would have normally bought in 1997 or later did so in 1994-96 because they could qualify for zero down loans.
0% loans in 94-96? I was looking in 98 in Sacramento and no one was talking to me unless I had 10% down and 720+ FICO except FHA but they still required 3%, full doc, seasoning, etc.
I meant 2004-2006 and 2007 not 1994-1996 and 1997. That’s what I get for typing while eating lunch! What decade are we in?
Phew - I was wondering if I really sucked so much that I couldn’t get a deal like that.
I was thinking the same thing about the 94-96 bit. I needed at least 5% under a special “first-time” homeowner’s program at that time and it was full doc. I wondered if those were a typo for 2007 and 2004-2006, which makes more sense.
I’m still getting invitation cards for D.H Horton’s new ticky-tacky development in Ventura (Oxnard), ca. which they advertise as, “Live The Good Life at, ORBELA - Just One Nautical Mile From The Sea”. Last invitation card I got they offered you a chance to win a bike but not this time. Maybe the person who won it used it to ride away as fast as they could - if he had any sense.
Seems they have now opened a model so that people can see what they might get for $400,000 +. Here’s what they will get: An over-priced, thrown together piece of crap on the borders of a latino gang invested area, situated on a flood plain in an area where minimum wage is the norm and you had better lock away your car or any other goodies overnite if you don’t want to lose them.
However, that aside, I would be interested in buying. At $125,000 + I would want a few perks thrown in like a maid to clean my “Living The Good Life” property twice a week for free for the next 10 years.
You’ll need more than perks to keep you alive over there… RUN for your life!
The gangs OWN those areas; the white folk just don’t know it yet.
We used to get lots of those cards here in Larimer County. It’s been a while now, but I read somwhere that housing starts in Loveland are an order of magnitude less than just a few years ago.
My wife’s co-workers recently got engaged and bought a new condo in Ventura from a local builder. Lots of problems on the walk-thru but they moved in anyway. After spending one night there, they came home from work and the condo was flooded, the builders hooked up the washing machine wrong. They went to work the next day and the builders sent in workers to fix the problem. When the owners came home that night the first floor was flooded again, this time with crap! The workers took craps, tried to flush but the toliets just overflowed instead. The workers left without telling anybody. The next day the girl broke her hand in a car accident, with an uninsured driver.
Yea, but it was an investment…
Yep, unfortunately this has become a lot bigger than just whether houses will fall back to affordability…
Help, help!!! We need Helicopter Ben to save us!!
WASHINGTON (MarketWatch) — With worries about credit quality and availability mounting, futures markets are once again pricing in a rate cut by the Federal Reserve by the end of the year. The federal funds futures market at the Chicago Board of Trade now sees a 96% chance of a rate cut by Dec. 31, up from about 47%. The odds of a rate cut at the Oct. 31 meeting rose from 18% to about 40%.
Sheeple are so stupid they can’t understand that NOTHING will save housing at this point. The Fed could cut rates in half, and still the mess that Greenspan made would have to run its course.
Folks, you’re watching the modern version of the mighty Titanic unflod before your very eyes…
A rate CUT? Why don’t they just take the dollar and replace it with the peso and get it over with.
Holy Camoly I wish I could archive this and play it at the end of this year.
http://video.msn.com/v/us/msnbc.htm?g=a832d9bd-3f9a-4c14-adbc-f005e42b21f2&f=00&fg=
Blah, blah, blah… the same idiots who were saying BUY BUY BUY are now saying BUY BUY BUY… and if a nuclear bomb went off today, they’d be saying BUY BUY BUY tomorrow.
Other than the tighter than tight facial disaster, what exactly makes her worth paying attention to? When did the word “expert” become so cheap?
And Lauer… ugh, shilling for the shills.
Yikes! That’s a frightening video (and a reminder why TV is a huge time waster). I can’t imagine how the people who hang onto their unaffordable ARM thinking they will sell it for a higher price a few months from now will feel when their house price goes down. Actually, I can imagine it - I hope for her sake she has an unlisted number.
Paraphrasing:
“…price your home 5% lower than the others, you’ll sell that house that week.”
“You only know the bottom after you come out of it. That’s where we’re at right now.”
Excuse me for a few minutes. I need a shower after that. (and it ain’t a cold one)
Watching that video (I could only stomach about 1/2 of it) gives you that “crying game” moment.
Well’s Fargo shuts down subprime lending unit, lays off staff:
http://biz.yahoo.com/rb/070726/wellsfargo_nonprime.html?.v=1
That seems like pretty big news. Weren’t the PTB pleading with congress not to overreact and close the subprime window for borrowers all together? If the major banks get out of wholesale subprime, the falling knife will become the whole kitchen drawer.
Dow down 380 points…
CFC, TOL, KBH, etc. cratering like cheap California freeways.
PPT, why have ye forsaken us?
Wake up the president.
This may actually be one of them thar “corrections” (as in “a badly needed correction”) I’ve heard tell about…I thought they were just campfire stories…
lol, we can make an indie flick . . .
The NAR Witch Project.
“a badly needed correction”
Wait until the end of the day to decide. I am still guessing the DJIA will be less than 200 pts down by the end of the day.
I dunno. It tried to pull back up after breaking 400, but it got stuck before hit it 350 and has been slowly sliding since.
I just wish I hadn’t already covered my CFC short. DOH!
“PPT, why have ye forsaken us?”
Keep the faith, and buy the dips…
you mean, buy the diiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiips…
OUCH!
stopped out at -400. It’s Miller time.
What is it they say? You make 90% of your money on 10% of your trades. This and Feb. 27 have made up for a whole lotta sitting.
Three of my monthly vanguard mutual fund purchases will kick in COB today.
but I’m an idiot because I follow personal finance advice from those who actually work in the field rather follow advice from anonymous bloggers who probably dig ditches.
You sound angry Bill. Diversification not working well today?
“I follow personal finance advice from those who actually work in the field”
Like Realtors who say “Real estate always goes up,” those who actually work in the financial advice field have a vested interest in saying “The stock market always goes up.”
Was that sarcasm Bill? A lot of people on this board have a lot more know-how and experience than the typical buy-side stockbroker.
Bill
Hate to break this to you, but unless you have a very large account - $10 mil plus, you are talking to salesmen and marketing people, not investment experts. Now, they may be getting their sales scripts from from folks who know what they are doing, but those scripts are then vetted by legal and marketing before it gets to you.
John Bogle - Vanguard funds founder. Also a great book by the New York Times on investing is another I go with. Also various books and magazines and web sites with people who are full time into the business. Not peanut gallery anonymous bloggers.
Comment by Bill in Phoenix
2007-07-26 12:00:11
but I’m an idiot because I follow personal finance advice from those who actually work in the field rather follow advice from anonymous bloggers who probably dig ditches.
No, that’s not why you’re an idiot.
I’m an idiot because I reply to idiots.
No offense, Bill…but many of the “ditch-digging anonymous bloggers” were making predictions 2-4 years ago (some of us were on other housing/econ blogs before the HBB came on-line) that are playing out **almost exactly** as they were called.
There is a tremendous amount of brain power, knowledge, wisdom & experience here, even if the posters are anonymous. Collectively, the people on this blog absolutely rival the best on Wall Street, IMHO.
Three of my monthly vanguard mutual fund purchases will kick in COB today. [...]
but I’m an idiot because I follow personal finance advice from those who actually work in the field rather follow advice from anonymous bloggers who probably dig ditches.
I’m not sure if you’re talking about my beef with you a while ago or not. I don’t think I called you an idiot; I said you were full of sh!t. And this is another example. You obviously got lucky that your monthly buys kick in tonight rather than, say, last night. Yet you’re trying to use that to justify Dollar Cost Averaging, based on today’s big decline. I reiterate: you are full of sh!t. In this case — not necessarily all the time.
Mainly I think you’re just stubborn (takes one to know one). A lot of the stuff you post here is great. For example, I admire your ability to save so much. And even DCA is not a horrible strategy. My point was that it’s not nearly the best strategy, and when I tried to explain a much better strategy, you got bent out of shape. Rather than insult me (or whoever you’re obviously angry with), why don’t you go read Shiller’s Irrational Exuberance and Smithers’s book on Q, and come back and argue why DCA is still the best strategy? Meanwhile I’m off to dig some awesome ditches.
Nah! It is not you, I asked Mr Bill if he was a Moron - never called him an idiot (that would imply that he thought he knew what he was doing).
Three of my monthly vanguard mutual fund purchases will kick in COB today.
I think someone kicked Bill in the cob today.
He’s always angry. P’raps the Arizona heat?
Evidence of my anger? Is the evidence merely me defending myself against others who attack me unprovoked? When you get kicked, you better kick back - my motto.
Bill, if I had bought the 10-year at 5.23 like you and had a nice (I’m guessing) 8% principal gain in a month - equivalent to more than 1000 Dow points - I’d be feeling pretty smart. Some of us remember.
Arguing on a blog is like running in the Special Olympics - even if you win, you still look like a retard.
Yeah, why is it the market always always plunges on the 27th? It’s because I’m frackin’ PAID on the 26th, meaning my automatic 401K purchases are worth that much less the next day.
*@#$&*&@#!!!!!!!!!!!
“‘I think it will get materially more severe,’ he said. ‘I think we’ll probably see in real terms . . . housing prices will go down.’”
—————————————————————————
Once again… He says this as if having home prices come down to where regular folks can actually afford to buy a house to live is a BAD thing.
With wage deflation housing decline will have to accelerate.
Goldilocks not doing so well today
Goldilocks shat the bed.
And it hurts when she pees.
Down 430 now, wow is this going faster?
No, it’s coming back, and thank god, because Maria B. is pissed at people who aren’t bullish.
They don’t call her the Money Honey for nothing
Moody’s predicts that from it’s peak in 2005, the national median home price will fall about 9% before stabilizing next summer,’ said Steve Liesman, CNBC’s senior economic correspondent. ‘That means the price has further to drop than it already has.’”
The median price is still rising and may peak fall 2007. Expect 10 % cut from that level.
can’t wait to watch cramer tonight!!
Sentimentrader guy on Minyanville sez with 21% of NYSE stocks making a 52 week low today and 13-1 down/up volume, one of three outcomes likely:
1. We’re going into a secular bear market (I wish!)
2. We’re getting ready to have a 1987 style one day crash (would work for me since I still have index puts)
3. This is about it for the selling before another move up
Make your bets.
“1. We’re going into a secular bear market”
Been there (and still are) since 2000, IMO. But I admit to being a bit’o'a bear…
P.S. Before DC_Too jumps in here to tell me I am full of it, I suggest you look at the value of U.S. headline stock market indexes with respect to a basket of foreign currencies; that is the point I was trying to make…
#3, followed by #1 3-9 months later. We’ll see how I do.
agreed
probably 1) secular bear market but I bet its mostly financials that get beaten in the big bear. We have to remember we have a expensive war that is not going well and an aging population. I still think some stocks are a good hedge against inflation. If we get deflation then we are so screwed.
1987 not too likely.
“about it for selling before an up move”? Unless there has been a change in credit analysis since 8pm last night, not a chance.
I suppose that earnings will be better than the 2.7% average reported and that my cause a rally.
Frankly there are many bull markets in other places that have less risk than being in the US stock markets.
I think a big, quick crash is most likely. IMO what distinguishes 1929 and 1987 from other peaks is leverage; and today the world is leveraged almost beyond belief. So the unwind won’t be a slow one like 1973. BUT — unlike 1987, we have very high stock valuations around the globe now, similar to what they were in 1929 and the late 60s, using measures that actually work (like Shiller’s). So my best guess is we get something like 1929: a quick large crash, which is only the beginning of a multiyear, severe bear market.
Is there any hope in timing the peak? Maybe not, but I have been noticing some historically derived crash-predictors being triggered lately. Many have probably been mentioned here, like the Hindenburg Omen. A better one I think is Hussman’s “Ovoboby” (google Hussman Funds and read his recent letters). Then there’s just the fundamental fact that we’re in a liquidity crisis NOW, and although it may go away, there are all the reasons given on this board that argue that it won’t.
So I have to bet we get the crash relatively soon, like within the year. But that still allows for another up move before the crash. In fact, in both 1987 and 1929, there was a powerful last up move in late summer, of roughly 10%. Then there was a fairly scary but gradual down move in September, and another weaker up leg into mid-October or so. Only after this weaker up move was the real crash set up, which was in later October for both. This link shows the graphs, although it’s not working right now (sorry):
http://www.lope.ca/markets/1987crash/2crashes.gif
One argument would be that there’s some weird crash psychology going on that made 1987 so much like 1929. Or maybe after two times of that, we’ll get fooled this time by some completely different pre-crash pattern. Either way, best guess is there will be a big crash, and within a year or probably much less.
Isn’t it interesting that everyone painted such a pretty picture until the actual numbers came out. My prediction… Countrywide and one of the big builders go down for the count. Mark my words.
The real threat to watch are the construction and development loans that sit on banks balance sheets at the moment. If the builders start to falter. Then these loans will affect banking in a very big way.
Oh, there’s no doubt about it. Most of the large builders are technically bankrupt today, if they were to mark property to market. I’m too lazy to do research right this second, but I would put KBH, Horton, and Beazer near the top of the list based on their continued aggressiveness well into 2006. This first bankruptcy should happen very soon, really any day. And then the market will be down another 500-1000.
Watching CNBC now with my 5 year old, telling him he’s watching The Great Housing Crash of 2007, maybe he’ll remember this when he’s learning about it in Econ someday. I don’t think they can make enough popcorn for this…
Of course, still waiting for a price drop in West LA, but whatever.
By the way, next bubble: corn (or making popcorn, of course).
LOL!
We recommended buying corn right here back in Dec. of ‘06
Right now, sugar looks attractive.
Caramel corn.
Yeah, sometimes I feel like it’s tantamount to watching a bristlecone pine grow. Maybe all the realtors here are right! Maybe West LA *IS* different!!!
for
I don’t think I have seen this comment yet, but I had to post it.
“Fear and ignorance seem to be gripping retail investors these days,” said Charles Biderman, chief executive of Santa Rosa, Calif.-based TrimTabs on Thursday, pointing to ongoing concerns about subprime lending and slumping housing markets.
“There’s no credit risk; no bank is going to lose money on this subprime fear,” he added. “Income-tax collections are strong, and you don’t have a housing collapse when wage income and job growth are surging.”
It sounds like he is the one with fear and ignorance. Those comments almost sound desperate.
Sorry, here is the link.
http://www.marketwatch.com/news/story/second-biggest-outflow-year-points-fund-market/story.aspx?guid=%7B88D64DA2%2DCA6E%2D4F39%2D81AA%2D440FD495ED90%7D
“There’s no credit risk; no bank is going to lose money on this subprime fear,”
ugh… yea. He gets a zero for that answer. Almost all banks are holding at least some subprime. Now… most won’t be brought to their knees… that will be the poor bondholders.
And then they hire lawyers…
Got popcorn?
Neil
Marketwatch.com front page graph and accompanying figures are frozen in time (gulp!)…
Dow 13,428.13 -356.94
Nasdaq 2,593.36 -54.81
S&P 500 1,484.15 -33.94
10 YR 4.78% -0.13
Oil $75.20 $-0.68
Gold $675.10 $-11.40
http://www.marketwatch.com
Am I the only poster who is seeing a blank screen on marketwatch.com?
I guess no knews is good news…
http://www.marketwatch.com/tools/marketsummary/
Clarification: The stock market chart on the marketwatch.com front page was temporarily blank…
“Am I the only poster who is seeing a blank screen on marketwatch.com”
Go outside and go to the beach…it’s a nice day in San Diego!
I wasn’t getting any graph to come up either GS.
I wasn’t getting any graph to come up either GS. On the news at 4:30 they reported the volume was so heavy ath the end that what they were posting as a final finish point was not final.
FWIW, my trade confirmations were taking a very long time to come through today. I’m guessing that has something to do with volume?
http://www.minyanville.com/articles/low-stock-crash-down-up-nyse/index/a/13481
The market will probably be up some on Friday. The FEDs will make sure GDP is decent, even if they have to cut it in half later on.
The GDP is going to be excellent somewhere around 3.6.
It will not matter.
You’ve been sounding more and more bearish over the past few months. It’s getting downright scary…
Wow!
‘Wall Street takes biggest plunge of the year’.
http://tinyurl.com/d2hgg
Two things:
1. We’ve become so accustomed to the stock market always going up since 2003 (sound familiar?), that a 2 1/4 % drop seems like a lot. It (in my opinion) isn’t.
2. This will be labeled as “a badly needed correction”, ie a good thing. *I* would label it as “a second shot across the bow”, ie a second warning sign.
I guess tomorrow will tell me who is right.
nice photos, by the way
Thx!
Volume went reset back to zero?
Progressive talk radio in LA (I’m not a lib, just had it on) reporting that China is scooping up deals that American and European companies can’t get financing for due to the credit crunch (I’m not sure why the credit crunch is affecting corporate loans/LBOs, as opposed to subprime/RE loans, maybe someone can explain that). The German congress is pissed and trying to make laws to prevent China from buying up German businesses and possibly real estate. UK and USA don’t care, they’re letting it happen.
Ever read The Art of War? Apparently the Chinese have. Also goes along with them supplying weapons to the bad guys shooting at our troops in Iraq right now.
Carlos Ponce, head of equity strategy at IXE Grupo Financiero in Mexico City.
“People in the U.S. have their savings in the stock markets and their other source of wealth is their home. If Americans’ feel less wealthy, they will spend less.”
This says it all.
“Seiders said the housing market began sliding in 2005, in reaction to the boom that dramatically inflated prices in the first half of this decade. ‘That destroyed affordability,’ he said.”
Perhaps the NAR could learn from this example on how to be upfront and honest in the information they put out to the public. I for one doubt it!