Bits Bucket And Craigslist Finds For August 24, 2007
Please post off-topic ideas, links and Crigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Hey Dwight you dimwit here’s a four letter word for you… RENT!
http://www.dallasnews.com/sharedcontent/dws/dn/latestnews/stories/082407dnbusmortgage.3641d54.html
That’s your typical lowrent suburban Dallas loser. The city is full of them.
Why can’t this dude get a FHA loan for a 90K house?
I see the same losers here. The morons are everywhere.
Must be a Texas thing…
I resemble that remark!
Alad: It is. They’re born stupid here and that’s the highwater mark for life.
William Sidney Porter lived in Texas, so it ain’t all bad…
They’re born stupid here and that’s the highwater mark for life.
There are stupid people everywhere, but in Texas they celebrate and brag about their stupidity.
What gets forgotten in Texas…
Stays forgotten in Texas
No down payment?
And “weak credit”. Oh, the tragedy.
So far, despite the media hype about mortgage meltdowns, I haven’t seen anything to make me believe we are back to normal. Poor credit risks with no down payment aren’t being given free money… good. Keep tightening.
to me, if you don’t have the 20% down, don’t even think about buying. that’s how we got into this mess to begin with.
TxChick,
Can’t go FHA because he’s owned within 3 yrs. Also has a 29% DTI so if he’s on disability, it may not cover.
Not FHA has a 620 min fico requirement so if his credit score was what was holding him back, he has bigger issued then a 10% interest rate.
90K ? You sure that wasn’t for a car?
Reminds of a good story though. A friend bought his first house a few years ago and it was so cheap he had trouble getting a mortgage, though he could have gotten a car loan for more with no trouble.
“90K ? You sure that wasn’t for a car?”
At about mile 6 of 24 along my daily bike ride I spotted this SUV. Nah, this can’t be real; maybe it’s belongs to a supervisor? While pedaling along I thought: OK, if this really does belong to “Jesus the apple picker” then it will still be there when I drive back with my camera. Well, after my bike ride, a shower, and a stop at the post office…there it is! And this is in Soap Lake, WA.
BTW, that’s a Cadillac Escalade!
We used to always joke that you can’t qualify to buy a $10k house, but you can qualify to buy a $30k car.
Ah, Dallas. I’ve posted about a former colleague who transferred to Dallas just because houses were too expensive to afford on a government salary in the DC area, but were “affordable” in Dallas on the slightly lower federal salary for that area. She bought a house last year that she described as small and “no curb appeal” in an area where “everyone” is buying, tearing down the old houses and building much larger ones on the lots. A government salary won’t pay for a tear down, but she thought it would be a good investment.
Well, another colleague went to visit her last week and confirmed the smallness and awkwardness of the house (a bungalow with a family room stuck on the back, small closets, no other storage). Also, the lots in the area are deep, but narrow, so the new houses (lots of stonework!) are all butted right up against the edges of their lot lines. She paid about $330K for her house about a year ago. The one next door was just sold for a tear down for $300K. She expects to sell in about 3 years for a huge profit.
I guess this is the “slow flip” model. Is there a special name for that? Anyone want to predict how much financing money there is going to be for tear downs in 3 years?
Actually how does financing for tear downs work anyway? I’d think that even in the loose credit of the last few years, you’d have to have some money to put down to get a loan on something that doesn’t exist, except maybe on paper. Wouldn’t you? Or could you get 105% financing on a picture?
I really think this woman deserves what she gets in this situation. When you decide that real estate is a good investment in one city because you have “heard” that real estate hasn’t gone up much there like it has in other places and end the inquiry there? That isn’t even a classic “it’s different here” analysis, which, while wrong, at least requires people to acknowledge that there can’t be a permanent housing bubble everywhere. She did the opposite - decided that the housing bubble had to happen everywhere and went to buy a house in a place she thought it hadn’t gotten to yet.
I’m pretty sure I know where this person bought and if she paid 330K, someone should have hit her on the back of the head with about $180K worth of change. She got the “out of towner” price, that’s for sure. Hope she likes the place, she’ll be there a long long time.
Sounds like Highland Park.
No, it’s East Dallas or Oak Cliff somewhere. You can’t get a garage in Highland Park for 330K.
There is hope, Northbrook IL, went through the craze a few years ago & is now hurting. We sold mom’s home for a very good price in late ‘05, builder tore it down & replaced it with a $1M+ McMansion. The place is still sitting today. The high and low end inventory in the town is huge, and sales are extremely slow.The singed rehabbers have finally stopped buying. Who in the twenty first century wants to buy a 1100 sq ft, 70 year old ranch for $500K? Try raising a family in a 2/1.5 vs a modern 4/3 with walk in closets, big yards, large kitchens, basements, …
True Story: (along the lines of “there is hope”)
Was having coffee two mornings ago in OB (Ocean Beach, San Diego) when my girlfriend and I are sitting next to two thrityish Yahoo type guys. The kind of guys who are always “into” one thing or another, one sales position or another, always on the lookout for “the hot” thing to do to make money.
So, I am listening to them discuss becoming small remodelers, decks, walkways, bathrooms etc…they felt they both had an “in” because they both were white but spoke Spanish.
Anyhow, one comes up with the brilliant idea of why don’t they “Buy and Flip” like on TV. I was just about to gag on my coffee when I heard something stunning - the other dude says: “man, you have to be crazy to buy a house now, it is dead!” I was shocked, and my girlfriend and I smiled to each other with the knowledge that the masses are coming to realize that house flipping is a fool’s game. This can only mean much lower sales in the future, coupled with much lower prices.
Is that Greek breakfast place still in OB? I think it was called Little Chef.
Little Chef has morphed, it still has the little Chinese food offshoot to it, but it has attempted to remake itself and go a little more upscale. They still do Greek food, but it is no longer like a little neighborhood diner, it is more like a restaurant.
To add an anecdote. I now have three friends who have bought or moved into a new place while still paying rent on the old place. One in California, one in the midwest, and one on the east coast (but of course this isn’t a national bubble). Two of the three have had deals fall through. And a close relative of mine (not one of the above because he is still living in his flip) has trying been trying to sell an investment property he bought in 2005 for almost four months. Unless we see a radical change soon, I think by winter 2008 the real estate myth will be common knowledge.
“This can only mean much lower sales in the future, coupled with much lower prices.”
In Ocean Beach? No way, prices will always be higher than you want them to be there. You’ll be waiting for a loooong time, my friend, especially w/ Benjamin conduction his daily helicopter drops.
I don’t think it’s still called Little Chef, is it?
Dear Desert Dweller:
Just because OB will always be more expensive than El Cajon, doesn’t mean it will always be more expensive than it was last year. BTW, OB is trashy.
“People are screwed.”
-Big V
OB is great because your band doesn’t have to set up in the garage. You can just run an extension cord out to the front yard and rock into the wee hours. Actually, I loved it the little while I was there, two blocks from the beach @ $700/month. Noisy, messy and fun. That was in 2001 and rent for most of those hideous ’70s motel conversions hasn’t changed a whole lot. House prices have gone up 2x-3x.
Loved dog beach when I was there 10 years ago, nice surf too!
We go to SD just to hit the dog beach!
My BIL lives in Downers Grove in a nice but modest house. About 1.5 years ago now, the guy across the street from him (who has some experience in construction) had his “Trump” moment, took his retirement money, and bought the lot next to his house, borrowed big–big–big and built a giant McBlobhouse on it, like 2+ mil. Bragging alot about things, but the construction was going too slow. I think therer was some joking about being able to make more due the delays. I was visiting late last year while the construction was going on, and my BIL was talking wistfully about how much money this guy was going to make. Having been a devoted reader of the “Truth According to Ben and His HBB Army” I looked at BIL and his wife and said: “He is ruined and does not know it–don’t go anywhere near this kind of thing.” They wanted to think he was going to make a killing, because it would make their house worth more and I thought BIL was getting ideas himself (he is NOT a construction type–he is more like food for that crowd.)
At the time they looked at me as if i were from Mars–BIL called the other night and was chatting with me while my wife could come to the phone and the subject of the house across the street came up, he got real serious and asked: “how did you know?” The guy is BK and his retirement funds are wiped out. He is soon to be ex-neighbor. Put the Fear of God in my BIL.
I have a cousin that lives in Downers Grove, and he and his wife either did a teardown and rebuilt a bigger house, or are remodeling a house they bought, either way without selling the one they’re living in. I hope he doesn’t receive a similar fate.
Polly, not to worry. The Bill Gross bailout pitch is on the Op-Ed page of the Washington Post this morning. So, your colleague is that much closer to having us (taxpayers) fork over the equity she so richly “deserves.”
So is the Post is cuddling up to the bail-out idea, or were they lampooning Bill Gross?
Thank goodness I’m not petty enough to wish for a collapse just to punish one person who used her emotions, not her brain, when it came to buying a house. I do agree that the bailout scenarios are really scarey. Facing the next two years and the economic repercussions is going to be nasty enough, but I can’t imagine how bad it would be (and how long it will last) if anyone seriously tries a bailout.
Fortuntately, I just don’t see it happening. There are a few clever people in DC and they love theoretical economics - especially the idea of the moral hazard. Don’t listen to the speechifying too carefully. It is for quoting in the popular press, but very little of it actually gets implemented.
“Actually how does financing for tear downs work anyway? ”
Start with a construction loan (that expires in a set timeframe) and then when it expires, you get a mortgage to cover it. Actually pretty hard to do.
It sure sounds like there is some price disparity in the metro Dallas area. My sis has a house in Arlington, only about 10 years old or so, about 2000+ sq ft, 3 bedrooms, office, living/dining/family room and they only paid about 140K about 4 years ago.
I live in Arlington and $70 per square foot is a pretty common price level here. Parts of Dallas proper are well north of $200 and much of that is just insanity. Near Greenville Avenue is one of the most overpriced areas, with old houses and you get trash and trespassers from the bars on Greenville. Some nice but still overpriced areas near White Rock Lake and North Dallas. Quite a bit of speculation still in this area.
I’ve tried and tried to convice a stubborn seller in Interlochen (Arlington) who has a house I really like to get his price down to the $75/square foot area (he’s at $108 now!). So far, no go.
Oh, and I live across the street from White Rock Lake. That is truly bubbly there, nothing selling, but that doesn’t deter the fantasy price seekers.
“Actually how does financing for tear downs work anyway?”
That would be a construction loan. Essentially, the ‘home owner’ would be acting the role of a small homebuilding company. For example:
http://www.buildmax.com/
“When you decide that real estate is a good investment in one city because you have “heard” that real estate hasn’t gone up much there like it has in other places and end the inquiry there?”
Not to worry…She said “Suzanne researched this!”
Sarcasm off…
DOC
This guy is 55, and he can’t come up with 10 percent of $90K ($9,000)??? That’s a sad state of affairs. He shouldn’t be buying then.
How many more in this country are just like him??
There was a report several years ago that most retired folks could not come up with 2k cash in savings.
Sad, sad, sad, sad, sad. How will they feel when they rush to the gates to start withdrawing on their 401k’s at the mandatory age of 70.5? More sellers than buyers, I would guess. Is it any wonder that so many nearing retirement re-mortgaged their house for the cash?
A silly question perhaps, but speaking of retirees and reverse mortgages: A homeowner takes out a reverse mortgage at the height of the boom - and as prices slide the bank is still making them payments based off the boom price, right? So going forward, with plunging house prices, how does a bank even determine what they should agree to in the reverse mortgage terms? In extreme cases couldn’t the bank be the one to walk away?
I am pretty sure that if it’s a HECM reverse mtg, FHA/Fannie Mae take the risk, not the bank. So the bank has no reason not to agree to reverse mortgages going forward…but maybe the US taxpayers do.
I don’t think they’ll give you a 100% reverse mortgage. In general, the older you are and the more valuable your home (and the less you owe on your home), the more money you can get.
‘Those with high credit scores, incomes they can document and enough money to put 10 percent down are still apt to get funding at a reasonable interest rate, mortgage brokers say.’
- There would be NO BUBBLE if these rules were followed.
“In the easy money days, Mr. Moreland was an active player in the mortgage market. He refinanced his home twice after buying it for $125,000 in 2000, taking out money each time. ”
The article says he’s unemployed and living off his “savings”–apparently that’s what he calls the money he pulled out of his house. Yes, he’s got a bad back–but is there some reason he can’t get a job at Barnes and Noble or Starbucks…hey, Starbucks does hire older people and even for part-timers offers health insurance.
Oh, I forgot, he was a playa in the EZ money mortgage game.
No sympathy.
This part of the article says it all:
“In the easy money days, Mr. Moreland was an active player in the mortgage market. He refinanced his home twice after buying it for $125,000 in 2000, taking out money each time.”
Hey, but, but …look he’s got a…. Plan “B”… & a… plan “C”
“He’s exploring ways to generate income. One option is to sell an aluminum foil-like product he says can cut people’s power bills by functioning as a radiant barrier. Another possibility, ironically, would be to get a license to sell real estate.”
Enough said.
Taping foil to the windows to keep the A/C bill down. Now that’s a high class business.
Taping? NO! This is a business opportunity. I bet it is self-stick - shiney contact paper.
Is this guy planning on manufacturing tin foil hats for sale?
Speaking of renting, check out “Suzanne Researched This: Part 2″
http://seattlebubble.com/blog/2007/08/22/suzanne-researched-this-part-2/
http://tinyurl.com/37fxq3
EVERYONE on this forum will appreciate this! Enjoy
I’m sorry Dwight, but the housing market is not the special olympics. You are not guaranteed a house and a hug just for showing up.
LMAO!
THIS IS A DISGRACE & DISGUSTING TO EVEN READ!!!!
Who do the tax payers bail out next??? All the losers on the stock market bubble???? Is this a free market economy or what???
50% of all resale homes in Vegas are UNOCCUPIED!!!! Same in Phoenix, in Florida and in California!!! What “homeowners” is Mr. Gross talking about??? The speculators, the liars, the fraudsters, the criminals??? They belong in jail not in a bailout. The reason why this mess exists is because home prices are SKY HIGH AND UNAFFORDABLE on current salaries, and are there because of these liar, criminal flippers and speculators!!!! Foreclosures are the means to drive prices down so that the free market can do what it does best. And that is to make homes a value proposition again so people can afford them and to go and buy them. Sheesh….
Pimco’s Gross Urges Bush to Bail Out U.S. Homeowners (Update3)
http://www.bloomberg.com/apps/news?pid=20601087&sid=amVRExsd80cA&refer=home
An article on p. C2 of today’s WSJ offers insight to why
Bill Gross is pandering for a Fannie and Freddie bailout of FBs.
It’s not about saving anybody’s home from foreclosure — it’s about making PimpCo’s bad bets look good again.
And I thought Gross had hired a retired delphic oracle as a consultant
on interest rates? Did active pitcher BB throw him a curve ball that he could not hit?
FUND TRACK
By Michael A. Pollock
Some Bond-Fund Tortoises Beat the Hares Like PimpCo
…Mr. Gross himself concludes that he bet on Fed rate cuts
much too soon and that doing so hurt performance earlier this
year. “To be honest, we have had those positions for almost
all of 2007, which is the same thing as saying we were six
months early,” he says.
Mr. Gross is more satisfied with the fund’s focus on
higher-quality mortgage bonds, or issues that have guarantees
from hosing finance giants Fannie Mae and Freddie Mac.
Resist, Sir Bernanke, Resist! DON’T LET THE TAIL WAG THE DOG!
At the end of the day, highly publicized rants from the likes of Gross and Cramer, which seek to bully the Fed into submission, may prove self-defeating. It is in Bernanke’s interest to demonstrate the Fed is sufficiently strong to fend off brazen tactics to promote a few individuals’ self interests.
“…Gross had hired a retired delphic oracle as a consultant”
The Oracle responded:
“There is no one more wiser than that which is Gross”
Nice post! I agree with all of it.
If we had a massive tax cut on the lower brackets I would pocket more of my income, I would get better rates on CDs, and fewer people would be forced into foreclosure. Much more fair than any bailout.
Exactly, chili.
The Walmart kids pay a 15% tax rate on their millions of dividends and capital gains while sipping champagne on a yacht in the Bahamas. Joe the Plumber pays a 43% tax rate on his $60,000 net income as he provides an invaluable service to his fellow mankind.
The Kids spend their after-tax net income of $200 million on more Walmart stock and expensive toys. Joe the Plumber spends his after-tax dollars on food, electricity, and gas.
Where’s Thomas Jefferson when you need him…
And the Steve Forbes of the world will tell you that the 15% tax rate given to the rich is what has driven the economy to it’s glorious peak.
LOL. Joe the plumber usually owns his own business, just as John the electrician, and they have 7 figure net worths, wear modest clothes, drive modest cars. Also they may be the same ones earning dividends on their Altria Group stock. Good grief! I cannot stand class warfare.
Give me a break, Bill. My plumber doesn’t even own a car - he drives his work truck with “NEECE PLUMBING” tattooed on the side. But he does appreciate the fact that he only pays 15% on that $23 in dividends he gets each year on the Walmart stock he inherited.
And let me just guess why you can’t stand class warfare…
Wow! I wonder who’s building all those product and services that them Wal Mart people are consuming. I wonder if maybe they are investing those large dividends into the company that I work for.
“If we had a massive tax cut on the lower brackets”
Define the lower brackets. I know alot of people that receive the Earned Income Tax Credit. I think that taxes should be lowered on all Americans.
There needs to be a flat tax. No loopholes or deductions. Period. Eliminate the IRS and save the US billions right there. Or assign them all to find income that is not being reported. That could be the only fraud.
How about a sales tax. Reward the savers and make folks think twice about buying junk they really don’t need.
For those who argue its regressive, exempt food and health care.
I like the sales tax the best… and I’d even go with a flat tax if I had to.
And by trying to evoke class welfare, you are either revealing your age… which is probably early 20’s or revealing the fact that you’ve never successfully built up a career in your life.
Don’t get me started on taxes, I’m already a pissed off and bitter renter about housing.
I read a post somewhere where it was said that this rant was as if Gross just realized how much he personally has to lose.
His statement seems a bit unhinged.
I posted above - his spiel is Op-Ed in today’s Post. Someone is going to have to write a letter to the editor and remind them that 1/3 of the purchases at the top of the boom years were for “investement” or “second homes.” So, we are going to bail out everybody who bought a weekend house on the ocean. Great.
How many weekend houses on the ocean does Gross himself own? (Not that he needs the money like most other stuck flippers need it…)
I saw that someone just did. Funnilly enough, they cited a 2005 WashPost article that said that 36% of homes sold in 2004 were 2nd homes!
http://www.washingtonpost.com/wp-dyn/articles/A64552-2005Mar1.html
It should of been clear in late 2005 when the NAR announced that 40% of the homes purchased were second homes or invesments buys in bubble areas like Florida and Arizona that this the loans were for gamblers . These gamblers were pricing regular homeowners out of the market . To now think that these risk-takers ,who drove up prices, want a bail-out is absurd .Wall Street wants a bail out and they might of already got one with the billions that has been injected into the system by the Feds that might not be paid back . Wall Street made bad loans and now they want the Feds or the Gov. to make one big bad loan . Most of those vacant homes were liar loans in which the speculator had no intentions of moving into the property . Those speculators should of been putting 30% down and paying a higher rate . So ,we are going to bail out speculator liars who wanted the benefit of a owner-occupied loan so they could drive up the prices for regular homeowners ? Let those borrowers pay for their greed ,along with the lenders and Wall Street .
If you want to know why Mr. Gross advocates a Fannie/Freddie-engineered housing rescue, look no farther
than PimpCo’s soured bets this year.
Why We Need a Housing Rescue
By William H. Gross
Friday, August 24, 2007; Page A15
During times of market turmoil, it helps to get down to basics. Goodness knows it’s not easy to understand the maze of financial structures that appear to be unwinding. They were created by wizards of complexity: youthful financial engineers trained to exploit cheap money and leverage and who have, until the past few weeks, never known the sting of the market’s lash.
http://www.washingtonpost.com/wp-dyn/content/article/2007/08/23/AR2007082301834.html
this just exposes Gross for the pimp (a word he used several times lately) he is. But there is still hope for him; if he is dumped by Pimco because of the turmoil, he should have no problem getting an extremely well paid job at one of the EU pension funds or maybe even the ECB where bad bets, golden parachutes and government bailouts are standard procedure.
“created by wizards of complexity: youthful financial engineers trained to exploit cheap money and leverage and who have, until the past few weeks, never known the sting of the market’s lash.”
Gross is no spring chicken, so what’s his excuse? Is he claiming that he didn’t understand what he was buying on behalf of his clients? That’s he’s just another “little guy” outwitted by younger wizards?
The “little guy” rant worked for Cramer, so Gross is giving it a shot. Sounds like he can’t take “the sting of the market’s lash”.
He’s as annoying as that dimbulb Dwight from Dallas.
I am actually shocked. PIMCO’s people were some of the few talking pessimistically last year about the state of the economy and the mortgage market. You deserve what you get when you don’t follow your own advice. Bend over Mr. Goss!
Mish did a little research and found that PIMCO has pretty large exposure to the GSEs, therefore Gross has a vested interest in propping up home prices.
–
It is a safe bet that Mr. Gross has lost lot of credibility that would be hard to restore. David Rosenberg of Merrill Lynch had very critical things to say about Mr. Gross. I don’t know what kind of Americans would endorse Mr. Gross’s plan.
He is gross!
Jas
Bush said point blank in an interview (and seemed annoyed at the question in the first place), “are you asking me if I support using tax dollars to bail out troubled homeowners? No, I do not!”
Hate him for every other reason imaginable, but at least thank him for this. By the time the next president takes office and can do anything about it, it will be WAY to late for the FB’s.
“50% of all resale homes in Vegas are UNOCCUPIED!!!! Same in Phoenix, in Florida and in California!!!”
Umm, where did you get this stat? Sounds fishy to me. No doubt, a lot of them are probably unoccupied, but exactly 50% in all those areas?
I have a question
The Economist is reporting this
The Fed has been offering 85% of face value for AAA-rated paper presented at its discount window, even collateralised-debt obligations stuffed with subprime mortgages (as long as they are not—yet—impaired).
Has anybody heard similar things or can provide a link?
I have no idea how the Economist gets to this assumption. If this would bet true…..
Uups
Here the link
http://www.economist.com/finance/displaystory.cfm?story_id=9687709
Aug 24, 2007
Page 1 of 5
Central bank impotence and market liquidity
By Henry C K Liu
…
‘Chairman Bernanke has now summoned his own clean-up team into action. The Fed hopes that by assuring banks that they can now access cash on less punitive terms from the Fed discount window, collateralized by the full “marked to model” face value of mortgage-backed securities, rather than the true distressed value as “marked to market”, for which they could find no buyers at any price in recent weeks as the market for such securities has seized up, it can jumpstart market seizure for mortgage-backed commercial paper and securities.’
http://www.atimes.com/atimes/Global_Economy/IH24Dj02.html
Thanks from Germany
Bitte.
I’ve got a junk in a storage unit. I say it’s worth 10 million dollars. I wonder if the Fed would loan me 85% of that, like they’re loaning to banks at the discount window, using the CDO’s as collateral.
I pay myself, the top officers, the first in line creditors, then walk away, leaving the FDIC to clean up the mess.
Interesting.
It looks like a baliout, it smells like a bailout…..
Yep, that’s exactly why I don’t think this is going to be as bad as many on this blog assume. Wait till they start lowering rates next month. Bernanke is on record as saying he would inflate his way out of a bad situation like this.
“Wait till they start lowering rates next month.”
That is quite irrelevant at this point, when 136 lenders have gone out of business since late last year, and home price appreciation has gone into reverse in markets formerly known as a bit frothy. Many recent buyers are stuck in homes they cannot afford to pay off, and cannot afford to refinance under traditional loans with traditional lending standards. If you want to see evidence of what effect slightly lower lending rates have on home prices in such an environment, I suggest you refer to the Japanese property market over the period from 1989 through 2007.
Back when Bruce McNall was riding high in the late 80’s to early 90’s, it just didn’t make sense.
He owned the el lay kings, racehorses, made movies, la de da…
Where was the money coming from?
“By the mid-1990s, McNall’s business empire was collapsing. Fraudulent transactions worth about $200 million were uncovered by federal investigators, and in 1996, McNall was sentenced to 70 months in a federal prison for his crimes.”
http://en.wikipedia.org/wiki/Bruce_McNall
Bruce was a penny ante grifter, compared to what’s going on now.
Good article.
durable good orders way up
$ down….
Great! No need for an interest rate cut!
It looks like the economy is overheating. Maybe it is time for an interest rate hike?
tee hee!
That would really punch wall street in the pucker!
Not going to happen, IMO. Inflation is the only way out of this mess.
Is this number seasonally adjusted? Do durable goods orders correllate at all with stores stocking up on stuff for Christmas? Car dealerships bringing in the new models? This seems like the time of year when durable goods orders have to go up a bit.
Aug 14, 2007
Central banks’ easy virtue, easy money
By Julian Delasantellis
There’s an old story about the late British statesman Winston Churchill at a party. Probably on one of those many nights where never in the field of human excess had so much cognac, brandy and scotch been consumed by a person who historians now say was not an alcoholic, he staggered up to a socialite matron and posed a question:
Churchill: “Madam, would you sleep with me for 5 million pounds?” (In the 1930s, when the British pound was worth more than twice as much to the US dollar than it is now, this was a particularly impressive sum over which to surrender one’s virtue.)
Woman: “My goodness, Mr Churchill … Well, I suppose … we would have to discuss terms, of course.”
Churchill: “Would you sleep with me for 5 pounds?”
Woman: “Mr Churchill, what kind of woman do you think I am?!”
Churchill: “Madam, we’ve already established that. Now we are haggling about the price.”
Thanks to last week’s events in the financial markets, we now know the price at which the world’s three largest central banks, the Bank of Japan, the European Central Bank and the Federal Reserve Bank of the United States, will drop their posturings about the importance of setting good examples regarding promoting sound banking, lending and credit usage policies and put their principles up for sale.
If the world’s stock markets lose, oh, say, US$2 trillion of valuation or so in a month, well, it looks like it’s at that point they start “discussing terms”. Since March, I’ve written a number of times in Asia Times Online about what has come to be known as the “subprime crisis”, but it was at the end of that first March 6 article, Rocking the subprime house of cards, where I first postulated that this situation would eventually degenerate to a point where central banks and bankers would be called on to intervene. This happened last week.
http://www.atimes.com/atimes/Global_Economy/IH14Dj01.html
http://www.minyanville.com/articles/1987-1937-Fed-rate+cut-Bernanke/index/a/13854
Very interesting.
Sorry, can’t get my brain working this morning, so when would day 55 be?
So this guy is saying that if we go below 1416, then we will go further below 1416?
TX Chick: I don’t know if you’ve ever answered this question before, but can you recommend a book for me? I’m a dumba$$.
Thanks,
Big V
The lights are starting to flicker down here in Florida.
- Many kinds of pain as housing woes hit all sectors -
By DEVONA WALKER
devona.walker@heraldtribune.com
Sun-soaked Southwest Florida is largely considered an enclave of wealth. Until the downturn in the housing market, its turbo-charged economy was seemingly stifled only by worker shortages and other symptoms of its growing pains.
But the last year of suffering in the real estate market has slowly percolated to nearly every industry in the region.
Welfare caseloads are creeping up. Pawnbrokers have been so inundated with used construction equipment sold to pay the bills that many have stopped buying. “Help Wanted” signs, once commonplace, are disappearing from store windows.
http://www.heraldtribune.com/article/20070824/BUSINESS/708240754
Timber! The FL economy is toast. 1000 “net” people a day moving into FL? Don’t bet your life on it.
James Sewell, co-owner of Goldcoast Pawn & Jewelry in Sarasota, said he is swamped with used construction equipment, and many of the former construction workers tell him they are leaving Florida. “It’s gotten really bad in the last four to five months,” he said.
Friends who lived in Maryland bought a retirement place in Daytona Beach over a year ago, and finally retired and moved there earlier this summer. Talked to them yesterday and their comments and remarks, though not negative, were quite downbeat, even though the housing bubble situation never came up. They may be waking up to the fact that they have made a huge mistake. I know their Florida place has dropped at least 20% since they bought it.
But if they are not going to move until they die “big deal”. They should be enjoying their retirement. I can’t wait until I am eligible to retire in 733 days when I turn 50. I figure by then the house I saw in Palm Beach Gardens last month that was purcahsed in August 06 for $800,000 and the owner is currently asking $700,000 should be around $400,000 by then. The bank just sent a foreclosure notice.
Any drop in July home sales is likely to be negligible compared to the future announced drop in August sales, which represents the first month of “post euphoria panic” sales activity.
Talk of “soft landing” will soon return to the fore.
Associated Press
Stock Futures Fall Ahead of Housing Data
By JOE BEL BRUNO 08.24.07, 6:55 AM ET
Notes On The News: Post Euphoria Panic
NEW YORK -
Stock futures pointed toward a lower opening on Wall Street Friday ahead of data expected to show further trouble in the housing market.
The Commerce Department is expected to report a further slowing of new home sales and a drop in home prices during July. Economists surveyed by Thomson Financial predicted, on average, that sales of new single-family homes will have fallen in July to a seasonally-adjusted annual rate of 825,000 units, down from 835,000 in June.
The report will be closely watched by some economists who feel the U.S. is moving toward a recession because of the ongoing housing slump.
The housing data will also be scrutinized by the Federal Reserve. Many on Wall Street hope the Fed will cut the benchmark fed funds rate to ease the impact of a tightening of the credit market due to troubles in subprime mortgages.
http://www.forbes.com/feeds/ap/2007/08/24/ap4051166.html
Subprime crisis hits China, as banks disclose exposure
http://tinyurl.com/2h6f4a
as usualy these days, China is far more open about these problems than Europe and the US.
EU banks still have not disclosed anything about the subprime CDO junk they are holding (only some holdings of the hightest subprime tranches have been reported, and even that demanded billions of bailout money). And the EU pension funds have reported nothing at all about the toxic waste that they own, one can be certain that they hold a huge chunk of the CBO stuff.
“China is far more open about these problems than Europe and the US.”
Probably afraid of being shot like the former head of their FDA.
I was waiting to see articles acknowledging that China is holding tons of toxic waste mortgage bonds. Russ Winter on his blog has gone over this time and time again. There will be a REAL PROBLEM should China stop buying our debt. Kudlow and Cramer can have all the hissy fits they want, but if China stops buying it is truly GAME OVER!
Whether or not the writer realizes it, he puts his finger right on the most important reason that Wall Street needs the sheeple to buy their overvalued paper assets. Broadly distributed paper asset ownership means that what is good for IB bonuses is good for America.
YOUR MONEY
Fed saves skin of financiers to aid little guy
By Walter Hamilton | Tribune Newspapers: Los Angeles Times
August 23, 2007
Don Williams doesn’t know it, but he might be helping to bail out Wall Street.
Williams, a 64-year-old retired firefighter, lives off a pension and a handful of stock and bond mutual funds.
“If the financial markets were to collapse,” he said at home in Genoa, Nev., “I have so much tied into it that it would have a strong effect on my standard of living.”
…
There is a running debate about the wisdom of the central bank giving Wall Street the financial equivalent of a get-out-of-jail-free card, allowing the industry to curtail losses from its risky bets on subprime loans and leveraged corporate buyouts.
That, according to critics, would reward Wall Street for bad behavior. Shouldn’t a hedge fund holding too many subprime bonds be allowed to fail, and an investment bank stuck with unwanted bonds from a leveraged buyout take a hit to earnings?
“The Fed is protecting these guys on the theory that they’re protecting the economy,” said Richard Bove, an analyst at Punk, Ziegel & Co.
http://www.chicagotribune.com/business/chi-thu_bystanders_0823aug23,0,2440028.story
I am so sick of shit like this. Sell your shares and get out of the market if it is tanking, better yet…beat the crowd and do it now.
We are quickly becoming a damned Banana Republic with the way that everything financial is in some kind of MATRIX bull$hit world.
You didn’t report the total story on Dwight:
Mr. Moreland declared Chapter 7 personal bankruptcy in 2003 after running up more than $30,000 in credit card debt when he lost his job three years before.
He has yet to find work, partly because of a back injury he suffered in the late 1990s.
In the easy money days, Mr. Moreland was an active player in the mortgage market. He refinanced his home twice after buying it for $125,000 in 2000, taking out money each time.
His latest refinancing came last year – while he was unemployed and working odd jobs – as his adjustable-rate mortgage was about to reset at a higher monthly payment. That put $10,000 in his pocket and helped him avoid unmanageable mortgage payments. “I rushed in and got it,” he said. “That’s why I’m not in foreclosure”
“That’s why I’m not in foreclosure”
Yet.
NEW YORK, Aug 24 (Reuters) - TransLand Financial Services Inc., a Florida mortgage brokerage, is the subject of an involuntary Chapter 11 bankruptcy petition filed by three banking companies, in which it was accused of failing to remit at least $22.9 million of loan payoffs and other payments.
The petition was filed Thursday with the U.S. District Court for the Middle District of Florida by TierOne Corp (TONE.O: Quote, Profile, Research), Federal Trust Bank and MidCountry Bank, court records show. TierOne said it is owed at least $12.9 million, MidCountry at least $7.6 million, and Federal Trust at least $2.4 million.
In a U.S. Securities and Exchange Commission filing, Lincoln, Nebraska-based TierOne said it replaced TransLand as the servicer of some residential construction loans, and in effecting the transfer, it “uncovered evidence of the alleged fraud.”
TierOne said it is insured up to $7.5 million against fraudulent losses by loan servicers, and that its insurance carrier has been notified of a potential claim. The company said it does not expect the matter to materially affect results.
A representative for Maitland, Florida-based TransLand said company executives were not immediately available for comment. (Reporting by Jonathan Stempel)
Who says the U.S. doesn’t export anything to China?
BOC shares decline after U.S. subprime revelation
By Chris Oliver, MarketWatch
Last Update: 6:11 AM ET Aug 24, 2007
HONG KONG (MarketWatch) — Hong Kong-listed shares of Bank of China Ltd. shed more than 5% Friday after officials disclosed the bank had almost $10 billion of exposure to securities backed by U.S. subprime mortgages.
http://www.marketwatch.com/news/story/bank-china-shares-decline-after/story.aspx?guid=%7B5D189314%2DD4AC%2D4B72%2DBA56%2DB07075DCD6F2%7D
‘West Allis-based Allco, which has cited the subprime lending crisis for its troubles, said in a new regulatory report that the credit union’s loss at the end of the second quarter had grown to almost $6 million, up from $5.25 million in the first quarter.
The report says 10 of every 100 Allco loans was considered delinquent when the quarter ended June 30, a total of $6.3 million. That compares with less than one delinquent loan per 100 for the industry.’
http://www.jsonline.com/story/index.aspx?id=651558
How many of these small banks and credit unions are having or are going to have similiar problems?
Add to that what the next paragraph says….it gets worse.
Allco, which has about 6600 members and assets of $75 million,…
wow losses = almost 10% of their assets? Stick a fork in this credit union, they are done. Unbelievable…but I am sure we will here more stories similar to this.
check out the durable goods report on http://www.census.gov. don’t read the headline, read the pdf with the details.
for some reason the category with appliances did pretty well year over year.
There are no takers on highly-publicized helicopter drops with attached strings, other than the four money center banks whose borrowings were clearly choreographed by the Fed.
THE FED
No other banks go to discount window, Fed says
Fed data show discount window borrowing of $2 billion as of Wednesday
By Rex Nutting, MarketWatch
Last Update: 5:24 PM ET Aug 23, 2007
WASHINGTON (MarketWatch) — Few U.S. banks have taken advantage of the Federal Reserve’s offer last Friday to lend them unlimited amounts of money at 5.75%, Fed data released Thursday show.
As of Wednesday, outstanding loans from the Federal Reserve’s discount window totaled $2 billion, exactly the amount four major banks said Wednesday that they had borrowed to show solidarity with the Fed’s attempt to ease the crunch on short-term credit.
http://www.marketwatch.com/news/story/no-further-bank-borrowing-discount/story.aspx?guid=%7B5F923BA3%2D9023%2D4EF1%2DBAB4%2DF424AA00B457%7D
what are we talking about? These amounts are pocket change compared to the free handouts of the ECB (10-20x the amount the FED is providing).
But why does the Euro continue to strengthen against the dollar?
Carry Trade
Borrow in Japan
convert to euros and buy Gilts
The EuroYen has gone from 154 to over 158
forget about the dollar it is caught in the backwash. It is not in play - yet.
That begs the question then of the real purpose of Bernanke’s surprise on OpEx Friday.
you have to start asking, Why was it once considered “Horrific” when banks went to the discount window…..well duh, it menat you were in big trouble, big trouble equals depositors fleeing. Now, all the Banks together go to the window (well, 4 of the 5 largest) together, holding hands and singing Cumbaya……….
This, IMHO, is teaching the new guys that going to the window is the opposite of trouble, Bullsh*t, its solidarity, more BS, its ok, never, never is it OK to go to the window…..
This is a shield, a shield of one, to protect the herd. These guys are in deep shiznit and they know it.
The virtually apparant tranparancy is not working……fellas.
hunker down, and wait it out…..be sure to catch some tech bubble, but get out before the memo is released.
Take a look at these closing numbers for my zip (85249, obviously). For the last few months, I’ve been subscribing to a realtor’s email list of closings for my zip code. The numbers just came out for the week right after Alt-A collapsed and they are UGLY! I’m tracking home price by mean, not median, because I’m lazy, so take these for what they are worth. The last week speaks for itself.
Date Number of Closings Average Price
5-Jun 46 508000
11-Jun 24 437000
18-Jun 24 424000
25-Jun 32 452000
5-Jul 89 446000
11-Jul 23 421000
18-Jul 44 551000
26-Jul 47 479000
2-Aug 32 492000
8-Aug 7 379000
“2-Aug 32 492000
8-Aug 7 379000″
That’s a 23% drop in the pace of closings over six day’s time, or a -99.99998% annualized rate of decline (aka a free fall)
. If you think I jest, then enter this formula into the search line in Google and hit “Search” to see for yourself.
((379/492)^(360/6)-1)*100
Thanks for showing me that in Google. That’s cool.
Sorry for the mispost — having misread your data, I guess I just documented that the average price is dropping at a -99.99998 percent annualized rate. No matter — the pace of sales is falling still faster. Try this out for size:
((7/32)^(360/6)-1)*100
Google comes up with a 100 percent annualized rate of decline in the pace of sales (and that is rounded to the seventh decimal place).
Closing just dropped off the face of the earth here. I get these updates every Friday morning, so I’ll keep you posted. I’ll try and add median price as well to see if there is a noticeable difference in price.
The formatting got screwed up on these. Here’s a better view:
Date # Closings Avg. Price
—– ———– ————
6/5 46 508000
6/11 24 437000
6/18 24 424000
6/25 32 452000
7/5 89 446000
7/11 23 421000
7/18 44 551000
7/26 47 479000
8/2 32 492000
8/8 7 379000
I don’t know if I should laugh or cry - 7?? closings for the entire 85249 zip code down from 32 the week earlier. Ouch!! Things keep up like this and I will need to add “toAZ” to my name! Maybe I can buy my old house for 1/2 price for a christmas present??
Also, here’s the highest-priced home sold each week in those reports. This shows how non-conforming mortgages just went away.
6/5 $1,365,000
6/11 $905,000
6/18 $1,176,000
6/25 $1,081,000
7/5 $1,060,000
7/11 $1,031,000
7/18 $1,134,000
7/26 $1,900,000
8/2 $1,217,000
8/8 $595,000
The high-end is completely gone here. I’m assuming the same thing is happening everywhere. August numbers are going to be historic!
“I’m assuming the same thing is happening everywhere.”
Jumbo the elephant is on life support from the Fed.
For Tufts people, we’ll see whether the Fed can save Jumbo’s skin.
http://www.tufts.edu/alumni/magazine/spring2002/jumbo.html
Toast, how many properties are on the market? What does the months-to-close look like?
I don’t have that data for 85249, but there are over 3000 listings in Chandler according to ZipRealty and 63,400 homes in the Maricopa/Pinal county area (all-time high). Even more amazing to me is that there are 140 homes for sale within a 1-mile radius of my house. Inventory is skyrocketing.
I don’t think anyone can even guess what months-to-close numbers are now that we are in a credit crunch. Certainly, I have no idea.
ZipRealty reports 1089 homes for sale in 85249.
85249 - I’ve been waiting for you to post. I’ve been keeping my eye on 85248 (Ocitillo), but typed your namesake into “realto*.com” to see what was going on.
I was stunned!
Over 45 pages (450 listings) of houses OVER $500,000! There is NO WAY that the people of Chandler and Gilbert AZ can absorb that kind of high priced inventory. I think there were 180+ houses over one million.
You are certainly right - 85249 is looking at at least a 40% drop across the board.
It’s insane around here. People have been ingrained to think their 3500 sq. ft. stucco box is worth $200 per sq. ft. Now I have stucco box a little smaller than that, but I paid $78 per sq. ft. for it, and my 30-year, fixed-rate mortgage PITI is around $1100/month. Most everyone I know is feeling the pain from their debt idiocy, and I am enjoying the Schadenfreude from a safe distance.
The residents around here think they live in Beverly Hills. It seems as if every other vehicle at my kids’ school is an Escalade, a Hummer, or a Mercedes. The pain is just starting for most of these posers.
A new word I coined…
Cashphyxiation
My nomination for misleading headline of the day.
Can someone recall the rate at which homes are currently under construction? I believe it is over 1m per year, which suggests that inventories of unsold new homes are growing, even as the sales pace has ticked up slightly.
ECONOMIC REPORT
New home sales rise 2.8% to 870,000 pace in July
By Rex Nutting, MarketWatch
Last Update: 10:00 AM ET Aug 24, 2007
WASHINGTON (MarketWatch) - Sales of new home increased 2.8% in July to a seasonally adjusted annual rate of 870,000 as the inventory of homes for sale dropped for a fourth straight month, the Commerce Department estimated Friday.
Sales were stronger than the 820,000 annualized pace expected by economists surveyed by MarketWatch. In addition, sales in June were revised slightly higher.
Sales are down 10.2% compared with last July.
http://www.marketwatch.com/news/story/us-new-home-sales-rise-28/story.aspx?guid=%7B04FAFD60%2DFE69%2D4329%2D8CB8%2D45C2D43C6F82%7D&dist=
You should write in to them and mention that (as if they didn’t know).
Mark Haines on CNBC… what a shill.
His comments this morning….
The market is in a no win situation.
If we get a rate cut, it is because the economy is in very bad shape, and that will kill corporate profit.
If we get good economic news, good for profits, then we won’t get a rate cut and that will kill stocks.
It is frustrating…
no win… and there is no reason for it….
So, I find myself yelling at the screen… NO REASON????? How about $1 trillion in losses in mortgage backed securities that will be posting over the next couple years? How about the end of debt, the only thing that has been fueling economic spending?
No reason?
He just wants to shill up the market to drive ratings, and there just isnt’ anything to drive a bull market. THAT is what he is frustrated about. He wants to shill up the market to drive ad revenue, WHICH is his job… and there is no way to drive ad revenue for CNBC in this market. How frustrating….
I fell his pain…. NOT!
Housing expert on CNBC that called the top about a year before it arrived was asked, where’s the bottom….
No one answer…. Bottom in existing home sales will be late this year, at levels MUCH lower than we saw this summer. Bottom in new home sales not until early 09. Bottom in prices… maybe late 2009.
That is national…. CA, FL and other markets most bubbly, not until much later than that.
A Season for Cassandras
The meltdown in the credit markets is sweet vindication for some prognosticators who had been dismissed as merchants of gloom
“…As for (Mr. Nassim Nicholas Taleb) Taleb, he’s been on vacation for much of the summer and didn’t return an e-mail seeking comment. In an Aug. 16 post on his blog, Taleb took a tongue-in-cheek swing at his many critics. “I am at the Edinburgh literary festival and the last thing I care about is you finance people,” he wrote. “I’ve been swamped by e-mails telling me that I was right.… I don’t understand these e-mails. It is as if I didn’t know that I was right. Tell me what I don’t know.”
BusinessWeek
http://tinyurl.com/2xstp2
“Tell me what I don’t know.”
Sweet!
Cassandraladinsane, reporting from the front lines…
I love this guy because he makes sarcasm fun. It was so annoying when the talking heads were doing it.
We’re just now getting news on Chineese banks exposure to sub-prime. What about their exposure to Alt-A? Alt-A, in my opinion, will be a much bigger % hit since they were used more after the peak of the market, and large players in the most bubble markets.
Sub-prime was used at the low end of the market. Alt-A was used at the top, and the losses in the top markets will be much larger.
I would wonder first about EU and US subprime exposure - hardly a word about that up to now.
The only problem with the Chinese exposure is that they might get a bit pissed off with Wall Street about the toxic content of all the product that has arrived in China lately. But maybe it doesn’t matter, they have plenty reasons allready to start dumping their US financial junk - probably they figured out it is not in their own interest to do that just now.
That’s what I’ve been wondering. China seems to be the one place where, after they discover all the toxic paper they’re holding, could say “f**k you” and dump their dollars. The Chinese are in the game for the long haul, so they’ll take a few years of pain, no problem. US and A, however, not so much.
Cashphyxiation
i.e. Lack of Liquidity
1st…
Cashphyxiation = Lack of Liquidity
2nd…
“Effective insolvency’’ …yeah babeeeeeeeeeeeeeeeeee
Fed Ease Will Strengthen the Dollar (?!)
“The Federal Reserve’s change in bias last week toward cutting the federal funds rate, along with its half-point cut in the discount rate, offers an opportunity to test the widely held belief that rate cuts weaken the dollar while exacerbating existing inflationary pressures. In truth, the opposite is typically the case, since dollar-demand shifts when the Fed acts.”
“Looking ahead to September’s Fed meeting, if the FOMC lowers the funds target, media accounts will suggest a looser stance on the part of policymakers, while an increase will be described as a monetary tightening. In truth, a Fed ease will point to dollar strength and a budding disinflation.”
I’m a little woozy after reading that. Everyone at NR has drunk the Kudlow kool-aid I think.
http://article.nationalreview.com/?q=ZjlmMDdhZjJiMDVlODQwM2Y4M2YzZmMzODIyYTFmMmE=
When what you want does not fall into the path of reason, create your own reason. That’s what Homer does.
The dollar could strengthen on imploding credit and a shrinking money supply. Deflation is by definition good for the value of a currency and bad for nominal prices of everything valued in that currency. The Fed is panicking in an effort to stop this. Dollar strength will occur because of the crisis, not the Fed’s reaction to the crisis.
Does any one know with respect to MBS what the criteria is that makes a security AAA or AA? Is there a uniform standard used to measure the the risk of a security?
Yes. It depends on wether or not the guy who’s selling the paper was is in the same clique as the guy who’s rating the paper.
In the WSJ today, one article said that housing prices had soared to 42% more than the long-term average relative to income by 2005, and have since fallen back merely to 32% above average.
That’s progress. How about getting to just 10-15% above average by this time next year?
in Netherlands we are now 300-400% above the long term average; if would be great so see this go down to just 42% above average
I don’t get the math… 3% drop in median house price. 3% increase in wages.
How does that equate to 10% drop in amount of “too expensive”.
Hypothetical examle… $40K income and $200K house. = 5x Norm 3.5x
(Now-norm)/norm = 1.5/3.5 = 42%
Up income by 3% = $41200. Drop median price 3% = $194K. 194000/41200 = 4.7x
(4.7-3.5)/3.5 = 34%.
Actual reported median price drop is more like 2.7%. Isn’t wage growth in low 2%.
How does this 10% change in overprice-ed-ness work on the slight drop and slow wage growth?
I’ve been following this blog for quite sometime. Everything that was predicted for the fire hot real estate market has come true! Now that things have blown up, what is everyones prediction for the future! How low will it go, will we end up with a depression, Is there hope for recovery…. I started following this blog in hopes of one day housing in Florida becoming affordable, now that affordable housing is almost here, I’m too afraid to buy! It seems worse than what I was expecting!!!!
I would be careful about buying in Florida. They still have at least 2 years of pain ahead of them and more like 3-5 years. Southwest Florida is the only area I have seen prices come down to significantly. Southeast Florida is still on the crack pipe. They have another 30-50% of pain ahead of them.
” I started following this blog in hopes of one day housing in Florida becoming affordable, now that affordable housing is almost here, I’m too afraid to buy! It seems worse than what I was expecting!!!!”
did i miss something? from the prices i’ve seen, we ain’t close to being ready to buy. so the 400K fluff price is now 350K…….don’t mean jack when it’s only worth 275K. caveat emptor.
The average joe that is trying to sell their homes are still grasping, but the foreclosures are at or below 50% peak prices.
I think we will have a significant depression and there will be a recovery but the economy is more out of balance than it has been for probably over 100 years with the largest credit bubble ever, so it will take a while to work off the excesses, especially since the government will do all it can to prevent the needed correction. So wait until the price of your Florida house is so low that you can say “I don’t even care if it does go lower, for that price I want it now,” or until all the media is warning about the dangers of buying real estate instead of saying that now is the time to buy, and then you should be OK.
You guys are going to love this one!!! Hat tip to Synthetic.
“Susan Research This, Part II”
http://tinyurl.com/37fxq3
” You can make this all better in 30 seconds” What? Now if she apologizes to the bank will that make it all better? God we are such a soft society.
the ‘apology’ is the easy part…try selling the house…NOT….U think he flips out now?…U ain’t seen nuthing yet sweetie!
That was great Popper!
My contribution:
hwy50ina49dodge said,
Your comment is awaiting moderation.
on August 24th, 2007 at 8:03 am
You know, I’m just trying to visualizing that radio conversation…Dr. Laura and the caller, discussing the stress out of the husband…while they are both holding cups of Starbucks Latte’s in their hands.
Didn’t somebody here predict EXACTLY this scenario? Of course, everyone here predicted all of what’s playing out right now, so it’s not surprising. I’m still waiting for Leno or Letterman or one of those guys to start joking about house prices—somebody here predicted that about a year ago.
Patience. I predict that the housing crash will accelerate in the wake of the early August credit crunch to the point where even Leno and Letterman cannot ignore it and feel compelled to make light of it, lest they be perceived as “out of touch.”
Prof, this is just the beginning of the freeze. Pretty soon it will be one or 2 transactions per month and appraisers will not be able to even find comps. (see Japan, 1990 - 2004).
Gentle folks here are hoping for a quick bust 2 - 4 years, I am still looking at another 10 - 12 years before bottom. We have been in a minor recession for the last 7 years and it has now turned into a major recession.
What the Wall Street media is calling a liquidity crisis is an insolvency crisis. 75% of the debt in the S&P1000 is rated junk, the interest rate on this debt has gone from 6.5% to 8.3% (in the last three weeks). Banks are still stuck with 300B in unsold LBO debt that is choking them. Some bank, fund or other CSE is sitting out there with $300B in unreported losses. Foreign Central Banks are net sellers of US Treasuries over the last 2 weeks.
The P/E on the stock market in the US is not exorbitantly high based on last years earnings, but there will be major corporate BKs shortly because many companies cannot pay their corporate debt and as a result the P/Es look exorbitantly high now.
Last month there were 1221 company layoffs involving more than 50 people. This is before the credit crunch. Even the strongest American exporter (Boeing) has announced layoffs.
As a result of these events, somewhere down the road, I will be a buyer of the US dollar and a seller of all other currencies.
Hoz — are you saying in short that the stock market always goes up? Or am I somehow misinterpreting your post? (B.i.P., feel free to jump in here
)
“There is no means of avoiding the final collapse of a boom brought about by credit expansion.” Ludwig Von Mises
OK, Hoz, I have on my devil’s advocate hat.
1) What is to prevent BB from printing his way out, exactly as he said he would in FRB speeches before he became chairman?
2) If the outlook is so glum, how come the bulls are partying on Wall Street like it’s 1999?
LOL
Ok Prof, He has already tried and it failed to work. The banks have access to moneys and nobody is borrowing. The Federal Reserve would like to infuse the market with cash, but without ready, willing and able borrowers. Companies cannot borrow, many are broke. Look at Countrywide trying to borrow moneys to stay afloat. Multiply that by hundreds. Individuals are trying to get enough moneys to pay for their living expenses. It is one thing to be borrowing moneys when you have a reasonable expectation of being able to pay the moneys back, but many individuals are wondering if they will have jobs in a month.
The stock market is an interest rate play. Its movement is not based on any fundamentals.
I’m glad you said that Hoz. That’s what I think too. You always make me feel better.
“People are screwed.”
-Big V
“The stock market is an interest rate play. Its movement is not based on any fundamentals.”
Exactly. So what if BB drops the FFR, exactly as Cramer instructed, and Fannie Mae, Freddie Mac and the FHA all announce bailout plans, exactly as Dodd has outlined and Gross has advocated. Won’t it all be good again, and if not, why? Me confused.
In the end when things hit the crapper China is gonna come a knocking for their money back - when the USA says no china will finanlly have “work” for all those poor peasants in the country side. War got us out of our depression it will do the same for China.
I think Dr. Laura means make it better between them.
The, making it better, involves not making house payments, waiting for the foreclosure notice, file bankruptcy, live another 3 months rent free, then moving into a rental in a bad part of town…
Oh, or the stay at home mom could go get a job. they turn off the cell phones and satelite, dump the expensive SUVs, etc. etc.
As pointed out a couple days ago, whichever evil they pick, the economy is screwed. If they walk, the credit market locks up more. If they don’t walk, consumer spending and corp profits crash.
Senior citizens with big mortgages: the new social trend.
http://www.therealdeal.net/issues/AUGUST_2007/1185902864.php
“Millions of homeowners refinanced during the “refi boom” years of 2003-04 and took out new loans with 15- or 30-year terms. Some boomers now in their late 50s and early 60s have big mortgages with terms running for another quarter-century.”
“In a pilot program in Arizona on its “Senior Equity Maximizer” jumbo reverse mortgage, Bank of America found that “the No. 1 usage” of funds was to retire existing first mortgages, said Colin McCormick, the bank’s reverse-mortgage product executive.”
Wait until they find out that the $1.5 mil house is now worth $750K!
That’s what happens when social attitudes swing from “retire to your paid off home and leave something for the kids” to “only an idiot would pay off the mortgage”
“I was brought up to believe that you go to school, get a college degree and that you buy a house, it’s the smartest investment you will ever make,” Stebner said.
Your teacher must have been a real estate agent.
Ah, the reproduction of labor - don’t forget spawning and shopping - all that education is not just supposed to be for self-enrichment.
http://www.ibdeditorials.com/IBDArticles.aspx?id=272758497961483
Last week I went shopping in our small rural hometown, where my family has attended the same public schools since 1896. Without exception, all six generations of us — whether farmers, housewives, day laborers, businesspeople, writers, lawyers or educators — were given a good, competitive K-12 education.
But after a haircut, I noticed that the 20-something cashier could not count out change.
Yet the bleak statistics — whether a 70% high school graduation rate as measured in a study a few years ago by the Manhattan Institute for Policy Research, or poor math rankings in comparison with other industrial nations — come at a time when our schools inflate grades and often honor multiple valedictorians at high school graduation ceremonies. Aggregate state and federal education budgets are high. Too few A’s, too few top awards and too little funding apparently don’t seem to be our real problems.
More Stupid Dog Tricks from the Corporate Welfare-nistas:
http://wallstreetexaminer.com/blogs/winter/?p=1015
No bubble in KC. Just overpriced houses and stubborn sellers.
http://www.npr.org/templates/story/story.php?storyId=13916304
Not a single offer in 14 months yet they won’t cut the price and “give it away.” Greedy idiots.
Heard this on the way to work this morning.
At least those particular people were making a conscious choice to live with the house and keep the longer commute rather than take a haircut on the price — that’s a cognitive step in the right direction, I think.
So many of the FBs we read about have a sense of entitlement that borders on the absurd.
Total morons. They wasted about $8K in gas between the two of them during the past 14 mos, lost at least 2 hours a day EACH with their kids, and several years off their lives due to the stress. At what point do you just cut your losses and move on??
It’s not just gas money, it is wear and tear on the cars meaning high maintenance bills (tires, engine wear, etc) or new cars soon. They need to readjust what they are making per hour as their 8hr pay is now spread to cover 10 hrs (20% loss per day). When the kids get to school age they have to be there to pick their kids up after school or pay someone for extended day care. Yep, hold on to that house as it sinks further in value!
“In a normal market, this would probably sell in two or three days,” Wilson says. “It’s a fantastic property. I’m really surprised it hasn’t sold.”
This clod doesn’t have a clue what a ‘normal’ market is but he’s about to find out!
Got an invitation today. What do you guys think should I go?
“On behalf of Euromoney Seminars and the European Bank for Reconstruction and Development, We are pleased to invite you to attend 2nd Annual Structured Finance in CEE, Russia and CIS Seminar
18th - 19th September 2007″
“The spotlight is increasingly on CEE, as 2007 promises to be a breakout year for securitisation in the region. As the volume of consumer credit in CEE and Russia grows dramatically, local banks are searching for new sources of long-term capital. Structured finance with its endless opportunities provides the ultimate solutions.”
http://tinyurl.com/36brjk
I got burned in 1998 and will not touch anything from Russia.
Right. Only the greediest and/or most naive of humans would consider Russia for… well, pretty much anything (I’m an insider — got the hell out of there 11 years ago, and still wake up at night screaming).
LA Times editorial - No bailout by city
Opinion : Editorials
Council and counseling
The city shouldn’t bail out homeowners facing foreclosure, but it could help them get advice.
http://tinyurl.com/3×7633
“Nothing gets blood boiling like the mention of government “bailouts” for sub-prime borrowers, and with good reason. Using public funds to rescue buyers who assume more debt than they can afford (and at terrible terms) rewards borrowers’ and lenders’ irresponsible behavior and props up an overpriced housing market that probably deserves to fall a bit. That’s the main reason to abandon the small-loan idea. “
Your link does not work (at least for me).
http://www.latimes.com/news/opinion/editorials/la-ed-bailouts24aug24,0,4150942.story?coll=la-news-comment-editorials
Here it is:
Council and counseling
The city shouldn’t bail out homeowners facing foreclosure, but it could help them get advice.
August 24, 2007
On Tuesday, City Councilman Richard Alarcon called an emergency hearing to discuss the effect of rising home foreclosures on Los Angeles and to assess what the city might do to help at-risk mortgage borrowers.
The short answer: not a whole lot. Mortgage industry regulation falls under state and federal jurisdiction, so the council’s power to help borrowers is limited. One widely publicized proposal in Alarcon’s preliminary action plan, calling on the city to establish a $5-million revolving fund for loans no larger than $10,000 to “help homeowners on the verge of foreclosure,” is particularly ill-advised. But some of the other proposals, such as continuing to bolster foreclosure-counseling options for borrowers, deserve consideration when the council revisits the issue this fall.
Nothing gets blood boiling like the mention of government “bailouts” for sub-prime borrowers, and with good reason. Using public funds to rescue buyers who assume more debt than they can afford (and at terrible terms) rewards borrowers’ and lenders’ irresponsible behavior and props up an overpriced housing market that probably deserves to fall a bit. That’s the main reason to abandon the small-loan idea.
Another is that, in a region where the median home price is hovering over $500,000 and many buyers put little or no money down to purchase their houses, mini-loans of up to $10,000 aren’t enough to help sub-prime borrowers “save their homes,” as Alarcon says he wants to do. Toss in that no one’s sure where the $5 million will come from or how effective the city will be at collecting repayment, and the proposal looks more and more like a nonstarter.
Devoting more funds and attentionto boosting foreclosure counseling — as of now, the plan seeks just $100,000 — is a different matter. The nonprofit groups that provide counseling, such as Los Angeles Neighborhood Housing Services, Operation Hope and more than a dozen others in the city, serve as triage centers for ailing borrowers, making quick assessments of their financial situations and, if they qualify, helping them negotiate with lenders for better terms on their mortgages. That’s a task that can prove daunting for a homeowner acting alone.
At their best, counseling programs don’t subsidize irresponsibility. Los Angeles Neighborhood Housing Services Chief Executive Lori Gay, who spoke at Tuesday’s hearing, says her organization advises about 80% of the strapped borrowers who call to sell their homes and offers to help them do so in a way that will best preserve their financial well-being. It’s not a rosy picture. It is a realistic one. Making Angelenos aware that such counseling services exist is a fine idea.
Alarcon says he also wants to pressure federal and state authorities to keep closer tabs on lending practices. This too makes sense. Any effort that helps consumers borrow knowledgeably and responsibly is a down payment on a brighter homeownership future for Los Angeles.
Excellent. Good public opposition. This should put a stop on the bailouters. Ha!
New home sales went up in July, but with the mortgage standards armegeddon in August I doubt it’ll happen again soon…
http://biz.yahoo.com/ap/070824/economy.html?.v=20
Thornberg op-ed on Fannie and Freddie:
http://www.latimes.com/news/opinion/editorials/la-oe-thornberg24aug24,0,1116762.story?coll=la-news-comment-editorials
“If any group of Americans needs federal mortgage guarantees, it is not the people paying large but less-risky mortgages but the people at the bottom of the market — lower-income and first-time buyers who are suffering the worst losses in the sub-prime crisis and are not going to be helped by loan-size rule changes. These folks are today’s counterparts to the people Fannie Mae was originally designed to serve.”
Bingo. Dudd’s proposed increase of the conforming limit from $417,000 to who-knows-what has nothing to do with Fannie’s supposed mission, and everything to do with protecting east coast banking and hedge fund interests.
Expanded Criteria and Conforming Adjustment Changes
August 23, 2007
Bank of America continues to evaluate market conditions to determine necessary changes and improvements to help our products fit an ever-changing environment.
As a result, we will be making the following changes:
Expanded Criteria Products
All Expanded Criteria products will be suspended until further notice. Expanded Criteria products include, but are not limited to, Stated Income/Stated Asset, Stated Income/Verified Asset, No Income/No Asset, No Ratio and 80/20.
All Expanded Criteria pipeline applications must be locked by end of day Friday, August 24th.
Conforming Adjustments
Bank of America is also making changes to standard conforming product* adjustments for all loans locked on or after 8/27/07.
Adjustment changes include, but are not limited to:
Loans under $50,000: 500
Loans $50,001 to $100,000: 25
Credit scores under 619: 1.00
Credit scores 620 to 659: .625
Additional adjustment changes include high LTV/CTV, cash-out refinances and investment properties. Please see the rate sheet on 8/27 or price your loan on Mortgage Network for details.
“no income/no asset”
Um, well the only reason a banker would want to make a NINA loan is because they are sabotaging their organization - getting even for a missed promotion or the CEO cashing in $100 million in stock options or something - and they want their employer to KNOW they are being sabotaged. There is no other reason that I can think of.
Got 10% down?
Nice opportunity here to leg into additional index puts. Don’t forget the Come to Jeebus at the end of September.
Are you shorting homebuilder stocks??
No, I think the easy money has been made in those.
what’s happening in the end of sept?
Hedge funds have a bunch of redemptions due September 30.
TX Chick is seriously helping us out here. We should give her a commendation.
“People are screwed.”
-Big V
Cooper also bought index puts at the close. Great minds and all that . . . . actually, I’m not fit to shine his shoes.
Test 345 567
TRICKLE-DOWN DOWNTURN
Many kinds of pain as housing woes hit all sectors
“…Welfare caseloads are creeping up. Pawnbrokers have been so inundated with used construction equipment sold to pay the bills that many have stopped buying. “Help Wanted” signs, once commonplace, are disappearing from store windows.
And for the first time since most anyone can remember, Sarasota, Manatee and Charlotte counties — bastions of the 2-plus-percent unemployment rate — are seeing a measure of joblessness rivaling the state average.
The July rate in Charlotte County was 5.5 percent — the worst since Hurricane Charley — while Sarasota County’s rose to 4.4 percent and Manatee to 4.2 percent.
The increases range from 45 percent to 62 percent compared with the same time last year.
Statewide unemployment was 3.9 percent in July, up 18.8 percent from the same time in 2006; the national rate, 4.6 percent.
“There’s a lot of unemployment out there right now, and the jobs that are out there don’t pay enough,” says Karim Daniel, who owns the $9.99 Shoe Warehouse in Sarasota. “Families have less money for shoes. But they also have less money for food and rent.”
Daniel’s customers are mostly families with little income, so this father of two teenagers has had a ground-floor view of the uptick in joblessness.
He has also witnessed the impact to his bottom line. Sales have dropped about 30 percent in the last year. His store, once crammed with inventory and people, is half-bare…..”
Herald Tribune
SouthWest Florida
http://tinyurl.com/35rwsn
Just letting you all know that at least one large employer in my area (mine) is laying off employees because it can’t pay its debt. Maybe I’m screwed.
“People are screwed.”
-Big V