Abnormal Factors Are Clouding The Horizon
Some housing bubble news from Wall Street and Washington. MarketWatch, “The U.S. housing market showed signs of major mortgage disruptions, with contract signings on existing homes falling by 12.2% in July — the largest drop since the pending homes sales index started in 2001, the National Association of Realtors reported Wednesday. Pending sales are 16.1% below July 2006. The July data reflects trends prior to the mortgage meltdown in August.”
“‘It’s difficult to fully account for mortgage disruptions in the index, and our members are telling us some sales contracts aren’t closing because mortgage commitments have been falling through at the last moment,” said Lawrence Yun, NAR senior economist, in a statement.
“Yun said abnormal factors are clouding the horizon. ‘These temporary problems are primarily with jumbo loans, and there are continuing issues for subprime borrowers, but there are no serious problems for the majority of buyers who qualify for conventional financing or FHA-insured loans.’”
“‘If lenders focus on the essentials of creditworthiness and adjusted valuations based on comparable sales, and ignore speculation on what might happen in the future, broader stabilization will come sooner rather than later,’ Yun said.”
“The PHSI in the South was 15.2 percent below a year ago. In the Northeast, the index is 10.0 percent lower than July 2006. The index in the Midwest was 15.8 percent below a year ago. In the West, the index was 21.8 percent below July 2006.”
From Bloomberg. “U.S. bank regulators, facing the worst housing slump in 16 years, called on mortgage lenders to stave off foreclosures by cutting or postponing home payments for cash-strapped borrowers. The Federal Reserve joined with the Treasury Department in making the unprecedented appeal.”
“The public move by the regulators is ‘extraordinarily unprecedented’ since they’ve historically made such recommendations behind the scenes, said Gilbert Schwartz, a former associate general counsel at the Fed.”
“The banking agencies are taking a voluntary approach since ’securitization transactions are contractual in nature’ and ‘regulators can’t force institutions to breach these contracts,’ said Schwartz.”
“‘The Fed’s institutional culture doesn’t lend itself to this,’ said Lou Crandall, chief economist at Wrightson ICAP LLC. ‘They don’t get here without sharing some of the anger in general in Washington at the lending practices.’”
“The rates banks charge each other to borrow in dollars for three months rose for a 10th day as concern about losses on securities linked to U.S. subprime mortgages kept lenders from offering cash for any time longer than a few days.”
“Lending rates have risen so fast that the Bank of England today offered to provide additional cash to ease the squeeze and the European Central Bank said it may act tomorrow to soothe money markets if needed. The moves came amid concern banks may be sitting on undisclosed losses as a result of late payments by homeowners with poor credit histories.”
The Financial Times. “‘What is happening right now suggests that the moves by the Fed and ECB just haven’t worked as we hoped,’ admits one senior international policymaker.”
“Or as UniCredit analysts say: ‘The interbank lending business has broken down almost completely…it is a global phenonema and not restricted to just the euro and dollar markets.’”
“The high demand from banks to secure liquidity for the next three months, coupled with their desire not to lend out what liquidity they have, has made it virtually impossible to execute trades – even at the official prices quoted for such borrowing.”
“That has created some extraordinary dislocations such as the fact that the cost of borrowing three-month money in the sterling Libor markets is now higher than borrowing six-month or 12-month money. ‘The system has just completely frozen up – everyone is hoarding,’ says one bank treasurer. ‘The published Libor rates are a fiction.’”
The Financial Post. “Owners of billions of dollars of troubled asset-backed commercial paper issued in Canada could lose as much as half of their money because of poorly disclosed exposure to derivatives trades, industry observers are warning.”
“Commercial-paper markets around the globe have been struggling with fallout from the subprime mortgage crisis in the United States, but the situation is worst in Canada.”
“The vast majority of about $35-billion of non-bank ABCP is backed by risky bets on credit default rates that are now so far underwater that investors could be looking at losses as high as 50 on the dollar, said Edward Devlin, Canadian portfolio manager for highly respected bond fund manager Pacific Investment Management Co. LLC.”
“‘You’ve got to think people are not going to be pleased about that,’ he said in an interview.”
From Newsday. “Delta Financial Corp., the troubled Woodbury-based subprime lender, said Wednesday it has bundled together for sale bonds backed by $900 million in mortgage loans, a move the company hopes will increase its ability to borrow money to originate more loans.”
“Hugh Miller, Delta Financial’s chief executive officer, said in a statement before markets opened for trading that pricing the security was ‘paramount’ for the company ‘in light of the rapid deterioration in the credit markets.’”
“Miller added, the pricing was much less favorable than in the past, ‘reflecting the highly illiquid market conditions where virtually no mortgage-related securitizations are being consummated or sold.’”
“Two weeks ago, Delta said that it will be cutting 300 jobs, most of them in Florida, Texas and California, but some on Long Island, because of the current market environment.”
From Reuters. “Planned U.S. lay-offs rocketed in August as the housing slowdown and subprime mortgage debacle led to record job cuts in the financial sector, an independent report showed on Wednesday.”
“Announced lay-offs surged 85 percent to 79,459 in August from 42,897 in July, according to Challenger, Gray & Christmas Inc.”
“‘Nearly half of the August cuts came from the financial sector, as dozens of mortgage and subprime lenders caved under the pressure of a sinking housing market,’ Challenger, Gray & Christmas said in a statement.”
From CNN Money. “Home Depot’s CEO Frank Blake said Wednesday that the softness in the housing market and the subprime mortgage squeeze will probably carry through much of 2008.”
“‘In the beginning of this year, we had hoped to see the start of some bottoming in the housing market in the back-half of 2007. We don’t think this will happen,’ Blake told an analysts gathering.”
“He added that 2007 ‘will continue to be a tough year.’ More importantly, he said ‘much of 2008 will face into the same headwinds.’”
“‘There’s a lot of speculative activity in the markets. And the subprime issue is putting additional pressure on consumers. We will see this play out over the next few quarters,’ Blake said. On a regional basis, Blake said Florida and California were two markets that had suffered the most dramatic slowdown in terms of Home Depot’s business.”
“Daiwa House Industry Co., Japan’s second-biggest homebuilder by market value, wants to cut local costs and expand in China as the developer is concerned a property ‘bubble’ may burst, slashing land prices.”
“‘The property market has become dangerous,’ Takeo Higuchi, chairman of the Osaka-based homebuilder, said in an interview. ‘I wouldn’t be surprised if the real estate bubble goes bust.’”
“Land prices are key for Japanese homebuilders like Daiwa House because declines in population are shrinking the residential construction market. Housing starts in the first half of this year averaged about 23,000 a month fewer than they did 20 years ago.”
“Japan’s land price growth quickened last year to 8.6 percent from 0.9 percent in 2005. The gain was the fastest since the National Tax Agency started to compile national land figures. The rapid gain in land prices has become worrisome for Daiwa House, Higuchi said.”
From Marketplace. “Stacey Vanek-Smith: ‘Gone are the days when you could land a home loan with less-than-sterling credit and no money down. Mortgage lenders and big banks have gotten very finicky in the last few weeks.’”
“Mitch Ohlbaum is a mortgage broker in Los Angeles. He says if you want to get a decent interest rate now, you’d better have great credit and be prepared to put down a big chunk of change. Mitch Ohlbaum: ‘For now, the standard is really going to be 10 percent if you want to buy something. Which in the real world’s not so bad, it’s just a little bit more difficult where we live, where everything’s a million dollars.’”
“Ohlbaum says 10 percent down is unrealistic for many of his middle-class and working-class clients, even those with steady incomes and good credit. The result? They can’t get the loans they need to buy in L.A.”
“Dan Arguelles is a real estate agent in Manhattan Beach, California. Dan Arguelles: ‘Now it’s getting even tougher, that you have to state your income. It is getting a little harder to find that qualified buyer.’”
“The same thing is happening in New York, San Francisco and Washington D.C.”
“Housing market economist David Lereah is with move.com. He says a couple months ago it was too easy to get a loan, now it’s too hard.”
“David Lereah: ‘We need to be making loans to families that have the financial wherewithal to buy these homes. That’s the American dream, is homeownership. And now we’re keeping families out of that dream, because we’ve overreacted to this boom-bust cycle that we find ourselves in.’”
“Lereah says if the credit-crunch continues, it will erode consumer confidence in high-priced real estate markets and that could spread to the broader economy.”
‘It’s the one country where people couldn’t get their money back,’ Mr. Devlin said. ‘There’s a whole group of people who bought commercial paper [thinking it was liquid] and now they find they can’t get their money back.’ According to Mr. Devlin, about two-thirds of the $35-billion market is backed by derivatives such as credit-default swaps. ‘They’re leveraged up 10 times and leveraged again,’ he said. ‘There is an imprudent amount of leverage.’
‘Holders range from such mining companies as Cameco Corp. and Redcorp Ventures Ltd. to the Ontario Teachers’ Pension Plan.’
Weren’t these derivatives supposed to make this mountain of paper safe?
All I was seeing was a repeat of the 1980s bubble on the coasts. It looks like those who said it was national, then global, are being vindicated.
I’m in Des Moines just for the caucuses and it seems the air is going out right smack in the middle, too. The constant construction, highend, also started condos on my far far west burb stopped dead as of Sept. 1. They used to work weekends. Walked around with the dog last night, and they seem to have been trying to get the buildings enclosed for winter, and they did just that, no more, no interior finishing. Sure, they could have been pulled off to go to another site that needs closing in…but I bet when I scout around, I won’t find it anywhere around here. Range was under 400K for 4/3, 3-car gargage, maybe 3500-4000 sq ft down to 90K 2/2 condo, 1-car gargage.
TT,
If you get the chance, please explain that the reason us middle-class folks aren’t buying is not because of tight lending, but because the prices inflated to where no one could afford them. Also mention the flat median wage since 1999.
I suggest some simple charts and graphs to make the point. If any candidate approaches this inequity reasonably and beats the drum on a national level, I’d bet they’d get a lot of positive interest. Any bailout talk will loose votes.
I’m afrain my crap-o-meter will be overheating pretty often, but you’re right. I started looking in 2001, and by the time I was ready 2 years later, it was all ridiculous. I’m eying Chinese stocks, hard assets. What else can we do? I pity the people raising families in this mess. It’s really motivating, watching my 30-something kids struggle when they should have faced an open road, wind at their backs.
We all knew there was a RE bubble, but who could have predicted it would possibly bring down the international banking system? I thought housing prices would crash, a dozen or so lenders would go bankrupt and investors would get hosed. Now it’s looking like the Great Depression II on the horizon.
WT - “It looks like those who said it was national, then global, are being vindicated.”
As in, most everyone here on Ben’s blog. It is frustrating that, during this likely brief period of broadly exchanged, unfettered freedom of expression, this is so little known. I blame the MSM. But I’m also dismayed that the Internet grapevine has not spread the message farther and faster, in a way that will “stick” and matter. At the end of the day, when I have saved myself a pile of money and avoided a heart attack, at least I can say in good conscience that I tried to pass the word. As did most of our fellow posters here.
“Weren’t these derivatives supposed to make this mountain of paper safe? ”
Where is HedgeFundAnalyst, maybe he can answer this - LMAO?
Isn’t crack a derivative of cocaine?
LOL –yup, not to mention much more potent and addictive.
No it’s not… it’s the exact same substance.
Off Topic.
From Fortune article on CNN Money:
“First, house prices may move on euphoria in the short term, but long term they depend on family income - the ability to pay mortgages and rent. At levels well above the normal four times family income, the market gradually loses first-time buyers until prices break and fall back to affordable levels.”
Maybe the first time a MSM article has stated the obvious, backbone principle about this debacle–it is about affordability.
Full article here: http://money.cnn.com/magazines/fortune/fortune_archive/2007/09/17/100250262/index.htm?postversion=2007090509
At levels well above the normal four times family income, the market gradually loses first-time buyers until prices break and fall back to affordable levels.”
Since when did 4 x family income become the norm or buying houses, the norm used to be 2 1/2 or 3 x.
Since when did 4 x family income become the norm or buying houses, the norm used to be 2 1/2 or 3 x.
———————————-
Ever since the mandatory two (or three) wage earner family became the “norm.”
“Ever since the mandatory two (or three) wage earner family became the “norm”.”
What also became the norm was the emergence of the house’s own equity acting as another wage earner. At times the annual extraction of equity would become the household’s highest “wage earner” - tax free at that.
LIBOR is screaming higher. The system of commercial paper is freezing up. It’s a true derivatives bomb now.
open markets ops, activate..
“Im given her I got Captain!”"
all I got…….Scotty is alway using terrible English.
I have a LIBOR question. I notice the 3-mo and 6-mo LIBOR are around 5.5, in contrast to the 12-mo LIBOR at 5.3. Which LIBOR is typically involved in determining the reset of an ARM?
Ben, you’re enoying this too much now, like some carrion-eating crow overlooking the carnage after a bloody battle. You need help.
yeah, he needs help. let’s all get up on the branch and enjoy it with him…
Mmmm, yummy carrion, tastes like popcorn.
It is hard not to fly in lazy, looping circles over this carnage.
I used to be of the belief that the housing market would tank but the stock market would be relatively unscathed. Turns out Ben’s blog is modestly titled. It should be called “The Credit Bubble.”
In the sense of “This matters to me, a lot,” Ben is the most prescient person I’ve ever known. I hope that when the dust is settling, he makes a fortune on replays of his unerringly correct forecasts and spot-on media picks.
I second that.
“U.S. bank regulators, facing the worst housing slump in 16 years, called on mortgage lenders to stave off foreclosures by cutting or postponing home payments for cash-strapped borrowers.
Wow what wisdom! Just put off paying for a few months, and then what? This whole thing is going down in flames and will be more painful than need be because of all of this tampering with the system.
If this happens everyone will quit paying their mortgages, and those of us without a mortgage will rush out and get one…which we will not pay. Free houses for everyone!
The fact that they called for this out in the open reeks of desperation - what do these regulators know? Is it something that might make me want to mill around the entrance of my bank? All these calls for unprecedented action should be a mighty big warning sign - instead methinks legions of FBs actually think they’ll get something for nothing. Okay, let’s see how this works out.
It proves that the regulators are fools. If the FB don’t pay, either the MBS bondholders get no income stream (wave goodbye to the market price of those bonds) and the servicer will legally be forced to declare a default, OR the lenders will have to pony up the lost cash (if the servicer guarantees are written that way…) in which case the demise of the lender/servicer will be accelerated. Just discussing not collecting payments will completely sink the CMO/MBS bond market…
Did you spy the video blogs of the San Diego riots? I almost expected them to run through the streets to find vacant houses to party/squat like they do in Afganistan. Free houses to everyone!
Did you spy the video blogs of the San Diego riots? I almost expected them to run through the streets to find vacant houses to party/squat like they do in Afganistan. Free houses to everyone!
I’d like to see the business model that allows mortgage lenders to stop receiving payments and stay in business. It would be an industry implosion.
All they need to do is come out with a “prema-hock” mortgage that you can pass down from generation to generation,the masses are already trained to the monthly payment.
The whole thing is one BIG damn mess and it’s got to brake down completely before we can start over.
Multi-generational mortgages were already tried in Japan –and look at how well that worked out!
Don’t you like how the solution is always for other people to give away their money? Don’t they realize mortgage lenders must borrow money to loan money?!?
“‘If lenders focus on the essentials of creditworthiness and adjusted valuations based on comparable sales, and ignore speculation on what might happen in the future, broader stabilization will come sooner rather than later,’ Yun said.”
Lenders are now lending their own money. Get used to them going back to the old rules.
“Lereah says if the credit-crunch continues, it will erode consumer confidence in high-priced real estate markets and that could spread to the broader economy.”
Truth out of Lereah’s mouth. Who would have thought…
Guess what Lereah, credit crunches happen deep and fast. There is no quick cure.
Is he still holding his flips? If so, he’ll be a landlord soon. Bwaaa haa ha!
Got popcorn?
Neil
Crazy OT idea of the day
We all chip in and rent one of Lereah’s properties and throw a mother of a HBB party. Then we walk out on the lease. Neil’s bringing the corn, I’ll bring the Scotch.
I’m a single malt girl - I’m there
Ok, I’ll share my Murray McDavid Rosebank.
NAHAHA! He is still lying like the burf dog he is….
“If lenders focus on the essentials of creditworthiness and adjusted valuations based on comparable sales, and ignore speculation on what might happen in the future, broader stabilization will come sooner rather than later,” Yun said.
I was a banker for many, many years and “speculating” (AKA forecasting) the future was an essential part of my job.
— Hiding out
Let me translate Mr. Yun’s rather puzzling analysis: It is always a good time to buy or sell a home.
Neil:
This David Lereah character is a real piece of work.
Does someone really sign this guys paycheck?
Geezes….
If anyone can find a link to any quote made over the last
5 years by Lereah that even rises to the level of common
sense I will find a link to a horse that talks and sells real estate.
[i]“David Lereah: ‘We need to be making loans to families that have the financial wherewithal to buy these homes. That’s the American dream, is homeownership. And now we’re keeping families out of that dream, because we’ve overreacted to this boom-bust cycle that we find ourselves in.’”[/i]
LOL… Because anything other than skyrocketing prices and commissions is obviously an overreaction… Oh David, even after leaving the NAR you’re still just a lying shill… and here I was hoping we might get a milliliter of truth with your usual gallon of BS… disappointed again. {Sigh}
The Fed asking Banks to hold off on foreclosing homes is a pathetic request. The Fed may as well as ask all companies in the US to hold off on pursuing funds from delinquent customers.
Seriously, what is the Fed thinking? And why is the media publishing this crap without ridiculing it?
Gee, I’d like to hold off on my car payment and while I’m at it it would be nice if I didn’t have to pay utilities, taxes & insurance for a few months either.
This just struck me as being so damn unfair to the prudent and honest people that knew there was something wrong with the housing market for the last 5 years. We sacrificed and were patient and now that these crazy housing “gambles” did not pay off, the rest of the country is supposed to subsidise these poor business decisions and try to keep home prices artificially high.
What are they basing these “pleas” on, there is no recession, the economy is doing as good as it will in the forseeable future, so if they can not pay the mortgages now, when will they be able to. Look, it is time to realize this thing was a farce and cut the losses.
The housing bubble was caused because they did not want to suffer the fallout of poor decisions made during the dotcom mess. Now they will try to prolong it again with some thing else. If they had just done the right thing with rates and bank regs. etc the runup never would have happened and the economy would be stronger by now. Sometimes you have to take a little pain to get healthy again rather that just mask the symptoms with a band aid.
Imagine going to your lender and asking for the government entitled “Skip a few payments without any consequences” on your loan. The person on the other side of the desk wearing a suit, will call HQ. After a few “Ah uh’s” will tell you HQ says go F youself. WE EXPECT THE PAYMENT. WE EXPECT THE PAYMENT.
WE EXPECT THE PAYMENT ON TIME.
I tried it with the IRS once, did’nt work. They got their money and a pound of flesh.
How about they tell the FB’s to get 2nd and 3rd jobs to pay off the debt? How about we bring back debtor’s prisons for FB’s who HELOC’d their way into this mess?
You’d get my vote. These people need a twelve step program where step one is a B*tch slap.
“cutting or postponing home payments for cash-strapped borrowers”
That’s right you idiots, just cut and postpone so they can use that house money to put Xmas presents under the tree on the ‘How a’mucha month it’a gonna cost me’ plan. The Grinch will then have to wait until Xmas 2008.
It’s starting to get good again. This article just made my day.
“Yun said abnormal factors are clouding the horizon.”
Yes Yun, abnormal in your world is called responsible lending in mine.
Yeah, stave off foreclosure till the next administration takes over. Then it’s their problem.
That is the plan
So I have been trying to figure out how with the number of houses sitting empty that the NAR can show that rents will go up an average of 4.1% this year. (It’s a statistic which has been driving me crazy, actually).
So, first lets pretend that the NAR actually has some data to support this statistic (a stretch, I know, but stick with me).
Now lets consider someone like me. We currently rent a condo (on par with an apartment), but it is likely next year that we want something bigger. In the past, we would probably look at buying a house, but that is not going to happen anytime soon. However, as more and more single family houses come on the rental market, it becomes more and more affordable for us to rent one, even though the rent on a single family house continues to be more than the rent on the condo. So next year, we will probably increase our rent payment by moving to a single family house, and help drive up the average rent being paid.
Now repeat this process a million times, and the average rent being paid could be going up at the same time that the rent for every given unit is going down. Pretty similiar to how they can report that the median value of houses sold rises at the same time that the price for any given individual house is far more likely to be going down than going up.
There should be some statistics to test this theory:
1. The average rent per square foot.
2. The percentage of renters who are renting Single Family Houses versus apartments or condos.
So my questions are:
1. Does this make sense, or am I way off base?
2. Does anyone know where to find the statistics I mention to help me test the theory?
“Lereah says if the credit-crunch continues, it will erode consumer confidence in high-priced real estate markets and that could spread to the broader economy.”
Even his doctor expressed surprise that he came out of his 5 year coma so fast……”he’s even started to read the housing bubble blogs”.
‘We need to be making loans to families that have the financial wherewithal to buy these homes. That’s the American dream, is homeownership. And now we’re keeping families out of that dream, because we’ve overreacted to this boom-bust cycle that we find ourselves in.’”
American dream? David failed to get the memo that informed us that term died 2 years ago. I suggest he stops using it before he sends another FB up a bell-tower with a deer rifle.
Yep, the American dream is now part of the confused global melting-pot mush.
Oh enough with the Capra-esqe populism already, Dave! And since when is not wanting to throw good money after bad considered “overreacting”?
Gas to drive to neighboring state: $65.00
AK47, $425.00
Rooftop near your mortgage servicer, free
Pursuing the Amerikan Dream, priceless
“nothing an AK47 and a rooftop won’t cure” - from the Truth about Cats and Dogs -
The fact that this guy has a job, and presumably a well-paying one, disgusts me beyond measure.
“Yun said abnormal factors are clouding the horizon. ‘These temporary problems . . . ”
Notice the words chosen for this statement: ” temporary problems”.
Thats such a load of BS, as if its all just a minor little annoyance, a temporary problem, if you wil, that would just go away if everyone would listen to the RE industry, dammnit !
Cause whats good for GM, err I mean, whats good for Real Estate is good for America.
as well as the fact that the MSM keeps quoting him
as well as the fact that the MSM keeps quoting him
And Greedspan.
Someone (NYTimes?) ran a Lexis search to see how many times the NAR economist was quoted over the last few years versus housing realists/bears like Shiller. The NAR folks and other bulls were quoted something like 5 times more often. The influence of this selection bias on the common “wisdom” is obvious.
doesn’t the rental market depend on the meth lab market now ?
Now repeat this process a million times, and the average rent being paid could be going up at the same time that the rent for every given unit is going down.
This is a fallacy, if by “average” you intend to say “arithmetic mean” (which is what most people intend). The average rent can either go up or down, but not both. If the rent for “every given unit” is going down, the average is going down, plain and simple.
Pretty similiar to how they can report that the median value of houses sold rises at the same time that the price for any given individual house is far more likely to be going down than going up.
This is a specious comparison. “Median” is not the same as “average” (arithmetic mean).
Sorry to follow up on my own post but I wanted to address some of the other points.
I believe the statistics you mentioned are available from the government. Not sure where to look but “average rent” sounds pretty familiar, and it’s probably broken down by apartments and houses.
But I think your theory is still off-base, because of the sheer amount of inventory in the market. All the excess building that took place will first drive down the prices for home buyers. That may clear some of it out, but I think a lot of people will still be stuck owning a second home, and they’ll have little choice but to rent it out, increasing the rental inventory as well.
I am not sure which part of my theory you are saying is off base.
I agree that the rental inventory is going way up. That’s why I was having trouble understand the NAR statistic that says rents are going up 4.1%. My point was to try and reconcile the fact that more and more units are available for rent with the fact that rents are going up 4.1%.
Lets look at a simple case as a thought experiment. I currently rent a condo for $1275. Now, thanks to some overbuilding, there are some brand new unoccupied houses nearby which, because they cannot sell them, are competing against each other for rent. Because of the increase in space, I am happy to rent one for $1500.
Now, all other things being equal, the average (and median) rent being paid has gone up.
If enough people are doing this, it can drive the average rent up, even though no individual unit is actually worth more (in rental value) than it was before.
I am not saying this is necessarily the case, but it seems like a possible explanation of the 4.1% increase statistic.
You’re comparing apples to oranges. Obviously, a larger house will rent for more money than a smaller one. The relevant statistics measure “average rent” on a square footage basis.
In computing this average, the relevant figures are not $1275 and $1500. You should instead evaluate the average for house A ($1275 now, ? later) and house B (? now, $1500 later) separately. Remember, someone still has to rent house A after you leave it; otherwise the average will go way down. And given that house B appears to be a sweet deal, do you really think the landlord of house A is in a position to increase the rent?
The NAR’s figure of +4.1% sounds pretty close to the rate of inflation in the US, so perhaps that’s an explanation, but another one could be the fact that they only count rentals which have existed for a while. Flippers and speculators who haven’t offered their properties for rent may not be included, even though over time, some will undoubtedly decide to become landlords.
You’re comparing apples to oranges. Obviously, a larger house will rent for more money than a smaller one. The relevant statistics measure “average rent” on a square footage basis.
This is exactly why I asked if someone knew where to find this exact statistic in my first post.
If the NAR’s 4.1% statistic actually takes into acount square footage, as you seem to be implying, I have not seen that indicated anywhere. If you can point me somewhere which shows that, then I’m willing to conceede my point.
In computing this average, the relevant figures are not $1275 and $1500. You should instead evaluate the average for house A ($1275 now, ? later) and house B (? now, $1500 later) separately. Remember, someone still has to rent house A after you leave it; otherwise the average will go way down. And given that house B appears to be a sweet deal, do you really think the landlord of house A is in a position to increase the rent?
I am a bit confused by your math here. If there are two units, and I pay $1275, the average rent is $637.5. When I switch to house B from house A, the average is now $750, even if no one rents house A. And if someone does rent house A (lets say someone who just got foreclosed on, so was not in the rental market before), then the average goes up even more, even if it is for less than I was paying before.
The NAR’s figure of +4.1% sounds pretty close to the rate of inflation in the US, so perhaps that’s an explanation, but another one could be the fact that they only count rentals which have existed for a while. Flippers and speculators who haven’t offered their properties for rent may not be included, even though over time, some will undoubtedly decide to become landlords.
So continuing the math from above, in this case house B does not count until its rented out. In this case, the average prior to my move is $1275 rather than $637.5. So now, I guess your math makes a bit more sense, because now if they do not rent house A, the average will drop all the way to $750. But, now house A only has to rent for $1050 (a drop of almost 20%), not $1275 to make the average remain at $1275.
Which leads to my conclusion again. If more and more higher end rental units become available, the average rent could go up even while the rent on any given individual is going down.
You may not have factored in people renting more higher priced homes as the number of rentals on the market increases. It is growing on the high end, not the low end (apartments).
I am not saying that the article was right, just that it is possible for every individual rental to go down in price while the average goes up if you are adding new rentals at the high end.
“I have been trying to figure out how with the number of houses sitting empty that the NAR can show that rents will go up an average of 4.1% this year.”
A little history lesson. After the military cut back in the late 50’s SD had a lot of housing left vacant and fire insurance went through the roof; solution, get renters in to lower the cost of insurance. Lots of vacant property is a renters friend and for the vacant owner higher insurance costs is the enemy.
But more people trying to rent should mean rents going down, not up.
What I am having a hard time understanding is given the current increase in available inventory why rents would be going up.
I just realized that “more people trying to rent” is ambigous (could mean more renters or more rentees). “More units available for rent” is what I should have said.
What I’m trying to get across if history repeats as in SD landlords will not only lower rents but will compete doggedly (free month rent, etc) just to get people in their units. Some insurance companies won’t insure property that sits vacant.
That’s beginning to happen here in D.C. Not from SFHs but from established apartment complexes. It will happen. Give it time.
Also happening here in San Mateo County. One add was offering $1,000.00 off the first month. Other adds are offering $300.00 off the first 3 months.
Well, I don’t have any stats to help, but that is exactly what I did. My rent payment has almost doubled over the last 3 years.
However, my square footage has quadrupled, and I now live in a high end gated community (as opposed to a lower end rental community).
So, yes, my rent payment is up. My rent/sq ft is about 1/2 of what it once was (however, this is to be expected to some degree, bigger homes seem to get less and less per sq/ft for rent).
A good deal of the inventory isn’t going into rentals, it’s going into foreclosure.
If you have 100 houses, with 97 families living in them, and three for rent. Say four families get evicted, and the houses go back to the bank. Now you have 96 houses 93 families living in them, three houses for rent, and four families needing a rental.
Rent goes up.
Nope. You still have 100 houses. Always did, always will, unless they get torn down.
So now you have 93 houses presumably occupied by their owners. That means you have 7 houses available for rent. If only four families need a rental (no explanation of where the other three went, but presumably they emigrated from the ‘hood), then rents should decline. 7 available, 4 takers.
No, I’m trying to rent a new place around LA now….every apt has granite countertops and is being converted to a “luxury apartment”. LA is looking ripe for another population purge.
Not that it will help but the question is: will the FED give indication of willingness to cut the Fed Funds Rate in it’s report today?
Are they a tool of Wall Street?
I heard rumors on CNBC this morning that the report will indicate that they will not cut for the sake of Wall Street.
Who knows.
Ben: that’s one heck of a post!
Thanks. There was this from one of the Bloomberg links:
‘ While the increase has led to speculation the Fed may cut its discount rate before the next scheduled meeting Sept. 18, policymakers are likely to resist the move, according to Goldman Sachs Group Inc. The Fed was forced to cut the discount rate by half a percentage point on Aug. 17 to 5.75 percent and shift its policy focus to economic growth rather than inflation.’
‘There is some risk that the financial markets would view a stand-alone discount rate cut as a sign that the Fed was not prepared to cut the funds target rate,’ which would cause ’significant turbulence,’ Jan Hatzius, chief U.S. economist at Goldman in New York, wrote in a research note yesterday. ‘
Not only is the market pricing in a cut, as of now it considers a 74% probability of a half point cut.
“Not only is the market pricing in a cut, as of now it considers a 74% probability of a half point cut.”
Okay, let’s say BB caves and cuts rates. 25 or 50 basis points, whatever. Imagine the panic a few months down the road when the housing market is still spiraling out of control, the resets are fast and furious and foreclosures are through the roof.
The market will panic. It’s just a matter of time….September if the Fed doesn’t cut and by year end if it does.
A cut of 25 bps is baked in the cake for 9/19. There’s probably more cuts down the road. My guess is that at least 3 more getting us down to a 4 1/4 FF rate by the first part of next year.
“A cut of 25 bps is baked in the cake for 9/19.”
Helicopter drops of liquidity for everyone!
all you thinking that long positions in the market are a bad idea right now……might wanna get your inflation expectations managed a bit more…
I’m hearing that the market already accounted for the “expected” drop in the FFR. It seems like they “purchased” something on credit without actually getting approved! LOL!
“Ben: that’s one heck of a post!”
Thats actually an understatement. Wow, there are some apocalyptic quotes in that blog. Cats and dogs sleeping together kind of stuff…
“‘In the beginning of this year, we had hoped to see the start of some bottoming in the housing market in the back-half of 2007. We don’t think this will happen,’ Blake told an analysts gathering.”
No sh*t, Sherlock!
And watch this idiot spew the exact same crap every year (just change 2007 for 2008, 2009, 2010…) until he gets fired or foreclosed on.
Damn! No wonder this country is in the dumps. Shills like this one make big $$$$ sitting on their asses and spewing lies and distortions, while real workers make sh*tty $6.15 if they can get a job at all.
Heck of a job, Shrub!
Sounds like you could use one of my Joshua trees.
Does it come with a pre payment penalty? Or maybe a rate reset of 200%? Or hidden fees written with invisible ink?
Thanks, but no thanks… Go peddle your “gifts” to someone else!
no, it doesn’t come with any of that, just a fine from the BLM for cutting it down - LOL
Don’t worry ex-nnv, most of us get it. . .
Hope is not a plan.
People cannot afford the american dream! No one will lend them they money! We must do something quickly!
Entitlement mentality will soon come to an end after a decade of hard times and working hard just to get food on the table.
Why don’t they just say, people cannot afford the american dream because prices are too high. Perhaps when prices come down people can afford it. (If they are not impoverished by the crash itself)
There is a point at which even lower prices won’t help. Some people are simply incapable or unwilling to create enough value to purchase a house. This has always been the case. In fact today it’s worse than ever. Building codes, HOAs and all that stuff just push up the lowest possible price for a house making them out of reach for more and more people.
Perhaps there is a fundamental problem with the concept of being able to “afford” something. In the core analysis to be able to afford something means that either you can create it yourself, or you can create enough of something else to trade it with someone who already owns it, or who can create it for you. The constant debasement of our currency makes the analysis more difficult, but it’s the same whether you use wampum or green paper to keep track.
Jeeez! I just cannot believe these whores. David Learah must be the Brothel Owning Madam of the year. He has the audacity to say that, “We have (btw what’s this WE Tonto?) overreacted to this boom/bust cycle.” That lowlife, bottom of the barrel $2 whore was the biggest promoter of, “Real Estate Never Goes Down,” and “Now is a good time to buy,” and “Next year prices will be higher,” all the way up.
If we lived in China he would be facing a firing squad but this is scam America where the, “Which walnut shell has the pea under it,” operators can scam, survive and move on to the next rip-off without fear of retribution.
That post was highly offensive and uncalled for.
You owe an apology to every “lowlife, bottom of the barrel $2 whore.”
You are correct. I do apologize to all the low life bottom of the barrel whores. Compared to Liarah you are royalty.
At least the $2 whore provides a public service at a reasonable price.
M: If we lived in China he would be facing a firing squad but this is scam America where the, “Which walnut shell has the pea under it,” operators can scam, survive and move on to the next rip-off without fear of retribution.
Actually, if we lived in China, Lereah would be a Party member regurgitating all the good things that come to mind when we think about the Communist Party. In China, people who bring bad news are killed. That’s why a continental-sized empire with a 2000 year history has produced fewer contributions to science and technology than a tiny former Roman province like modern-day Austria.
“”Which in the real world’s not so bad, it’s just a little bit more difficult where we live, where everything’s a million dollars.’”
“Ohlbaum says 10 percent down is unrealistic for many of his middle-class and working-class clients, even those with steady incomes and good credit. The result? They can’t get the loans they need to buy in L.A.””
Isn’t it unrealistic for a middle class or working class person to own a million dollar home?
Only if it is unrealistic for a middle class or working class quality home in a middle class or working class neighborhood to sell for a million dollars.
to quote a friend of mine regarding a million dollars:
“a million fracking dollars??!!!!”
“do you realize how much money that is…a million dollars!?!?!?”
“have you…have you ever even seen a million dollars!??!!”
“do you realize it could fill up that table?!?!?!”"
“jesus christ!!!!!”
it was much better actually seeing him rant and point to a table in the room, lol.
As an elementary school project, our teacher taught us the meaning of the word Million by making us write out a million letter “m” ’s. A piece of graph paper is about 1500; manual typwriters allowed. It took 20 students the entire school year to reach the goal, and the entire hallway was full of pieces of paper with M’s on them.
Got Attached Product?
“Many in California have reached the dream of living in a million-dollar home without moving.”
–Leslie Appleton-Young (vice president and chief economist for the California Association of Realtors)
These temporary problems are primarily with jumbo loans, and there are continuing issues for subprime borrowers, but there are no serious problems for the majority of buyers who qualify for conventional financing or FHA-insured loans.’”
So if all you mcmansion sellers would be kind enough to price them at or below $417K, we can get this market moving again.
“Temporary problems;” “continuing issues;” “no serious problems.”
How the hell much doublespeak can a person put in one sentence???
“majority of buyers”
Except in California…take out sub-prime, alt-a, and jumbo loans in California, and what percentage of buyers do you have left? 10%-20%?
Fixed rate 30 year jumbo rates look to have parked themselves at 100 basis points above conforming for the time being:
http://tinyurl.com/2zwoec
Well, $1 million USD probably has the same value $200K did about 7 years ago. For the record, David Diarrhea is a ding dong doofy dumbbell dork. Anyone who took him seriously in this bubble is the same as him. It should be obvious to the media that someone who works in the real estate field isn’t going to give you an unbiased answer on anything in real estate! D’Lereah and the whole REIC can kiss my butt since everything they say is a lie. I knew you’d have huge job losses at around this time in 2007. In December of this year expect to see a big dump in either the RE market, the stock market (possibly a 500+ point plunge) or something stupid happens in the fake-finance derivatives market.
Oh, and the people who get laid off in the REIC can eat Ramen noodles and squirrels (Kung Pao Squirrel)
Have we officially entered the anger phase of the housing bubble stages of grief?
Oh, I’m going way out on a limb and say yes…
Anger is the first stage. Bargaining could come soon.
Denial… Anger… Bargaining…Depression…Acceptance.
I think the typical FB is leaving denial and entering anger.
The industry insiders are locked firmly in bargaining, thinking the fed of govt. will ride to the rescue any moment now.
I just hope the country makes it to the recovery stage. This canoe might be filling with water faster than all us thirsty folks can drink it back out.
Oh learned PB:
Please do tell how long the anger phase will last?
somebody get me a fan, stat.
I need to hit it with some shat.
LMAO!
‘These temporary problems are primarily with jumbo loans, and there are continuing issues for subprime borrowers, but there are no serious problems for the majority of buyers who qualify for conventional financing or FHA-insured loans.’”
The talking heads don’t get it do they. Once again, the problem isn’t ultimately with loans, interest rates, consumer spending, foreclosures, building supply, home sales, or anything else. Those are just the results.
These ‘temporary’ problems are not from the above stated results. The cause is PRICE. Let the market ride it out, then you’ll solve the price problem. Realistic prices equals less problems. Quit misdiagnosing the problems with the resulting illness of the housing bubble.
Hmmm. I wonder how many sellers can offer owner financing? The ones who can should consider it, right?
You can only offer owner financing if you OWN the house or can pay off the bank with the down payment from the new buyer.
That leaves about 1/3 of all homes. But who in their right mind would take a risk that no bank is willing to take?
Sorry, not true. There’s a couple different ways one can owner finance without paying off the bank.
But how many would consider such a thing?? Another question altogether.
I did the owner finance thing with some property I sold 4 years ago. I still get a monthly check, but in 2.5 years, a balloon comes due. They are going to have to borrow to pay me off. I’m thinking I’ll get the place back. That’d be okay, though.
For some reason I’m humming “Choctaw Bingo.”
He’s cut that corner pasture into acre lots`
He sells ‘em owner financed
Strictly to them that’s got no kind of credit ‘Cause he knows they’re slackers
When they miss that payment
Then he takes it back
http://www.jamesmcmurtry.com/lyrics/smotw.htm
“Yun said abnormal factors are clouding the horizon. ‘These temporary problems are primarily with jumbo loans, and there are continuing issues for subprime borrowers, but there are no serious problems for the majority of buyers who qualify for conventional financing or FHA-insured loans.’”
Bingo. The problem is that the majority of buyers DON’T qualify for conventional financing or FHA insured loans. And they won’t, until prices come back down in line with household incomes.
There’s always something to blame, and the “something” is never that prices are just too damn high.
That quote jumped out at me, too. Yeah, the only problem for the majority of buyers is coming up with $30,000-$50,000 downpayment. And having enough of a cushion left over so that if something bad happens, they won’t automatically miss the next month’s mortgage payment.
the only problem for the majority of buyers is coming up with $30,000-$50,000 downpayment
Try $75,000-$100,000 for most of non-gangland CA. And that’s assuming a mere 10% downpayment. If lenders up the requirement to 20% or more, bye-bye 95% of housing “demand”.
“…The moves came amid concern banks may be sitting on undisclosed losses as a result of late payments by homeowners with poor credit histories.””
No-Shit-Sherlock: “Dr Watson …do you have a suppository at the ready?”
‘The system has just completely frozen up – everyone is hoarding,’ says one bank treasurer. ‘The published Libor rates are a fiction.’”
Time for a 7th inning stretch…going to the Angels game today with my 5 year old.
Oh garçon, some Single Malt Scotch…and some imported:
“Neil’s Hot Buttered Derivative Popcorn”
“…When rain turns to hail
Hail often precedes tornadoes.
“‘If lenders focus on the essentials of creditworthiness and adjusted valuations based on comparable sales, and ignore speculation on what might happen in the future, broader stabilization will come sooner rather than later,’ Yun said.”
The essentials…such as 20% down and documentation of income? In that case, I think we’re in agreement!
Oh, wait, you mean pay attention only to the comps and a high FICO score? Those days are over, FunYun, lenders want to hedge against a 20% or larger decline in values.
“If lenders focus on the essentials of creditworthiness and adjusted valuations based on comparable sales, and ignore speculation on what might happen in the future……..”
If lenders focus on pouring money into the financial equivalent of the Grand canyon and ignore the fact that they will not get it back everything will be alright. Alright?
Lenders want the 20% so that they can be damn sure that you as a borrower are invested in the asset, and care about not losing that 20% if you stop making payments and have the property foreclosed upon.
“Skin in the game” is the phrase that comes to mind.
I have a question - you can put a contract on a house without being fully qualified for a mortage - correct. Usually, a lender prequalifies a person and then they start to shop for a house. However, in order to put a contract on a house, you don’t need the final qualification - correct? So, there are probably a lot of people whom hae taken out house contracts and will not be able to get final qualififcation - based on recent lending stndards tightening.
If that is the case, I expect the existing home sales to be abismal - even by this board’s standards.
“…even by this board’s standards.”
Nah…
A smart seller would not allow a financing contingency. If the financing falls through they get to keep the earnest money deposit. This would help prevent the seller from losing even more money by being off the market for a month waiting for closing. It would also make the buyer think twice about making the contract.
Most contracts have the financing contingency already printed on them. A smart buyer would never write one without it.
Hmm, maybe that’d be a good way to make the mortgage for a couple of months. Knowing financing will fall through, keep the earnest money, make a mortgage payment.
That’s exactly right. The sales numbers from NAR are based on contracts. We don’t know what percentage of those “contracts” actually close.
“I have a question - you can put a contract on a house without being fully qualified for a mortage - correct”
That is absolutely correct. In fact, lenders I talked to would not prequalify me at all. When I asked about it, they told me to find a house I wanted, and then call them back to see if they would lend me the money needed. They refused to prequalify me upfront.
Note - I’ve bought 3 houses in the last 9 years, and have never be pre-qualified. I would discuss financing with a couple of lenders, figure out what I was comfortable paying, go shopping for a house, then put in an offer on the house with a financing contingency. After I finished negotiating the final purchase price (never the asking price!), I would call the lender of my choice and proceed with getting a mortgage.
I’m not sure pre-qulification was/is standard in certain parts of the country.
A pre-qualification is really useless. All it does is state that on that particular day a buyer is qualified to spend say $100k. It does not qualify them for a particular house, and the buyer could lose his job one day later and that piece of paper is useless. Buyers can get an idea from the bank on what they would qualify for by allowing the bank to pull a credit report and giving them an income statement. The actual paper is a waste of time.
you were prequalified and didn’t even know it. how?? the lender could hear you breathing while you were talking on the phone.
I have a question - you can put a contract on a house without being fully qualified for a mortage - correct.
As desperate as sellers are I’d bet way over half of the contracts accepted have not had pre-qualified buyers. People only scramble to pre-qualify when they’re in a tight market and competing for properites.
Not to add to the confusion, but, two things:
1) “Prequalification” for a mortgage is completely useless. You want to be “pre-approved,” which means exactly what it says. There is a big difference.
2) You are absolutely and completely out of your mind to ever go to contract on a house without a financing contingency. The contingency should also include the terms of a loan, for example, “not to exceed 7% fixed for thirty years.” Otherwise, you are on the hook, even if all you can get is a loan from Guido down at the pool hall.
Even at peak bubble, there were financing contingencies in (nearly) everyone’s contract. Exceptions only to those who are able and willing to pay cash.
“Yun said abnormal factors are clouding the horizon. ‘These temporary problems are primarily with jumbo loans, and there are continuing issues for subprime borrowers, but there are no serious problems for the majority of buyers who qualify for conventional financing or FHA-insured loans.’”
How long will ‘temporary’ last? It lasted from 1989 through at least 2005 in Japan, but perhaps it is different here in the good ole’ U.S. of A.?
And I wonder what kind of ‘issues’ Mr. Yun refers to with respect to ’subprime borrowers?’ Perhaps it has something to do with the recently-developed shortage of subprime lenders? Or perhaps he refers to the ever-rising foreclosure rates on subprime-financed purchases? We can only wonder…
“The Federal Reserve joined with the Treasury Department in making the unprecedented appeal.”
It sounds like the Working Group might be behind the appeal.
http://en.wikipedia.org/wiki/Working_Group_on_Financial_Markets
Abnormal? Anyone see Mel Brook’s “Young Frankenstein”?
Of course, it wasn’t abnormal when property values were going 20% a year. Greedy, rotten, good-for-nothings.
But, but, but real-estate never goes down in value.
“Even if loan-servicing companies want to make changes, their contractual obligations may block them. Eight of the 31 subprime-mortgage deals that Credit Suisse Group bond analyst Rod Dubitsky looked at for an April report capped the amount of loan modifications that can be done at 5 percent of either the total loan number or their balances.”
That’s right, workouts will be impossible to do for securitized loans. The only way I can imagine it happening is if everyone agreed to exchange their existing bonds for new bonds at, say, 70 cents on the dollar.
“Banks and borrowers also may be worse off if they delay inevitable foreclosures because slumping home prices may create even lower resale prices.”
The question is can they keep the losses off the books long enough for one final round of bonuses, this one they perhaps won’t blow. I think it’s too late as far as prices are concerned. With credit the way it is, auctioned foreclosures may sell for LESS THAN long-term fair value.
How long before the auctions really get going. And will the FDIC (or another RTC) be doing the auctioning?
Someone from the FDIC insurance agency was just on Kudlow and she said in so many words that the MBS’s in most part allow the servicing agent to re-write mortgages ,if it’s in the best interest of the funds ,or if it would cost less than a foreclosure .
“That has created some extraordinary dislocations such as the fact that the cost of borrowing three-month money in the sterling Libor markets is now higher than borrowing six-month or 12-month money. ‘The system has just completely frozen up – everyone is hoarding,’ says one bank treasurer. ‘The published Libor rates are a fiction.’”
I guess that in response, the CBs will have to flood the world’s market with a tsunami tide of liquidity, in order to make hording of cash less psychologically attractive? CBs must stay the course in the War on Savers!
We have reached the inflection point; the inflation/deflation debate hinges on what happens next. Massive rate cuts cause huge inflation (got gold?) or frozen lending system collapses, causing panic deflation (got cash?). Either way, should be interesting.
What if they’re not hoarding, but rather have nothing left to lend? That’s the more likely situation.
“U.S. bank regulators, facing the worst housing slump in 16 years, called on mortgage lenders to stave off foreclosures by cutting or postponing home payments for cash-strapped borrowers. The Federal Reserve joined with the Treasury Department in making the unprecedented appeal.”
————————————-
Why don’t they make an unprecedented appeal to the FBs to get a second or third job in order to fulfill their responsibilities and pay their d@mn bills?
Imagine you are a mortgage lender. Would you loan money to people who don’t have to pay it back? Mortgage lending would completely stop.
Even if this relief was possible all the FBs would do is promptly waste the opportunity by buying more garbage. This appeal is so ridiculous simply because it would require so many FBs to act responsibly for the first time in their lives. Ain’t gonna happen - are these guys actually foolish enough to bet on the rationality of hyper-consumers?
“U.S. casino regulators, facing the worst gambling slump in 16 years, called on casino owners to stave off busted marks by cutting or postponing collateral requirements for cash-strapped gamblers. The Federal Reserve joined with the Treasury Department in making the unprecedented appeal.”
Let’s see, gamble…pay the bills…gamble…pay the bills. Gee that ’s a no brainer.
I believe a nice gesture would be to eliminate paying of taxes. Just think of the extra income to pay your mortgage. Have the Gov put “our” money where their mouth is.
Right. You’ll get it from them when you pry it from their cold, dead fingers.
‘“Dan Arguelles is a real estate agent in Manhattan Beach, California. Dan Arguelles: ‘Now it’s getting even tougher, that you have to state your income. It is getting a little harder to find that qualified buyer.’”
- Doesn’t even deserve a comment. I ought to drive up the street and call him a dumbass to his face (two faces). What a loser.
It doesn’t even make sense. They’ve always stated it. What he should have said is “now that they have to document their income, instead of lying about it”
Whining on CNBC comedy central that we have to get credit eased up - we have to get money into the consumers hands - economy is dependent on consumers spending.
Well yes raise the minimum wage. There is no way the man on the street is going to be given more credit
That’s what they’re calling for getting more credit to the consumers so they can spend. More wages - not so much.
This is what I find really stupid about the cheerleaders on Wall Street. They know this economy and the housing market(and by extension the stock market) is addicted to credit. The cheap and easy kind no less. And yet they continue to push on a string. It’s like they just don’t get that once asset prices stop rising nobody will be able to pay back and or get out from underneath this mountain of credit that’s been created!?!
they only need to push the string for three more months though. hint hint.
they figure they can do that. look at amzn, bidu, csco
“look at amzn, bidu, csco…”
goog
aapl
etc etc etc
We pointed this out on Aug. 20 as a cynical play on a bonus recovery attempt. The ugliness will come when the realization comes that it won’t work or the bonuses are paid.
I don’t follow.
Christmas shopping?
No.
Hedge funds took some brutal losses in August on the credit mess. They gotta get it back. What’s the fastest way to get it back? Gun the “high beta” stocks, especially if they have very high short interest like Amazon.
In 2003, a bid hedge fund named Andor did that. They were short all year, then were down for the year in the summer or early fall. Then, supposedly they did a 180 and went long tech trying to catch up. It didn’t work and they were liquidated.
Incidentally, it was during that time that stocks like AMAT, INTC and PMCS made their highs of this run from the ‘02 bottom. PMCS for instance, is now half of what it was in November of ‘03.
I would think that CFC might be a candidate for this too.
Ok.
So you’re thinking they will bid on low (low being relative to earlier this year) stocks and try to hype them in the media so they can make back some money?
So you think a recession will become evident to the normal population early next year once these people sell off their “big bets”?
Makes for a good subplot to the presidential primaries.
PB’s editorial suggestion:
“We need to be
making loans tobuilding homes for families that have the financial wherewithal to buy these homes.”So right - the McMansions built are not affordable. When did we get to the point that a person’s 1st home should be 3000 sq ft w/every ammenity possible? Try finding a new 1500 sq ft house.
This is something the Fed has not addressed yet, but I predict that some future academic research effort will connect the dots between high rates of housing price inflation (like in the U.S. market from 1998-2005) and a propensity to build supersized homes to satisfy “investment” demand. As long as all homes appreciate at roughly the same rate, investers make a lot more income by flipping $2m homes that go up by 10% each year than by flipping the same number of $200,000 homes that go up by 10% each year.
Maybe our next president can review the reasons that Teddy Roosevelt busted trusts in his day. Because I suggest the big Wall Street builders should be busted up and we should return to a world of small builders who can meet end-user demand for housing, instead of fostering the potential for mass-scale building of inappropriately sized stucco box tract home developments which we have recently witnessed.
Ah, but under the current system your first home is not that 3000 sqt foot McM; it’s an 1100 sqft sh1t box of a converted apt. condo. The experts say the price of this overpriced piece of crap will rise quickly and then you can sell it to the next greater fool and then move into your 3000 sqft beast of a home which you will also have to over pay for and service massive amounts of debt for the “right” to own it.
This is how the game “used” to work but nobody ever counted on asset prices actually falling. Imagine that, a free market were asset prices never fall…hmmm?
Fed Gov Mishkin will try to prevent that from happening. They will pay people to borrow money if they have to. Inflation be damned
you got me, pudding through the nose……nice.
From the Department of Next Shoes to Drop: MGIC Investment (MTG) and Radian Group (RDN) have called off merger talks, according to Bloomberg, saying “market conditions” have effectively closed deal talks that would have combined two of the three biggest
U.S. mortgage insurers.
The merger was valued at $4.9 billion when it was announced in February.
MGIC, the largest U.S. mortgage insurer, said back on Aug. 7 that it was reassessing the deal due to rising homeowner defaults threatening the lenders the companies protect, Bloomberg said.
In other words, the deal was being re-evaluated back in early August due to the spread of formerly “well-contained” subprime mortgage defaults, and has now been officially called off due to credit market conditions.
Another rumor:
Countrywide is trying to merge with a major toy store chain. If successful, the new venture will be called Loans”R”Us.
Countrywide should merge with Mattel. Both of their products come from China and are toxic.
“Commercial-paper markets around the globe have been struggling with fallout from the subprime mortgage crisis in the United States, but the situation is worst in Canada.”
It is really anoining living in Canada, having to listen to the “experts” tell us that “it’s different here”, and that what does on in the USA will have little or no impact in Canada. Retards…
RJT,
I just came back from renting a house for 3 weeks in Muskoka. Beautiful place, but prices, even at a local supermarket, seemed
higher than here in Manhattan. RE prices seemed to be still in 2005, with little extra inventory apparent. But I did see newspaper headlines about GM closing a plant in Ontario that builds light-trucks,and the reporter tied it directly to the busting US housing bubble. 1,200 jobs permanently gone.
Favorite Hank Paulson quotes:
The subrpime problem is contained.
We have the strongest global economy I’ve seen in my business lifetime today” He said that on August 1.
Per the Beige Book, housing is contained.
“Outside of real estate, reports that the turmoil in financial markets had affected economic activity during the survey period were limited.”
http://www.msnbc.msn.com/id/20607631/
Excellent! There is no need to lower the FFR, then, is there?
millions paid to gov workers for that wisdom
I like the OE-OE-OE
Interesting idea:
http://www.minyanville.com/articles/housing-mortgage-Bush-Bernanke-FHA/index/a/13996
Today is one of the first times in a while that the gold price has held or gone up while the stock market dives. You know that things are getting bad when the gold price starts to respond in the opposite direction of the rest of the market. Maybe it is just a one day fluke, but it is still something to watch.
That is the way gold is supposed to work.
I am very excited about this. I have been waiting for the disconnect for months. Maybe, just maybe, short positions have finally been covered, and there will be a flight to safety - non US treasuries. We’ll see. . .
“everyone is hoarding,”
I wonder what they’re hoarding, beans and rice maybe?
Credit card companies swoop on subprime borrowers
“…But it’s not all gloomy-doomy! If you’re underwater on your subprime mortgage, you’ve still got friends. Naked Capitalism, by way of the Prudent Investor, points us to a terrific Boston Globe story breaking the news that even as the mortgage mess started accelerating, credit card companies began targeting subprime mortgage holders with a deluge of direct mail offers pitching new credit cards! Because if you can’t refinance your way into some quick cash, then pulling out some brand-new plastic is clearly the smart way to go.”
‘I’m tapped out Marv. American Express got a hitman out looking for me.’
Come on Mr. Yun step up to the plate and help your fellow RE agents. Every time a 3300 to 4000 sq. ft. MacM goes into foreclosure get together with fellow RE’s and buy it at a discount from the bank. Quickly convert it into a boarding house (5 renters into a 5 BD) and start renting it out. The key is buy only those close to the inner city where they need lower income workers. And best of all, you’ll be dollar cost averaging into the rest of the houses in the neighborhood as property owners bail at lower house valuation. Gee, the government should not have a problem either as they have been wanting to incorporate low income housing into high valuation neighborhoods.
“The PHSI in the South was 15.2 percent below a year ago. In the Northeast, the index is 10.0 percent lower than July 2006. The index in the Midwest was 15.8 percent below a year ago. In the West, the index was 21.8 percent below July 2006.”
What’s popping? Is it the housing bubble or Neil’s yummy popcorn?
I saw a news report yesterday that suggests that Neil should avoid the microwaved kind….
right on target Ghostwriter!
the norm IS 2.5 to 3 annual income, not 4. and the ratio is mean reverting, so prices will have to go down all the way.
we are really f*d if even when explaining what’s going on, media uses hype. that means there’s no bottom in the foreseeable future, we will have to wait my guess is 2 years at least. unless, it takes even more time for the average american to realize that prices are going down.
how long does it take for a typical first time home buyer household to save 20% for the down payment?
here in manhattan, the hyper hyped crappy newspaper NY Times keeps on showing “what you can get for $1 million” articles trying to pay the least attention possible to what is going on.
they pointed out several times that baby boomer parents are giving the youngsters the money for the down payment (if needed) cause of course, it’s a hell of an investment to own in manhattan. especially for the baby boomers with no better idea on how to invest their retirement savings.
how many first time buyers are in this situation? are parents gonna keep on giving $ for down payments when it’s clear that is a bad investment?
Article: “Daiwa House Industry Co., Japan’s second-biggest homebuilder by market value, wants to cut local costs and expand in China as the developer is concerned a property ‘bubble’ may burst, slashing land prices.”
This is what I call jumping from the frying pan into the fire. China is experiencing a 1987-Japan-style real estate bubble, and a Japanese company is getting into it just as prices are hitting fresh highs. This is deja vu all over again, except Daiwa can’t say it’s never seen a bubble quite like this one. It did - back in the ’80’s.
What’s worse about this bout of Daiwa stupidity is that Japan has always had a land shortage. China has huge amounts of land - and 1/3 Japan’s population density.
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