Bits Bucket And Craigslist Finds For July 29, 2007
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The Housing Bubble
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In the spirit of pismoclam’s ‘deadbeat renters’ posted a day or so back, how about some work on the ‘deadbeat owners’ meme.
E.g.
“I’m not going to buy until the last of the deadbeat owners gets foreclosed out and the market’s normal again.”
“Check out the deadbeat owners advertising short sales.”
“I reckon the deadbeat owners are starting to selling their toys off real cheap.”
etc.
I have a question for all the HBBers, but would especially appreciate any comments/suggestions from GetStucco, Hoz, TxChick and Deron:
As is now looks that liquidity is drying up and cash is again king, I’ve noticed the some commentators (grrrr…including Cramer, sorry) have been recommending companies with strong balance sheets, like Microsoft.
So, my question is: Do you think it would be wise to look at investing in companies that have a very high quick ratio? I know that you have to look at companies and consider things like their industry and seasonality, but overall, don’t you think it makes since to maybe take a look at those companies that have lots of cash and little current liabilities and consider buying such companies at the dip in the market this week?
Thanks in advance for your responses!
I would also factor in the effects of a credit crunch on a given company’s operations.I suspect very few companies will remain unscathed during a crunch no matter how strong their balance sheets are.
If you believe cash is once again king then cash is where you should remain. IMHO.
Well, yes, I do think cash is king again, but I don’t know if I should remain 80% in cash like I am right now (sold most of my stocks in late May and bought some ultrashort SRS and SDS in June). I do believe that while the market is looking very unsettled, and could go down another 10% to 20%, it think it makes sense to creat sort of a shopping list of companies that might make attractive buys….you know, so I ran the numbers on about two dozen stocks and found some with very high quick ratios of greater than 1.5 (MSFT, LM, SWIR, PTEN)….just seems like they would tend to fare better than the overall market in this type of enviornment.
I would create a shopping list of companies, but I wouldn’t rush right out the store. I think this market has more correcting to do and all stocks could take some hits (large or small) as it finishes correcting.
I think large caps are better right now.Healthcare and consumer staples might be a good place to park your money. Do not buy all at once! Dollar cost average your way back in.There are too many weak hands in the market right now, most on margin.Give it a little time and buy quality and you will be fine.Buy when other people are selling.
How little time?
http://finance.yahoo.com/q/bc?s=%5EIXIC&t=2y&l=on&z=m&q=l&c=
I would make sure the market has given back its Goldilocks gains before getting too confident.
I made a boat load shorting DSL and long the ultra short ETF’s SKF and SRS. Sold SKF and SRS late Friday. Will look for another buying op this week on a large bounce, if it happens.
“If you believe cash is once again king then cash is where you should remain.”
Ditto. Wall Street shills will keep saying “There has never been a better time to buy stock, provided you buy the right company and hold on for the long run,” but given the degree of correlation in paper asset prices at the moment (e.g. how almost all stocks have conundrumishly levitated pretty much in synch during the parabolic blowout phase of stock market bubble II), it would be quite striking if some did remarkably well (Amazon, Google, Apple excepted
) while others dropped like rocks…
Even if they only dropped 5% while others dropped 20%, you’d still be better in Treasuries. But don’t take any advice to extremes. I now have my TSP in 65% G-Bonds, 20% foreign equities, 10% S+P index and 5% Wilshire 4500. I’ve taken a bunch of money out of the market over the last 6 months, but I’m not 100% ANYTHING.
Sounds 100% smart to me…
The problem is that cash is being devalued on the order of 10-15%/yr, which is how much money/credit is being created on a yearly basis. Nearly all currencies are inflating at this rate, a classic race for the bottom.
Getting 5% in a MM account is a guaranteed way to lose 5-10%/yr in purchasing power, in the long term.
“The problem is that cash is being devalued on the order of 10-15%/yr, which is how much money/credit is being created on a yearly basis. Nearly all currencies are inflating at this rate, a classic race for the bottom.”
Beggar thy neighbor’s currency…
Right, beggar thy neighbor’s currency, if that’s the policy that the FED and the Powers That Be want to follow, then cash probably won’t be a safe bet at all….but maybe those companies get more than 50% of their sales from overseas ( 3M or Boeing or MSFT) may do alright with both growing sales and higher profit margins (once they repatriate their earnings)….but I think GS, Ghostwriter and AZDude are right that it might pay to be patient and see how the next few weeks play out….good luck to all the HBBers…!
Holding cash for the short term may be prudent, even though it is losing purchasing power.
Say it’s losing purchasing power at 1% per month, through inflation of the money/credit supply, and earns about 0.4% per month in interest (about 5%/yr), your net lost is about 0.6% per month, about 7%/yr. When the stock market tanks 5% in a couple of days, cash certainly seems pretty stable.
But my outrage is at the 7% the Fed/Govt silently hides, year after year, purposefully eroding the dollar. And wiping out savers, and my chance at buying a house sometime in the next few years.
Getting 5% in a MM account is a guaranteed way to lose 5-10%/yr in purchasing power, in the long term.
Another scare tatic, Purchasing Power loss of 5/10%? So I put for example $1mil in a 5% mm in 5 years I have now $1.25mil ($250k in interest). I am going to spend what 40K in that year 6, so are you saying I “lost” or paid $2k to $5K more for my purchases? I am not scared.
It’s not a scare tactic to note that the purchasing power of the “dollar” is decreasing rapidly. If you’re not scared of that while holding a big “dollar” balance, you don’t understand the situation.
Even if you take a stab at estimating some sort of “real” cpi to get a grip on the declining purchase power of money, that rate is less than that of the stock market increase over the last few years. Future earnings have become more and more expensive to buy.
Look, anyone who tells you that they have some magic way of getting risk-free returns is selling you something. Treasuries return a real rate of (very) approximately 0% because the chance of default is approximately equal to the chance of complete devaluation of the dollar itself as a currency. The illusion that you could create an investment vehicle with high returns and neglibible risk is WHY WE’RE HERE. These investors failed to find the Eldorado of risk-free return not because they looked in the wrong place, but because it doesn’t exist.
Strong Balance Sheets??? Is it me, or is Enron accounting the norm for all companies and accounting firms? They adjust numbers to look good one quarter, and then readjust them 1 year later and said “OOPS” forgot this writeoff. I just don’t trust the numbers.
The beauty of Sarbanes-Oxley is that it was meant to give people the perception that Corporations, and their boards, had all been cleaned up. How is that working out?
Not working out, in fact, it seems even worse than it was. I will never forget the recorded audio clips of the Enron traders that NBC played on its Nightly News report at the height of the scandal. The traders were talking amongst themselves and viciously gloating over the misery they were causing by the skyrocketing energy prices in California. One in particular I recall making fun of “poor granny on a fixed income not being able to have her air conditioning, boo-hoo” or something to that effect. I know the upper management of Enron got nailed to some degree, but what about those traders? I’ll bet these vicious creeps are still active in the corporate world or on Wall Street.
Bottom line, most of these financial manipulators have nothing but contempt for the public at large, even though the public at large makes their miserable lives possible. There must be some form of justice, swift, equitable and decently priced, because otherwise, people will begin to take justice into their own hands. That is dangerous, because sometimes frustrations are mistakenly taken out on the wrong people.
“I know the upper management of Enron got nailed to some degree, but what about those traders? I’ll bet these vicious creeps are still active in the corporate world or on Wall Street.”
Wasn’t that Brian Hunter guy from the Amaranth hedge fund an Enron trader at one time??
“Is it me, or is Enron accounting the norm for all companies and accounting firms? They adjust numbers to look good one quarter, and then readjust them 1 year later and said “OOPS” forgot this writeoff. I just don’t trust the numbers. “
Yep and its not just companies doing it, government at all levels does the same thing
Why buy on the dips when the whole market is going down? You sound like me in early 2000. At that time I was close to 500k in net wealth. All of it in the stock market. I bought mainly tech and some puts and calls on margin. After the Nasdaq fell from 5100 to 4300 I thought that dip was a great buying opportunity. So I put some cash that I had taken out at 5000 back to work. 3 years later it was all gone. Oh one more thought the Nasdaq is still 50% lower than it was in early 2000.
If you feel that housing is not going to return to a normal level until after 2010 or later like many here do I would be buying puts on many stocks and not trying to pick the 2-3% of stocks that will be winners. In a recession 90 some percent of all stocks go down.
WAman,
Hmmm…90% of all stocks go down in a recession…? I don’t know if that’s correct or not, but if you’re right, well, I’m definately not looking to buy stocks right now since, like most people on this blog, I believe a recession is in the bag.
All I can say is that even though I have zero debt (no mortgage, no credit cards, no student loans) and make a decent income and manage to squirrel away about $18K per year, I feel very uneasy about the state of the US economy….I just can’t imagine how the folks who decide to swing for the fences by taking on huge mortgages must be feeling right now.
Cash is king again. Why? Nobody has it and a lot of people desperately need it. And if you are looking to buy a home with it, your purchasing power is getting stronger and stronger every day.
And I wouldn’t put too much trust in financial statements. Enron looked wonderful right up to the point where they imploded. And Fortune or Forbes had them as the best company to invest in for 3 or 4 years in a row. The account firms said everything was wonderful why they ran the shredders 24/7.
Believe nothing from the gangsters on Wall Street.
Joe Momma, I think you are being too hard on Wall Street types. They are just trying to feed their families.
(I can’t believe my computer didn’t blow up when I typed that. Wow!)
NYCityBoy, thanks a lot. My computer just blew up trying to display that. LOL
I do find it difficult to picture some of these million-dollar a year fund managers as Jean Val Jean.
Schwarzman lost a bundle this weekend as Blackstone sunk to near 25. Can’t you squeeze out a few tears for him?
spike66, Well I do believe that as this contraction comes, percentage-wise the rich will do worse than wage earners. But from where most of us stand, we can see no differnce between having a net worth of $5 mil and $ 3 mil, but we recognize the difference between an income of 60k and 50k. I mean, $800/month is real money for most of us.
Here in Australia I just saw a listing advertising “a healthy 3.9% rental return”.
And interest rates are higher here than in the US (and never at any stage dropped to the levels you saw a couple of years back).
That’s a price/rent ratio of just over 20 years, and it’s being advertised as GOOD. Goes to show just how deeply people here have drunk the Flavor-Aid . . .
-20 years
+25 years
in Netherlands you can at this time get 2-3% return (before tax and without considering other costs); most people who are advertising with these rents are probably in denial about the excessive asking price for their home, and try to rent it out as long as it is not sold to cover the mortgage. Obviously, most people don’t bother to rent out their property because it doesn’t make sense to bother with renters for this dismal return. Prices are still rising here (in my region +5% in the last quarter alone, that is more than 20% yoy, higher than the average for the last 15 years) so appreciation is providing far more ‘income stream’ than any renter can pay.
NHZ, I always appreciate hearing from you how things are in another part of the world. Thanks for your comments.
Is this south Florida’s fate ?
High-Rise Relics:
Ghost Structures
Haunt Bangkok
Abandoned in 1997 Bust,
Rusting Projects Loom;
The SV Garden Tower Mess
WSJ July 27, 2007; Page A1
BANGKOK — One recent steamy afternoon, a shirtless man named Nop tossed out chunks of putrid meat for the dozen stray dogs that share his home, an open-air encampment inside the unfinished 47-story Sathorn Unique tower.
Ten years ago, Sathorn Unique was destined to be one of the city’s glitziest addresses. Today, its Corinthian columns and four-story arches are nearly lost amid a tangle of trees and vines. Although workers completed the building’s basic structure all the way to the top, its concrete shell starts to peter out about 20 stories up, leaving exposed metal and a half-finished dome on the roof. Steel bars jut out in all directions and mounds of refuse litter the grounds. Inside, two out-of-service escalators climb to nowhere and the smell of urine is overpowering.
http://online.wsj.com/article/SB118548038601879283.html
Ooo….maybe they can do a new version of the musical, “Rent” for Bankok?
Or maybe instead of “one night in Bangkok and the world’s youre oyster” it should be “One week on Wall Street and you’ve lost your nest egg”
Here is that tower (I think):
http://www.benwinston.co.uk/feature/10011/image/10355/
This problem is already cropping up in some of the high rises and condo developments in downtown West Palm Beach. The buildings are SO empty that people break into the condos and squat for months without being discovered.
Also, one does have to wonder; when the bank takes back 1/2 the units built in areas like WPB, FTL, and Miami, are they going to continue to pay the HOA fees, and continue to do the upkeep on these condos?
It really looks more and more like you may be able to take these condos for FAR less the reproduction costs at some point in the near future. There is almost NO demand for them at all; and the demand that does exist has 100 condos to choose from for every live body. Couple that with the insane taxes and insurance in FL, and I wonder if these buildings will EVER have a normal occupancy (or if the people they were built “for” (yuppies and snowbirds) will ever inhabit these buildings). They may go directly from “Empty Luxury condo” to “Slum”.
I don’t know all of the details but I have a co-worker that owns several West Palm Beach condos. Her husband and his father were busy flipping in Florida in 2005. The profit margins in Queens & Brooklyn weren’t high enough for them. They were geniuses. The music stopped and now they own several condos. But he has told her that they are being rented out so they should be able to wait out the downturn because they are in the nice part of West Palm Beach.
I have never been to West Palm Beach. It doesn’t sound like he got out soon enough. People still don’t realize how closely the Florida debacle is tied to the New York market. They will find out soon enough.
NYC, see if you can get the details, I would be intersted to know where this guy owns.
Sure, you can wait for inflation to 1/2 the value of money and then perhaps sell them. But if he just bought these condos (in the last 3-5 years) which, he almost definatly did (there were nice parts of WPB with condos 5 years ago), he is not coming CLOSE to the carrying costs on these units with the rent. And the rents continue to fall in the downtown area; there is just SO much inventory down there that even getting a renter is difficult (and even at what I consider, a very fair price).
He definately did not get out soon enough, that’s for sure. Anyone in the WPB condo market today is taking a bath, and will continue to take a bath until FC, BK, or short sale (IMHO).
Also, if you don’t mind sharing his name I can look up the units that he bought and give you the “on the ground” report on those buildings. I looked at all the new buildings down there (I used to work downtown), and lived there for about 2 years; I am intimately familiar with the area.
I don’t have that much detail and I can’t ask his wife. I want to so badly but I just stay away from the topic. I got one second-hand report. I know she was nervous when he was flipping but, “we are making so much money”. How’s Plan B working out?
What is “FC”, please?
FC= foreclosure. BK=Bankruptcy.
“the Florida debacle is tied to the New York market”
Someone in my family just rented out a 2bd condo in Tampa to a NY couple for 2,200/mo. It overlooks the bay, but it still sounds pretty high for Tampa. As credit tightens, Wall street will feel some pain and that pain will spread to Florida.
In our area in Ohio you have to go to court to evict squatters. They end up with almost the same rights as foreclosed buyers. I know an agent that had to do that to one of her listings in a bad area.
The problem with condos in Miami is that the taxes and HOA dues/insurance combine for a higher total than you can rent those things out for. So in essence they are a liability NOT an asset. Right now I wouldn’t take one if they were giving them away. …what is the first lesson every salesman learns? “If you can’t give it away you can’t sell it.”
Aren’t taxes going down if valuations decrease? I doubt it. Government got addicted to those fat tax revenues, doubtful that they will downsize. They can always adjust the tax rate upward as valuations adjust downward.
Michael, I wonder what many years of a stagnant RE market will bring for South Florida and its proliferation of towers.
I think it was two days ago when Ben made reference to the following link that dealt with the possible outcome of all of these towers in South Florida. It is a very upbeat article, basically saying that time will prove that building all of this unwanted housing will be good in the long run. I am not so sure. Like you said, they may be slums in the near future.
http://tinyurl.com/39rfvh
But rows of urban towers filled with primarily full-time residents who work nearby and tire of commuting from Kendall or Weston will create a community of not just dwellers but consumers, making streets safer by their presence and causing service businesses to bloom around them. That’s a net gain for the city.
Some areas in the country that are entirely dependent on RE will be struggling with the RE paradox: that RE by itself is not a wealth generator, but rather a parasite on society. In previous RE busts institutions have understood that the value of housing can very quickly short circuit from the cost of new construction to negative (no useful human utility), prompting the authorities to raze entire new developments well before any expected lifespans. (This is the dirty little secret that RE insiders do not like to talk about and the newspapers report with two paragraphs on page 15.)
But in the case of South Florida what happens when the high cost of bringing down unwanted and unkept towers (bulldozers do not do the trick here, you have to dismantle them floor by floor) is far greater than any institution is willing to bear?
What COULD happen are the unintended consequences of poverty, crime, violence, and disease of high-rise high-density section eight housing for pensionless seniors. Only this time there is an added twist: machete wielding
illegalssavages of the MS-13.Got 10% down?
Two Words:
Snake Pliskin
Paul
WaPo article today alludes that housing contagion may not be confined… http://tinyurl.com/357lw2
A typical dead fish quote here is “Other analysts were more upbeat. James W. Paulsen, chief investment strategist for Wells Capital Management, said the market’s reaction ‘is more fear-based at this point than reality-based, for the most part.’”
So tell us, Jim, the renewed bubble in the markets has been based on reality of… what exactly?
Another good quote here is from a 64-year-old FEH: “It doesn’t make me happy, but I know this is not going to be forever. . . . You’re in it for the long haul. If you can’t stand a day’s or a week’s loss, then you should not be in the market because you can’t react emotionally. You have to use your head.”
This is nearly identical to something a former coworker in his mid-50s told me in early 2000 with his entire retirement portfolio consisting of a NASDAQ 100 fund. I think he’s still in it, waiting for the long haul theory to prove him right.
Why is it that some folks conclude that you are acting emotionally when you get out of a market but you are acting rationally when you stay in a market? Aren’t there times when it is rational to not be greedy, take the gains you’ve made, and get out of a market?
Also, why is it assumed that you are not willing to risk if you get OUT of a mkt? Two years ago, I felt the economy was not at all good, so I took a risk and sold all my stocks. It turns out that had I taken a different risk and stayed in the mkt and sold my stocks when the Dow hit 14,000, I could have made more money. But in 2005, I made a rational choice that I could live with the gains I would make by selling. Did I take the correct risk? Time will tell.
I recall in 1999 a colleague and his wife were all set to retire in 2000. By May of 2000 they decided to postpone retirement because they lost hundreds of thousands of dollars in the stock market. They did not follow personal finance advice: If you are within 5 years of retirement, the bulk of your savings should be in government securities. I’m not sure if they are working still - the man was obese so his health may have deteriorated substantially.
Being 60, that’s exactly where I’ve parked my funds - govt securities. Thanks.
Sally, good move. You’ll like the article below by Bill Fleckenstein:
Market’s dive is just the start - MSN Money
http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/300pointdropjustthestart.aspx
I hope he’s right about tech (paraphrase: piling into it blindly here makes about as much sense as trying to draw to an inside straight) so Cramer will quit waving his hand in my face. Didn’t his Dad teach him how impolite that is? March: get out of tech, you’ve got to get out of tech now, can’t touch tech until the fall. July: buy all the tech you can, you’ve got to be in tech, load the truck up with tech. If we can get a good enough downturn to clear away Cramer (and Dykstra) once and for all I’ll be happy.
If you are within 5 years of retirement, the bulk of your savings should be in government securities.
Unfortunately, that only works if you choose the correct government(s). I doubt the US government is a good choice.
“He noted that the economy grew at a strong 3.4 percent annual rate in the April-through-June quarter, while business spending and export growth was solid, according to the Commerce Department’s report Friday.”
It seems this jenius failed to mention that the GDP number was, once again, more government bulls–t. Did you notice that he didn’t mention that the consumer spending portion was just awful? He also failed to mention that we have a consumer driven economy and that Ma and Pa Consumer, along with little Brittany, Taylor and Dylan are all tapped out. Good luck selling more $600 iPhones to these over-extended dimwits.
Add analysts to the professions that have destroyed their credibility.
Yesterday’s headline: Dow Keeps Tumbling Despite Good New
http://tinyurl.com/2dfsue
The Washington Post coverage of business is pretty weak. They show a despondent trader and a report on a few numbers.
If I lived in NY or Chicago and wanted to get my face in the newspapers, the next time there is a big drop in the markets I would walk over to the locale exchanges in a business suit and walk around with my head between my hands and a look of shock on my face. That would almost guarantee my picture would be shown in at least one newspaper.
James W. Paulsen, chief investment strategist for Wells Capital Management, said the market’s reaction ‘is more fear-based at this point than reality-based, for the most part.’”
If we look back to the late 90’s would we find a quote from Paulsen that the Nasdaq’s rise ‘is more euphoria-based at this point than reality-based, for the most part.’?
Wall Street and the syncophantic ‘consumer-financial’ mass media that cover them are worthles shills for buying stocks and fantasy markets that always go up. Even when stocks go down, they preictably trot out tired aphorisms about rebounds and dollar-cost averaging.
Even more so than in American culture, not being optimistic is considered ‘unAmerican’ and viewed with fear and suspicion.
With EZ credit drying up, things change.
“The trouble started in one of the shakiest sectors of finance, home mortgages for people with bad credit, but it is spreading. As easy credit dries up, some huge corporate deals are being delayed and could unravel…
“When people get scared, they tighten up all over,” said A. Gary Shilling, president of the investment firm that bears his name. He said he expects housing prices to fall significantly further. “This kills consumer spending,” he said of the credit crunch. “We think we’ll be in a recession as a result by the end of the year. And that will spread globally because U.S. consumers still are the buyers of first and last resort for the excess goods and services produced around the world.”
http://www.washingtonpost.com/wp-dyn/content/article/2007/07/25/AR2007072502436.html?nav=hcmodule
“When people get scared, they tighten up all over,” said A. Gary Shilling, president of the investment firm that bears his name.
Especially in the sphincter.
My stepson has a home in the northern Wisconsin woods that he needs to sell. He has listed it with a Realtor about a month ago. It has been shown six times, but no offers. This place is about three times more expensive than the average property. He has to sell this place which he bought in the spring of 2003 and is trying to get 20% more than what he paid. Any new construction in the area is by local contractors so not too much building. This area is a vacation destination and land prices have gone up a lot, especially at lake front locations. I have tried to educate him on issues I have seen around Fresno about the sub prime and alt prime loan issues and that this applies to the whole country. So, the question is how to sell this place quickly.
Coming to terms with the loss and lowering the price is really the only way. Anything else will just prolong the pain and extend the loss.
I live in Northren Wisconsin, Eagle River to be exact. Many of the realtors here are heavily involved with condo projects, that they are invested in. Believe me, they are interested in selling those first…so beware. If you get the local news review, the paper states the number of real estate closings over 10k every week. It is averaging 12, per week for the entire Vilas County area….not good.
if your stepson bought to make a profit, i would educate him on how to gracefully take huge loss. That is, if he can find a buyer!
Many of the buyers in the last 5 years and newer real estate agents have no concept of the last bust up here. In the eighties, lake homes were toast. If you didn’t have 20% down and an excellent credit rating, you could’nt get a loan for a second home. We are back to that now. No more helocs for that second home. As recently as 1998, you could buy frontage on the chain, for 800.00 a foot…asking last year was 3k a front foot. I can confirm this, because I purchased prime frontage on the chain in 1998. being involved in this market for the last 35 years, tells me hes looking a a 3-4 year sell time…if…he reduces the price to 1998 costs plus 3% annual increase from there. If he built a new McMansion on a lake, hes toast….we have over 650 properties in 54521, with 300 of them being over 300k. Think about that, 650 properties, 300 over 300k and only 4 of those closing a week…that’s a 75 week supply of higher end. More coming on the market every week, not counting the forclosures in the 400k range. As a note, we have zoning laws about renting out residential lake properties…a no no. Also, those condos…there are over 200 of them for sale. 350k-650k. The bust in 1980, lasted till 1995. 15 years of rough sledding. we lost 5 out of 7 realtors. they just left town. The smart ones were working for the banks, selling repos. Along with the hugh inventory of lake homes, we have over 70% of our restaurants and bars for sale. The average annual income here in Vilas County is 17k . Don’t look for any locals to buy. Good Luck
From the Home section of today’s SD Union Tribune:
QUOTABLE
“I don’t think consumers will be safe from irre-
sponsible and deceptive lending practices until we en-
act tougher federal laws to prevent this subprime mess
from happening again.”
–SEN.CHARLES SCHUMER, D-N.Y.
NYCityBoy can feel the money getting sucked out of his wallet to protect these “victims”.
People that think NYC is bullet-proof don’t understand the taxes we pay in this city. If they keep raising them and you will see people move out. There is only so much blood in the turnip.
This is Alt-A carnage…Bernanke’s non-prime problem.
The AHM REIT mess is roiling the financial blogs, but only Newsday is covering the Long Island lender so far. AHM does Alt-A, and after affirming earlier this week that Lehman had not pulled their warehouse lines, they waited until 10:19pm on Friday to not pay a declared dividend. Said major write-downs of its loan and security portfolios had caused significant margin calls…and a liquidity crunch.
Hundred of jobs cut, and the firm had become one of Long Island’s biggest companies in the last 10 years.
http://www.newsday.com/business/ny-bzahm0729,0,1799064.story?track=rss
Just quit it, Spike. Long Island is different. Long Island will be just fine. Everybody wants to live on Long Island. You are just too negative. You must have something in your life that needs to be addressed. Just stop this negative talk. Long Island doesn’t need you, anyhow.
LOL
“The AHM REIT mess is roiling the financial blogs, but only Newsday is covering the Long Island lender so far.”
AHeM…
I like that (Why You Should) Buy My House feature off to the side.
Since the dividend for A shares was due to be paid on 7/27 I wonder how many actually spent the dividend on a new toy?
This is confusing. On the one hand there was anger about bogus lending and liar loans and so forth. Here is a statement that is essentially saying that sort of craziness is bad and shouldn’t be allowed, and from the context it seems like this is also considered a problem.
Quoting this appears to imply the idea that loans like sharp knives should be available without regulation and anyone who cuts themselves has to just suffer. That seems a bit out of step with the ongoing problem of credit bubbles burning ordinary people and then in turn toasting the economy. Are you suggesting that we bring back balloon payments and other credit bubble methodologies? And how is it that stopping bogus loans becomes a bailout thing?
Saying that tighter Federal regulation of loans that prevents at least some bogus loans is the same as a bailout is about the same level of sophistication as saying history shows real estate always goes up.
Also, the bubble of the 80s was in large part triggered by deregulation of Savings and Loans. This is yet another consistent example of credit markets being prone to blow ups especially when there is a lack of regulation. Balloon payments, anyone?
Many apologies if this is a repeat post, but perhaps not. At any rate, this article shows that DataQuick’s Marshall Prentice at least partially grasps what went wrong with the mortgages of ‘05 and ‘06 vintage. I am not so sure that he understands that the lower equilibrium prices necessary for the market to ‘work through’ these ‘beyond’ mortgages will create another pool of ‘beyond’ mortgages of older vintage.
California Foreclosure Activity Continues to Rise
July 24, 2007
La Jolla, CA.–Lenders sent California homeowners the highest number of mortgage default notices in over a decade last quarter, the result of flat or falling prices, anemic sales and a market struggling with the excesses of the 2004-2005 home buying frenzy, a real estate information service reported.
Lenders filed 53,943 Notices of Default (NoDs) during the April-through-June period. That was up 15.4 percent from 46,760 for the previous quarter, and up 158.0 percent from 20,909 for second-quarter 2006, according to DataQuick Information Systems of La Jolla.
Last quarter’s default level was the highest since 54,045 NoDs were recorded statewide in fourth-quarter 1996. Defaults peaked in first-quarter 1996 at 61,541. A low of 12,417 was reached in third-quarter 2004. An average of 34,172 NoDs have been filed quarterly since 1992, when DataQuick’s NoD statistics begin.
“A lot of the loans that went bad last quarter were made at or just beyond the cycle’s peak, between summer ‘05 and summer ‘06. Appreciation rates for most of that period were in the double digits and lenders let many households stretch their finances to the max, and beyond. It’s that pool of ‘beyond’ mortgages that the market is working its way through,” said Marshall Prentice, DataQuick’s president.
http://www.dqnews.com/RRFor0707.shtm
Yesterday, I thought there was a good discussion on both sides of whether or not 5, 10, or 20% downpayments (with verification the downpayment came from one’s own account, rather than a loan from friend/relative) will be required in the future. Like many people on this blog, I am looking forward to the day of lower prices, and requiring downpayments, but I appreciate hearing both sides. Have we gone too far to ever return to those days of prudent lending standards?
We may not get back to the days of 20% down, but 5-10% is not unreasonable. There were two reasons banks didn’t want buyers to get downpayments from relatives:
1) They wanted to know that the buyers were disciplined enough to save to buy a house, since they are better risks at paying the loan back.
2) If they borrowed the downpayment many times they would say it was a gift, when if fact they had to pay it back. Sometimes this stretched the amount of the borrowers’ payments to a point that they couldn’t afford.
“Have we gone too far to ever return to thsoe days of prudent lending standards?”
I think we are back on that road once again. The reason the lending standards went to sh*t is because the originators of the junk loans weren’t liable for the performance of the junk loans. Wall Street set up the financial machinery to disconnect the risk from the reward thus prudence went to h*ll.
That financial machinery is now coming apart; risk will once again remain attached to reward when the lenders will be required to hang on to their loans, then lending sanity will once again prevail (at least until the next mania sets in).
I did a long post on this topic about 2 top posts down. I would have put it under this one if I had seen it. Sorry.
My questions are not only about what the banks will do, but what will happen to them. Thats was sort of raised in yesterday’s discussion, but I think we could say a heck a lot more about it.
We will return to 20% down payments and all the other prudent lending requirements. No one wants to lend their own money (or their shareholders’ money) without proper protection. It’s only the insane “securitizing” that has made that possible.
Have we gone too far to ever return to those days of prudent lending standards?
No way. Those standards existed for a reason, and those reasons have just reasserted themselves in spades.
Property Ladder and Flip This House are getting better and better this year. Last night’s Property Ladder featured a Houston area flip by a rookie, and his investor (the devil wears….). I was amazed that a 3,000+ foot home out of Houston could be cleaned up and still go for under $200,000. The whole flip was a disaster. They left mold in the house, hoping that the buyer would never notice. They listed the house at $210,000, even though the neighborhood dictated $190,000 or less. He got an offer for $198,000 and refused it because he wouldn’t have made enough profit. The show ended with the house sitting empty ten weeks after that offer was rejected.
Flip That House was fun too. A guy bought a house in Santa Clarita. He actually didn’t seem like a bad guy. He had paid $450,000 (too much) then put in $50,000. The realtor in the past would have told him, “I think you should list this at $700,000.” The realtor told him “$540,000 - $545,000″. That is a pretty slim margin of error. I’m guessing that it will be interesting to see Flip That House - Updated to see how that one turned out. I’m guessing not so well.
It is great to hear the intros to these shows acknowledge a slowing housing market nationwide. Flipper Nation is now FB Nation.
It is great to hear the intros to these shows acknowledge a slowing housing market nationwide. Flipper Nation is now FB Nation.
I noticed that too. Oh how far we have come.
The producers of those shows will turn with the market when they realize people want to see the flops. This will be good.
Someone posted a link to Bravo’s upcoming “Flipping Out” (starts this week).
http://www.realitytvworld.com/news/bravo-debut-new-flipping-out-home-flipping-reality-show-on-july-31-5443.php
Some paraphrases from the early seconds of the first ep/trailer I watched:
To workers: Get your spray guns and start spraying. I don’t want you to take too much time at it though. Because I’m not the owner so you guys are technically trespassing.
(I wonder if TV has discovered that bubble truth is stranger than fiction.)
I couldn’t believe when the dude turned down the $198K offer. It would have taken $12K out of his $30-40K projected profit. However, what they don’t mention on these shows are the fees. I’m betting when the $20K closing costs coming and going were factored in, his “projected profit” was closer to $10K-20K. A $12K mark down off $10K profit…. ouch.
AND, he has to pay back his “investor”. The deal may be that the investor gets the frist $20K…. So, a $12K mark down on means the dude is losing money.
Same thing with that flip this house episode. Bought for $450K, put in $50K. If we can sell for $550K, he’s going to have $50K in closing costs coming and going that are not included in the numbers. At best, he is breaking even.
At the start of the show they said 4 weeks and $20K. I laughed and said 12 weeks and $40K minimum…. 5 min into the show they he was already over his $20K…. Geee, you think!
Even the Trademark crowd isn’t buying and flipping anymore. Most of their shows seem to be redos of multi-unit properties. A $16K makeover to a 4-plex unit and they up rent from $800 to $1200…. BS! Of course, it was being “rented” to one of their own.
Morelikely, they got paid $20K to produce the episode, so spent $16K of it on the unit…. Cheap EVERYTHING! And the 4 day deadline? Keep production price down as you only have the tv crew for a week.
It is soooooooo see through!
I never watched “Flip this house” because unlike “Property Ladder”, you never saw the results. It was all champagne and roses because the realtor told them they would make buttloads of money. Then a few weeks ago when they showed the “Updated” version, my heart skipped a beat. The smug grins went away pretty quickly when the flippers learned that while they were trying to screw a buyer, their realtor screwed them by promising big bucks. HA! After fees, these people barely broke even, yet, they all said they would flip again!
I’d love to see a show called “F’ed Flipper”
I loved how at the end of Property Ladder they said the flipper was already off to another flip - with a different “investor”. I hope they do a sequel!!
A nice property in a nice neighborhood in Mass I was monitoring just sold for 297K. The note from either Indymac or Wells appears to be 383K 1st 53K 2nd.
While driving about in one of the nicer areas of Lynnfield Ma, I spotted a new developement. No interest but I figured I’d check it out. 5 enormous Mcmansions in a cul-de-sac. All nearly complete, all for sale. Very curious who the developer is. Also, very curious architecture\design. Open house today, I may just pop back over to interrogate broker.
One street up the road similar planned developement different builder. 3/5 lots show sold with not a leaf or branch out of place. Kinda curious as you’d think in years past they would have stated construction on the 3 supposedly under contract.
I’d like to revive a line of discussion from yesterday’s bits and buckets that ended with a lot of “yes it will/no it won’t” but could probably handle some more in depth discussion.
I’m talking about the “will the 20% down payment requirement come back” thread.
The basic outline was someone (a few people?) said that banks are in the business of lending money and if no one in the country has down payments saved up, they can’t require them, or they will be out of the lending business for years. On the other side, people asserted that this situation is what will cause a massive decline in prices so responsible buyers can save up downpayments in a reasonable amount of time (7 years was mentioned). The impossibility of a seven year period when no lending takes place was mentioned. And at least one California friend said he knows plenty of folks with $50K in the bank but with CA prices at 10 to 13x median income, that won’t do you any good but at a better price it might be more than enough. (We feel your pain, Califonia.)
Now, the whole “what will banks do with their money” is a red herring. Banks used to take in deposits and lend them out and make money on spread. When I first started reading the HBB and talked to my parents about it, my dad (MBA finished in 1969, I think) thought that was still the bank business model. Bank deposits wouldn’t begin to cover the increase in mortgage money lent out in recent years. We all know that the banks (and non-bank mortgage originators) now make the initial loans, keep them on the books for a few months, package them up, and sell them to investment banks to split into MBS’s and CDO’s and whatever else. The business model for banks is based on fees, not on interest rate spreads.
Now that the fundamental unsoundness of taking bad loans, mushing them together and saying that they have magically become good collateral for bonds has been revealled, the investors are going to be demanding something more. The question is what?
Used to be, you would only go to yor local bank looking for a loan. The manager knew you, your job, your general financial situation and a lot of other stuff (kids birthdays, how much you drank on weekends, what your landlord thought of you, etc.). I don’t think that is coming back. It doesn’t fit with our computer-based, high employee productivity based society. But the old numbers based standards that you had to have in addition to proving to a loan officer that you were of good character can come back. I think the 20% down payment is good candidate for that. Maybe something else is too. Does anyone have any ideas? The whole “you have to prove that you can save the downpayment yourself” (not get it as a gift or a loan from parents, etc.) is harder to document in a form that doesn’t require human analysis, but it could be done, probably with some risk of cheating. Verification that you have worked for the same employer for a while with steady or increasing salary also could come back, but that may be more unusual than significant savings in our society.
Or perhaps the saved up downpayment is so unusual these days, that this requirement alone will be enough to separate the wheat from the chaff.
Perhaps lower down payments will be allowed, but only with private mortagage insurance and the fees for that insurance will go way up.
As for what the banks will do, well, I think that is obvious. They will find some other line of business in which to collect their fees, or they will shrink, massively, or both. Non-bank mortgage originatiors are already going out of business. Other businesses that are dependent on the housing bubble (builders, realtors, etc.) are hurting. My guess is a combination of new fees and market consolidation in the banks. Electronic payments are cheaper for them to process, so look to massive fees for check writing. Fees for seeing a teller (yeah, I know some already do, but it will be more wide spread). Fees, fees, fees. And consolidations with layoffs.
That is what I see. Anyone else?
If the federal government stops actively working to undermine downpayment requirements, the private lending industry will bring them back. It is a simple matter of prudent risk management. (See further comments in my dissection of Lou Sichelman’s Sunday article on seller-provided financing, further below.)
Low down payment schemes are key to ensnaring less wealthy people who can be squeezed with high interest rates. Because selling toxic loans to people who are not well off is extremely profitable, the losses from the defaults should either be balanced out or get sold off. It might be possible to address this with regulations that prevent some kinds of loans or that interfere with the profitability either up front or by making the defaults into undroppable hot potatoes. The most important thing to keep in mind is the high profitability of high risk lending, especially if there are easy outs like dumping junk on FannyMae.
There are reports that Fannie Mae and Freddie Mac are acting as sewage disposal plants, sopping up the toxic sludge of the subprime mess. The link below is to this week’s Gold Seek radio show. They interview Jim Willie, editor of the Golden Jackass newsletter (not a joke) who talks about the sewage disposal operation. The interview with Willie is in the second hour, starting about 20 minutes in.
Goldseek Radio
Hi Polly,
The one thing that is so central to all of this you did not really mention and that is affordability. Take away the ninja loans, option loans, and subprime at reasonable rates and no loans will be obtainable until houses drop to 2002 or lower prices. You have to also remember that the number of people who own a mortgage is at record levels. So who is going to buy these houses? People who are in excellent financial shape may be able to buy a bigger house in a better location, but who will buy their house? This is not about down money, but affordability. There is also the problem of hundreds of houses that many banks will be owers of in the near future. They will be paying the debt on these homes and will have no money to lend.
From a lender’s point of view, 100% financing is dangerous when the value of the collateral (the home) can drop.
However, we are entering a period when market prices will bottom out. They will not and cannot go lower, and loans on RE will be far more secure than during the bubble.
So, even after a foreclosure the property will sell at least for market price and loans will be recovered with minimal losses.
I do not see 20% down payment as a necessary policy to secure the loan or to protect the market.. although lenders might request a dp for other reasons..
In light of their desire to lend money in the tough economy of the near future, a balance will be reached.. we shall see what direction they go.
“However, we are entering a period when market prices will bottom out. They will not and cannot go lower, and loans on RE will be far more secure than during the bubble.”
Angelo Bronzilo just said things won’t turn around until 2009, did he not? Is that what you mean by “entering a period when prices bottom out” ? I agree that RE will be more secure, eventually, but the fact is, millions of people are carrying morgages that they can’t afford. We have a looooong way to go.
i wouldn’t say 2009 or 2029 .. i inherited no predictive genes at all.
the market has turned .. we are headed down. It will eventually hit bottom. This is the period i speak of.
Regardless of when it happens, the lending industry actually has to see it bottom before it can change standards accordingly.
well yeah .. how and when they lend depends on their opinion of the market.
imo, none but the most stable and astute will remain level-headed enough to even recognize the bottom.. the rest will wait ’till prices are surely on the rise again.. and even then to re-enter cautiously..
Quote: They will not and cannot go lower
Why not? Nobody is forced to buy, but people are forced to sell all the time. I would say sellers are at a strong disadvantage in terms of preventing prices from falling nice and far.
Isn’t that like getting into penny stocks and saying “well, they’re so cheap they can’t go lower”? Perhaps people think that houses can not possibly go below replacement-cost value? Over the long term that makes sense, but to me it makes no sense to believe that during end-of-bubble gluts. A commodity can literally have negative value if nobody with any money wants it.
“A commodity can literally have negative value if nobody with any money wants it.”
I’ll agree with that… but the subject of my comment is loans and downpayments, which this implys that someone certainly does want this commodity.
It’s a used house. It sure as heck should go for less than replacement cost (including land, of course). Would you ever buy a used car for more than what a new one would cost? Houses depreciate too.
“They will not and cannot go lower, and loans on RE will be far more secure than during the bubble.”
Do you have any basis for this statement, other than your personal opinion? Because prices sure went up a lot more than many thought possible similarly to the price of tulip bulbs during the Tulip Mania a few centuries back. And they sure haven’t gone down by very much, despite a supply glut coupled with a dearth of qualified buyers at current pricing. And prices sure fell quite a bit during the last bust (1989-1996 or so). Are you saying “it’s different this time?”
My comment was poorly written.. it was written at 9 BC (Before Coffee)
“They will not and cannot go lower” is a future point of view.. it follows “when market prices will bottom out”
when market prices will bottom out = they cannot go lower.. and vice versa.
now we could argue about how hard the bottom will be.. Granite? Stainless steel? Mush? but i’d rather not. My point is that when prices are at bottom, loans are more secure (than when the atmosphere is bubblicious) and no-downs are not all that risky.
The problem is, it isn’t practically possible to know where the bottom is, except in hindsight. According to the NAR we’ve been hitting the bottom just about every month now for quite some time.
You have to remember the private federal reserve [banks] have “no” costs except the 4 cents for paper/ink to print the money. They make it up. Why this is not understood is that only the Washington DC gang and 1% of the public have knowledge of our currency and how it is made up. When was the last time a reporter asked who exactly says how and what quantity of money is released into the system? Is there a limit or may the printing press, banks desposits, happen with no restrictions? The public has “faith” in the system and for so long that only a few ever really questions why are dollar has lost it’s value, especially in a world marketplace. Public is unhappy about their dollars and what they can buy as ever year it takes more but they have accepted inflation as a way of life. This scam will continue untell the dollar has lost its value or a new currency is put into place.
No public outcry, no hard questions asked, no reporters asking questions, everything will go on as planned. Perhaps this “false credit with unlimited money created out of thin air ” will now be trouble and now will be traced back to the troublemaker. We shall see.
I have been looking at newer to brand new 2002-2007 homes on the net in The Treasure Coast since December.
The more houses I see and the more progress we make with the decline of the bubble. I have come to realize something, 99% of the homes that I have looked at in the price range of 200-350K (photos, videos) are complete crap shacks.
I mean talk about cheaply built, poor workmanship, NO ORGININALITY, plain Jane houses. Did they use one MOLD and keep reusing it over and over again?
It was one thing for real estate to double, triple and then some but it’s another thing to pay that high price tag for something that looks like it was built by inexperienced builders and appears like they will fall over with the first big gust of wind.
I know they implemented all sorts of additional building codes after the two big hurricanes but gees Louise, did anyone actually really follow up and check anything? Were the building inspectors in someone’s pocket too?
Price is one thing but finding a rental house that I actually like has proven to be even more difficult. Every home I look at has the same boring floor plan. It makes it so obvious why they were built in the first place to make a FAST BUCK and move on. This observation is further backed up by the point that half of the homes in PSL are either for rent or for sale and you know what? Even with 50% reductions, I am not interested in buying one of these dumps.
I have been aggressively looking at houses, and during this time I have found a total of two houses I am actually was interested in living in. TWO!, in the hundreds, that I have looked at. I think homes are not just sitting there unsold due to price, they are also not selling because they are JUNK.
The bubble has ruined so many things on so many levels that it touched and now everything is cheapened now because of it. To think people actually bought these S-Boxes really proves the bubble’s purpose. To try to make as much money with as little invested as possible and to take advantage of the suckers that fell for it.
Just wait for the first hurricane and we will have the problem solved immediately the gross over supply of homes are going to simply blow away.
You have to wonder how many of these homes have let their insurance policies lapse since they are already behind on the taxes and the mortgages?
My brother is a civil engineer and lived in Homestead, Florida. When a hurricane hit, he took a look at the damage and concluded that it was not the building code at fault, but enforcement. By the way, he designed to code and made sure the buildings were built to code with strong contracts to back it up. He was also careful about venting to relieve hurricane pressures on the structures None of his structures failed. He also choose the apartment building he live in carefully and it survived, including the two cats locked in the bathroom who freaked out when they saw other apartment buildings next to his leveled.
“enforcement.’
Bingo, we have a winner. I think this is the whole issue and the answer as well. There has been a total breakdown in the enforcement of existing codes and laws, at every level of the food chain.
From lending…”no doc, no income, no assets, stated loans” to building…illegal labor gangs, massive developments approved with collusion with local politicians without appropriate oversight,
“any number-you-want-appraisals”…to Wall St. securitization…subprime, alt-a and prime bundled and sold like sausages, with risk ratings by agencies profiting from their sale,
with Fed cheerleading unsavvy folks to take ARMs while fixed interest rates were at their lowest in decades, all primed with EZ credit and trashed-dollar liquidity.
My favorite quote is from that dead fish Lindsey Graham of SC during the immigration debate that ” this is as good as it gets”.
Not that the failed law was sound policy, good for the country, and enforceable, but that since we cannot longer control even our borders, we ought to just give up and take whatever is thrown at us.
We’ve come a long way from respect for honest dealings in a republic based on law and its swift enforcement.
Lou Sichelman has some curiously humorous ‘personal banking’ advice for sellers who are considering whether to provide their own financing in the wake of the subprime implosion: REQUIRE THE BUYER TO MAKE A 20% DOWNPAYMENT!
Doesn’t Lou realize that banks that make mortgage loans as their business would gladly snap up any buyer in the market with a 20% downpayment on terms a private seller (whose home business is not mortgage lending) cannot match? What’s worse, certain federal government agencies are actively engaged in undermining downpayment requirements, while others are waging a War on Savers which has driven the national household savings rate to negative levels for the longest protracted period since the Great Depression. The combined effects of these policies coupled with the recent onset of the ‘reverse wealth effect’
have shrunk the pool of buyers with 20% downpayments in their pockets to a level which merits listing them as critically endangered.
Consequently, the pool of buyers facing any seller sufficiently dumb or desperate to try this is very adversely selected, and the vast majority of this buyer pool is unlikely to be bringing 20% down unless the sale price is very, very attractive.
HOUSING SCENE
LEW SICHELMAN
Seller financing has many caveats
July 29, 2007
WASHINGTON – Variously known as “taking back a mortgage” or “holding the paper,” private financing is often heralded as the easiest and fastest way to sell a house, especially in a slow market.
…
Actually, seller financing is often treated as a last resort, and for good reason. It is at best an adventurous tactic that could backfire if your buyer decides not to pay. And almost by definition, buyers who need the seller to carry the first mortgage are not as good a risk as those who can obtain whatever financing they need through normal means.
…
Another factor coming into play is the implosion in the subprime mortgage market, which is causing lenders to tighten their standards up and down the line. Consequently, a buyer who might have qualified for funding earlier this year may not make it now.
…
For starters, insist on a substantial down payment – the bigger, the better. Mencarow says a substantial number of notes that people try to sell to him and other investors are “worthless” because they have little or no down payment.
Remember, loans with less than 20 percent down are far more risky, which is why conventional lenders require those borrowing more than 80 percent of the purchase price to pay for insurance that protects the lender from the greater possibility of default.
You probably won’t be able to get this kind of mortgage insurance, so demand the next best thing – a large chunk of change upfront. Ten percent is minimum, 20 percent is safer, but if you can get it, more than 20 percent is better.
http://www.signonsandiego.com/uniontrib/20070729/news_1h29sichel.html
The only time I really saw seller financing that was better for the buyer than going to the bank was in the early 80’s. Then the interest rates peaked at 21%, but sellers were financing @ 12%. Even people with downpayments were going land contract and purchase contract. Most people will only hold these mortgages for 2 to 5 years, so you’re still betting on conditions to be better down the road to get bank financing.
“The only time I really saw seller financing that was better for the buyer than going to the bank was in the early 80’s.”
Generally speaking, there is a reason that there are firms (called banks, mortgage lenders, etc.) which specialize in making home loans: Given the risks involved, it is an activity which is not particularly suitable for individual households to undertake.
Unfortunately, various federal government-induced distortions in recent years have served to undermine the private lending industry’s effectiveness in their traditional role of providing risk management services (e.g., making loans at purchase price levels which are not likely to lead to future foreclosures).
Unfortunately, various federal government-induced distortions in recent years have served to undermine the private lending industry’s effectiveness in their traditional role of providing risk management services …
The Fed enabled much of this by taking interest rates way down and having Fannie and Freddie binge on junk, but the history of lending is not as claimed here. Whenever there is a bubble there is also a private money feeding frenzy. Over time lenders have become increasingly bold because bad loans are overall highly profitable. This is why pets are issued credit cards nowadays. The 20% down of times past was in fact forced into place by extremely heavy handed regulation of home loans which back in the day could not be traded like baseball cards. If unregulated the lending industry will not correct itself, but rather will flood the market with toxic money. Then when there is a crisis they will call the notes, the economy will sputter, only a fraction of the money lent will come back. Rinse and repeat. History absolutely does not show credit markets to be self correcting in the absence of regulation, but rather the opposite.
“If unregulated the lending industry will not correct itself, but rather will flood the market with toxic money.”
Are you arguing that taxpayer-guaranteed (risk-subsidized) 100% payment programs don’t encourage lenders to flood the market with toxic money? I am missing your point.
I would bet that the vast amount of these mortages are not assumable. Therefore if these people sell their house to another they will be in default.
Is it just me, or is the last line (regarding the “median difference in price”) in this very short and cryptic SD Union-Tribune article hard to interpret? Was $61,000 the median capital gain over previous sale price? That would not appear sufficient to cover much of the tab for recent home equity ATM machine spending…
A disquieting loss
July 29, 2007
For some home sellers, putting up a for-sale sign is getting to be a costly exercise. In its latest price report, DataQuick Information Systems found nearly 17 percent of homes sold in the county last month closed escrow at a price less than the previous sale. That’s way up from 2.7 percent a year ago. The median difference in price was $61,000.
http://www.signonsandiego.com/uniontrib/20070729/news_lz1h29toppers.html
No, medain loss on the 17% that sold for less.
That was my first interpretation. I think the Union Tribune could have done a better job of explaining what that $61,000 was supposed to mean.
The short article posted above shows that an increasing number of San Diego sellers are taking a loss over the previous sale price. It is worth reflecting on the fact that even the homes sold by the 83% who posted a gain over the previous escrow are likely lower in value compared to what they could have sold for in, say, 2005 — it is just that they were last sold before the bubble price peak.
Meanwhile, the shills are still working hard to find buyers with enough bank to buy brand new McMansions priced at $700K+. A large (1/2 page) Brooksfield Homes advertisement shows the following undocumented (fabricated?) progression of prices superimposed against a scenic mountain backdrop:
MAR 2005 $738,446
JUN 2005 $745,494
SEP 2005 $743,713
DEC 2005 $738,033
MAR 2006 $724,511
JUN 2006 $694,259
SEP 2006 $692,612
DEC 2006 $695,950
MAR 2007 $707,958
accompanied by the following bit of (unsubstantiated) propaganda:
“BUY IN THE VALLEY (Of the housing market, that is.)
San Diego housing prices are trending upwards. Buying a home now could be the smartest decision you ever make.”
I am not sure where those price figures came from, but I guess they are supposed to subtilely suggest “Buy now or you will be priced out forever.” Perhaps the ad copy writers at Brooksfield have not heard about the subprime implosion or the credit crunch, which tends to severely limit the current number of potential buyers for new McMansions priced over $700K?
You may notice that there is a “save the Implode-O-Meter” drive going on at ml-implode. I know I’ve started moving money to Paypal to contribute to both the Implode-O-Meter and another contribution to Ben. Pony up boys, if you want to keep this assets around. They are better than CNN or Fox News by a long shot.
Hear hear. Ben & Implode-O-Meter have both been tremendous sources of information, that have educated and entertained countless thousands of regular readers - but what percentage has actually shown their gratitude, and helped sustain Ben and his site, by making a donation? No more than 1%, I’m guessing - shame on the rest of you.
Have to make some comments from yesterday’s threads.
First, thank you to those that answered my question about investing money for around 5% while taking advantage of the 0% teaser. I am pretty savvy on the credits cards and checked all that. Second, one of the cards is from Citi, and my wife is working in the call center. She knows the true terms from the inside. I will check the treasurys and the 5% banks.
I asked that questions because we loaned our friend that owns hotels locally in ABQ some money when he was in a cash crunch. He is now paying that back, but since I got it all set up for 0%, figured I might as well bank money until the 0% is up.
As for balloons, Albuquerque here is the capital. Biggest hot air balloon fiesta in the world. Gorgeous site to see 300+ different kind of balloons ascending at once. First week of October every year. Better than these financial ones blowing up.
I found what many might consider a dream gig. I am getting paid to evaluate casinos. Getting paid to eat and gamble. Many people that can’t afford to be there are the ones being the biggest gamblers. I just do whatever is needed to do my work, and pocket as much money as possible. Lots of fun, but a lot of work to write the evaluations. Lotteries are the most regressive tax there is. Only the poor play. The rest of us know the odds and consistently save money is the only real way to guarantee financial security. Not on the prayer of guessing 6 numbers at some 1 in a multiple of millions chance.
A great casino story to share. My wife is from India originally. Her 86 year old grandfather came to visit. He gave us a significant cash gift (did not expect), but he really wanted to do more. He felt bad he couldn’t do more. I take him to a local casino just to show him. I sit him down at a penny machine and stick $10 in. Five pushes, and he hit a $500 jackpot – highest payout on that particular machine. He gives us the $500. He went back to India a happy man because he got to give the gift he wanted. Also gets bragging rights of beginner’s luck in the casino. I have also taken others with me when I do my evaluations and they have hit some nice jackpots. Of course, I don’t. But at least I know they are paying me to tell what is happening from a customer point of view, and paid well.
hey, send me some of those “Strike It Rich” matches you get in the casinos. LOL
Get together at in-laws last night. SIL said she was happy that a house that had gone on the market at $305K, but went under contract at $275k, had fallen out when the buyer couldn’t qualify for a loan. That cop would have killed her.
So, I say, it will be better when it sells a for $240K 6 months from now?
She is so screwed! She owes $247K + faces $6k prepay penality on a house that can’t be sold $260K. She’s at 8%, heading for 11.5% Oct 2008. Bankruptcy 2 years ago.
Later, MIL mentions they’ve booked a cruise for the FIL b-day. SIL asks her husband if he’s interest in a cruise next March… Oh, he says, that is NASCAR week in Vegas… Oh yeah, says she.
We’re up to our eyes in debt, have been living over our means for half a decade, bill is coming due, and should we drop $2-3K on a cruise or $1K on a NASCAR race?
As Stuart Smalley said to Michael Jordan in a memorable SNL episode, “Denial is not just a river in Egypt.”
NASCAR week in Vegas. My god. I can’t imagine an event that sums up our current deluded state of affairs more than a cash-strapped couple going more in debt just to see NASCAR in Vegas. It’s a microcosm of our entire f***ed up lifestyles in the U.S.
“That cop would have killed her.”
The policeman is your friend.
Ok, enough cheesy typo jokes.
My cousin, whose husband owns a (small-operation) custom house building outfit that builds oversized houses in Westchester County, NY (and nearby counties), told me that they just closed on a second vacation house (third “extra” house). The couple generally have struck me as being pretty responsible in the past, but in the last three years, they have acquired one vacation house in central Florida, one vacant “investment” house in the same Florida neighborhood, and this newest purchase in some ski or snowmobiling friendly area of way the heck upstate NY. This is in addition to their primary residence, a 4,000 square foot house in Putnam County, NY. I optimistically asked if the ski house was some kind of cabin, but apparently it is far more elaborate than that. Setting aside the Florida boondoggles, they seem to have made few plans to weather a slowdown in his business. C’est la vie.
A house across the street from us had a SOLD sign put out in one day. About a week later, the realtor pulled off the SOLD sign. For Sale sign still slow. Guess the buyer didn’t get his loan. I hope someone that really wants to live there buys it This is a nice neighborhood. Home prices seem to be holding pretty steady. But more are on the market, and not as many are moving. I guess the few California floppers are headed back west with their heads between their Lereahs. No flippers welcome in ABQ.
abandoned high rises in Bangkok. Maybe this will happen in the Miami.
javascript:vlaunch(’http://www.marketwatch.com/tvradio/player.asp?guid={797E4ADC-F65A-4CE9-BD81-9F4547C03A7F}’);
I am on record for predicting exactly that. Actually Bangkok’s come back, but there are still skyscraper skeletons strewn about here and there.
Thailand, like Miami, likes to build big things without thinking them through. The new BKK airport is another example.
http://www.postgazette.com/pg/07210/805351-85.stm
“Twenty months after they put shaky signatures on a mortgage they couldn’t afford and a settlement statement they didn’t understand, the Baumans are preparing to leave. David Bauman can’t read. His wife reads slightly, but with minimal comprehension. The lawyer who handled the transaction, according to Mrs. Bauman, told her it would take too long if they read everything.”
“Less than three months after the Baumans took out a mortgage they had no way of paying, Bear Stearns, the investment firm that had accumulated a fortune by bundling thousands of mortgages to underwrite Wall Street bonds, bought the value of the Bauman mortgage.”
And we don’t need laws to protect people?
Bring a family friend to the signing, or don’t have “the signing”, take the docs home and go over them with a family friend or relative that has your best interests at heart.
The law that we already have is called “fraud”. I would hazard that even in this case, it might be considered fraudulent to verbally represent one thing, while having (people that can’t read) sign another.
But, in the end, maybe people should have a little skepticism towards RE ‘professionals’ looking out for their best interests.
If you find yourself saying “I shouldn’t have to” (as in “I shouldn’t have to have a friend review the docs with me”, or “I shouldn’t have to be skeptical of my RE professionals”), that usually means that that you will probably prevent yourself some pain by doing it.
I keep saying - bring a tape recorder to the signing…
Not a bad idea. Might be worth looking at the evidentiary rules to see what it would take to make it admissible.
I don’t usually find myself sympathizing with FBs. This must be the exception to the rule.
I’d suggest that consumers videotape the closing and other interactions. That would kill any funny business right there.
Have you ever noticed how polite and professional cops are when they know they are being videotaped?
Lawyers on this blog would know, but isn’t there some way this lawyer can be held accountable for his part in this scam?
“David Bauman and his daughters, Tina and April, outside 22 Fairview Ave. in West View. David and his wife, Jerri, are both mentally challenged and now find they were sold a $96,000 house they cannot afford, based in part on a loan application that they couldn’t read and which lists income they don’t have.”
Imbeciles breeding and buying houses. That sums up America today.
The real crime here is that mental defectives are allowed to breed.
A bit harsh there IMO. But I always wonder why incest is illegal among consenting adults (although genetic testing can tell you the risk of genetic errors) but people with Downs Synfrome and other genetic diseases can have kids with no problem. And HOW do you enforce a contract with someone that is mentally challenged?
LOL,
I thought this was a story on Subprimes.
http://www.chron.com/disp/story.mpl/bizarre/5008603.html
FDIC ‘insured’ funds rose from three trillion to four trillion in 6 years:
http://www.fdic.gov/about/strategic/report/2006highlight/fin_hi.html#cobs
The FDIC balance sheet appears to show 50 billion in assets, most of which are US Treasuries. I’m trying to wrap my head around this, but it seems 50 billion in U.S. debt is used as insurance for 4 trillion in bank obligations.
http://www.fdic.gov/about/strategic/report/2006highlight/fs_dif.html
As you further go down this rabbit hole, you have to ask, ‘What is a US Treasury?’
It’s basically a promise from the US government that either US taxpayers will foot the bill down the road, or the printing presses will create money out of thin air or both.
Well currency itself is nothing more than a promise from the government so…. But once we start talking along those lines the gold bugs agitated and start talking about returning to the gold standard.
I think there are some people that actually have sobered up from their koolaide induced comas.
Check this one out, it was built and sold in 1999 for 124,200 and now is listed for 160,000. If they accept an offer of 153,280 this house will have sold for in my opinion for fair market value.
What do you think? I am not interested in buying this but saw it and actually was surprised for the first time as I look at hundreds of houses.
http://tinyurl.com/3yght4
Sold “as is.” NW Zanzibar Pl.? Notice the dying bushes, and the low window on the house next door. Guessing (1) this is a bad neighborhood, and this house is much bigger and newer than neighbors, and (2) house is a mess, with lots of things that don’t work properly. Even money the garage door doesn’t work.
Tim Bond of Barclays Capital
“The risk here is adaptation or extinction, those who do not adjust their behavior to the new environment will not survive.”
Welcome to the Minsky Moment.
Yeah, what about when adaptation is CAUSING the new environment?
Markets just opened - maybe you should google Minsky moment.
Anyone else here stuck in TIAA-CREF? If so, what’s your advice on how to split the allocation in this financial environment? Thanks in advance!
The St. Louis Post-Dispatch has an article about the disappearance of a housing developer (formerly) active in the region of southern Illinois just across the Mississippi from St. Louis:
Hard times hit home for housing developer
Paul Lauber, an Edwardsville lawyer, represents Prime Development in some of its legal matters. He said Saturday that the company’s difficulties are a symptom of a depressed housing market.
“They went from selling 60 to 100 homes a year down to a couple a month and it has really hurt them,” he said. “Housing sales have totally fallen off the table. They’re trying to work out of it. They want to pay everyone.”
Suggestion for future thread: Housing bubble cartoons.
One that appeared today in the SD Union Tribune is by Drew Sheneman (cartoonist for The Newark Star Ledger).
It shows a respectable-looking man in a business suit, with a button reading “LENDERS” affixed to his lapel, holding a newspaper with the headline “SUBPRIME MORTGAGES DRAGGING DOWN HOUSING MARKETS.” The caption reads, “HEY, MY BAD. TURNS OUT IT’S A BAD IDEA TO GIVE A $400,000 MORTGAGE TO SOMEBODY WHO CAN’T QUALIFY FOR A DISCOVER CARD. WHO KNEW?”
You can find it here with a little bit of searching:
http://www.cagle.com/politicalcartoons/pccartoons/archives/sheneman.asp?Action=GetImage
Set the date to 7/25/07…
US subprime crisis shows signs of spreading
By Paul Taylor in New York
Published: July 29 2007 22:57 | Last updated: July 29 2007 22:57
American Home Mortgage Investment said it is delaying paying dividends on its common stock and may delay payments on its preferred shares because banks demanded it put up more cash after the Melville, New York-based mortgage lender wrote down the value of its loan and security portfolios significantly.
The move represents one of the first indications that the crisis facing sub-prime mortgage lenders in the US is expanding to affect lenders like American Home Mortgage whose borrowers tend to have higher ‘prime’ ore ‘near prime’ credit ratings.
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In a statement issued late on Friday the company said the moves were necessary, “in order to preserve liquidity until it obtains a better understanding of the impact that current market conditions in the mortgage industry and the broader credit market will have on the Company’s balance sheet and overall liquidity.”
American Home Mortgage, described the disruption in the credit markets over the past few weeks as “unprecedented,” and said this had caused “major write-downs of its loan and security portfolios and consequently has caused significant margin calls with respect to its credit facilities.”
http://www.ft.com/cms/s/754030ee-3e1e-11dc-8f6a-0000779fd2ac.html
Absolute Capital latest US subprime casualty
By Peter Smith in Sydney
Published: July 27 2007 03:00 | Last updated: July 27 2007 03:00
Absolute Capital, an Australian hedge fund group that invests in collateralised debt obligations, has temporarily suspended redemptions for two of its funds, becoming the latest casualty of the crisis engulfing the US subprime mortgage market.
Absolute’s Yield Strategies Funds and Capital Yield Strategies Fund NZD, which together have A$200m (US$175m) invested, have suspended investor withdrawals until October 25 due to “the current lack of liquidity in global structured credit markets”.
http://www.ft.com/cms/s/090826a8-3bd9-11dc-8002-0000779fd2ac.html