A Realisation Of The Risks Taken
Some housing bubble news from Wall Street and Washington. USA Today, “The end of the real estate recession seems nowhere in sight, in light of a slew of bleak news Tuesday of falling sales and prices, a severe decline in construction and deep losses and layoffs at one of the nation’s largest builders. The NAR says it expects more dismal figures for September as the housing market reels from the crisis in the mortgage industry.”
“But the September figures might be much worse. Re/Max International, which analyzed existing-home sales in five major cities for USA TODAY, says September totals so far are down sharply from last year. In Baltimore, Tucson and Seattle, for example, sales in the first three weeks this month are off more than 40%.”
“‘I’ve given up forecasting how low housing sales will go,’ says Joel Naroff, president of Naroff Economic Advisors.”
“And Stuart Miller, CEO of Lennar, has given up forecasting the builder’s profits after reporting a record loss of $514 million in the third fiscal quarter, as it laid off 35 percent of its employees and wrote down the value of real estate.”
“Lennar warned that more pink slips are on the way. The company began construction on 60 percent fewer homes in the June-through-August period compared with the same fiscal quarter last year. At the same time, nearly one-third of buyers canceled their contracts.”
“‘August seemed to be a melting pot of all things negative,’ Miller says. The declines were felt in every region of the country, he says.”
The Australian. “Lennar, the second-largest US home builder, yesterday warned that sellers of existing homes were starting to accept lower prices in a move that could force the industry to accelerate its own discounting strategy.”
“CEO Stuart Miller said existing home owners had ’sat on the sidelines’ during a downturn driven by oversupply and the difficulties in securing mortgage finance caused by the sub-prime crisis.”
“Mr Miller said market conditions had continued to deteriorate as a lack of consumer confidence spread to the far larger existing-home sector. ‘The existing-home market is now moving much more rapidly to adjust (prices) downwards,’ he told analysts.”
The Globe & Mail. “Bank of Canada Governor David Dodge is raising a red flag about housing prices in Canada, saying that increasingly loose lending rules may be helping overheat the country’s real estate market.”
“‘One worries about the structure of the mortgage market, that we may be actually aiding, facilitating a rise in the price of houses that is really not warranted,’ he told reporters after a speech in Vancouver.”
“In his comments to reporters yesterday, Mr. Dodge further warned that housing prices outside of the fast-growing cities of Western Canada may be rising too quickly.”
From The Age. “Six weeks ago, the newly listed RAMS Home Loans went into crisis mode. Credit markets were frozen and, due to increasing defaults in the US subprime mortgage market, mortgage-backed securities had become almost toxic.”
“RAMS was unable to refinance its short-term loans, forcing it to pay a premium for a big portion of its $14 billion-plus loan book. Today the situation is little changed.”
“Moody’s Investors Service has assigned provisional ratings to the notes while RAMS hunts for buyers. Moody’s analyst Ryan Lu said RAMS was looking for the most cost-effective way of refinancing.”
From Dow Jones. “Securities regulators are investigating whether credit-rating agencies such as Moody’s Corp. and McGraw-Hill Cos. unit Standard & Poor’s followed standard procedures for rating mortgage-backed securities, Securities and Exchange Commission Chairman Christopher Cox told the Senate Banking Committee Wednesday.”
“Vickie Tillman, executive VP of Standard & Poor’s Credit Market Services, told senators that some data used by the company in its ratings ‘has proved no longer to be as useful or reliable as it has historically been.’”
“‘Additionally, the collapse of the housing market itself has been both more severe and more precipitous than we had anticipated,’ Tillman said in testimony.”
From CNN Money. “Critics have claimed that the agencies were blinded by cozy relationships with underwriters and didn’t do enough to sound the alarm for investors. The agencies contend that they only issue opinions, and that their ratings aren’t investment recommendations.”
“Credit ratings are ‘not a promise of performance but an evaluation of the risk of default….Credit ratings speak to one topic and one topic only - the likelihood that rated securities will default,’ VP Vickie Tillman said in prepared remarks.”
From Bloomberg. “The SEC is examining whether the firms were ‘unduly influenced’ by issuers and underwriters that paid for the credit ratings, Cox said in testimony prepared for a hearing by the Senate Banking Committee in Washington today.”
“Senator Jim Bunning described the process as ‘like a movie studio paying a critic to review a movie and then using a quote from his review in the commercials.’”
“Speaking at a conference in New York last week, Moody’s Chief Executive Officer Raymond McDaniel Jr. said the firm ‘directionally got it right. What we missed was the magnitude and the speed of the deterioration of mortgage product in 2006.’”
“Moody’s said it receives no fees for helping clients structure their securities. ‘Moody’s does not structure, create, design or market securitization products,’ said Michael Kanef, group managing director, asset finance group, of Moody’s Financial Services. ‘We do not have the expertise to recommend one proposed structure over another, and we do not do so.’”
From Reuters. “Tillman defended S&P’s practice of working with companies when rating their transactions and securities. The dialogue does not amount to ’structuring’ securities, even in cases where the discussion is about the effect different structures may have on ratings, she said.”
“‘S&P does not tell issuers what they should or should not do,’ Tillman said.”
“S&P said it warned as early as January 2006 that there were risks in the mortgage-backed securities market, including securities backed by subprime mortgage loans.”
The Wall Street Journal. “In a recent interview with a German newspaper, former Federal Reserve Chairman Alan Greenspan said people believed rating firms ‘knew what they were doing’ in complex mortgage products, but that in fact it wasn’t feasible for them to rate some of these bonds correctly.”
“‘We’re very nervous right now,’ says Richard Metcalf, director of corporate affairs for the Laborers’ International Union of North America, which advises pension funds. ‘We’ll be much less likely to invest in these types of products if we’re not assured we’re getting an honest and independent rating.’”
“Investors and their fiduciaries must do a better job of evaluating the risks of increasingly complex securitized derivatives products, a senior U.S. Treasury official said on Wednesday.”
“Anthony Ryan, the Treasury’s assistant secretary for financial markets, said complexity may well be a reason not to invest in a security, but it should not be an excuse for a buyer to justify a loss.”
“‘Insufficient understanding or failure to perform an independent and adequate due diligence prior to making an investment decision is simply unacceptable. That’s not investing — that’s gambling,’ he told an International Swaps and Derivatives Association conference in New York.”
“Ryan also said rapid ratings downgrades for many derivatives products may suggest the need for stronger market discipline.”
This is Money. “The Bank of England todaywarned that the credit squeeze which engulfed Northern Rock will get worse before it gets better.”
“However, today’s unprecedented auction by the Bank of an extra £10bn of liquidity for the money markets found absolutely no takers.”
“The Bank of England ran the first auction of extra three month loans for banks who have refused to lend to each other for the last few weeks as they took fright at the level of risk involved.”
“Today’s auction saw no bids for the extra £10bn the bank had offered. However, the Bank acknowledged that potential borrowers will have been put off by the minimum interest rate, set at a punitive 6.75% - 1% above base rate.”
“A major attraction of today’s auction was that the Bank would accept mortgages as collateral, which commercial banks have ceased doing since the US subprime crisis broke.”
“According to the Bank’s survey of lenders, the proportion planning to cut the supply of credit to companies shot up from 20% in mid June to 49% by the middle of September. Alan Castle, economist at Lehman Brothers, said: ‘This raises questions about the health of the corporate sector which had been assumed to be in quite a strong position.’”
From Sky News. “The £10bn…offer was announced by the Bank’s Governor, Mervyn King, a week ago to relieve three-month lending markets between banks, which have been hit by fears of exposure to losses on high-risk US mortgages.”
“Only two weeks ago, the Governor had said that providing short-term liquidity to markets in trouble ‘encourages excessive risk-taking and sows the seeds of a future financial crisis.’”
“Mr King defended the decision to hold the auction in a hearing with MPs on the Treasury Select Committee last week. The penalty lending rate for the £10bn fund - a minimum of 6.75% - reflected ‘the realisation of the risks that the banks themselves have taken with the full knowledge of what the consequences would be.’”
“Credit ratings are ‘not a promise of performance but an evaluation of the risk of default….Credit ratings speak to one topic and one topic only - the likelihood that rated securities will default,’ VP Vickie Tillman said in prepared remarks.”
The rating agencies are playing a dangerous game by restating this argument — that they are correct about defaults are did not try to estimate market prices.
The reason the market value of the securities has fallen is because the market is anticipating defaults.
And if housing values drop to anything close to historical affordability, given the huge costs to the lender of a foreclosure, I’ll be that even the most credit-supported CDOs issued in the insane years from 2004 to 2006 will take losses. The return on these investments will be very low, and probably negative.
Agreed, and yet there remain fools who apparently would consider investing in shady housing-related financial instruments despite the ratings debacle, although now they’ll be “much less likely” to do so. Bwahahaha!
“‘We’re very nervous right now,’ says Richard Metcalf, director of corporate affairs for the Laborers’ International Union of North America, which advises pension funds. ‘We’ll be much less likely to invest in these types of products if we’re not assured we’re getting an honest and independent rating.’”
Toxicity Talks Volumes…
Why did this country commit financial suicide?
Risk? Risk? Isn’t that a four-letter word? There should be no Risk, only Payoff. The American Pipe-Dream.
A dream that has become a reality with the abuses of the Fed. Part of the problem with people waking up to the reality of what is coming down upon them is this belief that our system is too big to fail, and that if a problem arises, well then the Fed will bail them out. Granted, this has been the case for over 30 years, but the end-game is upon us. Time to reap what we’ve sown.
Derivatives is an eleven letter, four letter word.
OT — there is an incredible and inspirational outpouring of US support to Ron Paul’s presidential campaign going on right now. Watch it in real time!
http://www.ronpaul2008.com
I like everything about him, except his extreme pro-life stance and his wish to repeal Roe vs Wade.
I’m not wanting to start a debate about it here, except to say for me, personally, that’s a deal-breaker.
Everything else - hoorah!
I also don’t like the pro-life aspect but remember that his position is that the Federal Government should be out of the business of enforcing this, pro or con.
This would be something he would have the states decide for themselves so worst case one might have to travel to another state for legal and safe treatment.
His positions on fiscal matters are spot on. Especially Inflation/Central Banking!
His point is that the Supreme Court should not be making law….which it did with Roe v. Wade. If we wnat abortion to be legal everywhere in the country, then we need to make a Constitutional amendment making it legal everywhere in the country.
If the Constitution is moot on the subject, then the states get to decide for themselves… as per the 10th ammendment.
“The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people. ”
As I understand, Roe v. Wade focuses on the 9th
“The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.”
You have rights not listed here, and one of them is right to access to medical procedures of your choice.
The problem is, by saying “the people” the framers of the constitution intended the people would make laws regarding things not listed in the Constituiton.. NOT the Supreme Court.
I’m Pro-Choice; like Ron Paul, I’m anti-SCotUS making up laws out of thin air.
The President cannot effect Pro/Anti Life laws directly so I think his stance of keeping it a state issue benefits all our politics. The President can influence issues like this by appointing Supreme Court Justices, but if we stuck to the constitution (or changed it) the Court would not be making the law of the land.
Disclosure: Pro Life.
TBH - out of all of the candidates, I find I can respect his pro-life choice, even if I don’t agree with it - at least he’s had experience of the issue, which is more than can be said for the other ‘rich old white men’ who make our laws.
It never ceases to amaze me the almost obsessive interest they take in ‘deciding’ the reproductive issues of women, or who is doing what, to whom, in the privacy of thier own bedrooms.
So little time, so many more important things to worry about…
Anyway, as I said, I’m not wishing to open a can ‘o worms on this issue, as I know many others do not feel as I do about it.
Thanks for the clarifications!
I can see the subtle difference in opposing a Fed law, and making sure that each State is responsible for its own legisltation.
although i’m unquestionably pro-choice, i doubt repealing roe v. wade would have much of a discernible effect on the abortion standoff.
even with roe sustained, i understand that in many of the so-called ‘red’ states, it’s virtually impossible to get an abortion these days. so allowing the legality of abortion rights to devolve to the states would probably make very little difference from the status quo. it would be easy to get one in MA, NY, CA and most blue states — as it is today — and quite difficult in most of the rest of the country — just as it is today.
“Today’s auction saw no bids for the extra £10bn the bank had offered”
Is it due to the interest rate or due to the frozen secondary market where no one is looking to buy risk at any rate of return no matter how high?
Speaking of bad lending risks …..
Disgraced Atlanta Falcons quarterback Michael Vick is facing more legal trouble – this time because of a lawsuit filed by Canada’s biggest bank.
Royal Bank of Canada is suing Vick for more than $2.3 million (U.S.), alleging the suspended NFL star’s recent guilty plea on federal dogfighting charges has caused him to default on a loan.
The lawsuit was filed Sept. 20 in U.S. District Court in Newport News, Va. According to court documents, Vick obtained a $2.5 million line of credit from the bank’s Global Private Banking office in New York City in January and drew on that loan to invest in real estate “which is not a primary residence.”
http://www.thestar.com/Sports/article/260526
The debt mentality in this country truely astounds me. What does someone making that much money (used to be) need to borrow 2.5 mil for?
Actually, I thought that was part and parcel of shrewd business tactics. If you can borrow cheap and invest with better return, it makes sense and was the one case where an interest only made sense. Of course, this led to Gallaghers famous joke about “How come the only people who can borrow money are the ones that already have it?” back in the day.
Yeah, but let’s face it-Vick isn’t exactly the epitome of the astute investor.
I heard he invests in the “Dogs of the Dow”… and strings them upside down
Shouldn’t the real question be, why does someone making that much money feel the need to jump on the bandwagon and invest in real estate?
Everybody invested in real estate, EVERYBODY…
No kiddin’, eh? I’d like to think that if I was making $13 million a year (heh, heh that’s a good one. I crack me up sometimes) the last thing on my mind would be “hmm….how can I take advantage of this real estate boom?…hmmm”
Howzabout I take $5M of that in my first year and get 5% on it. $250K in additional income per year. Off to Tahiti in the offseason. Unbelievable.
Excellent, plus the scumbag also failed a drug test today.
I doubt he’ll ever play football again.
I sincerely hope that at some point in the future I see that over paid, degenerate low life, Michael Vick, standing at a junction with a sign saying, “Will Work For food.” I would be more than happy to spit in his tin cup. This guy will never play football again. There are hundreds, if not thousands, of people out there who will disrupt, by all kinds of ways and means, every game Michael Vick is scheduled to play. These football franchise owners will protect the thing most important to them (money what else) and drop that scumbag as if he had the plague.
Failed a drug test…happy to hear it.
I despise this scuzz, and alll the scumbags who defend/enable him, including the Falcons owner, and Whoopi Goldberg, who claimed Vick’s behavior was part of “southern culture”.
Not my Southern culture.
“‘August seemed to be a melting pot of all things negative,’ Miller says. The declines were felt in every region of the country, he says.”
If Lennar goes BK, ain’t gonna hurt my feelings. Or any of the other major builders, for that matter. Good riddance to their crappy Mc$hitbox housing. Although, Lennar seems to be the builder breaking away from the pack in the race to cut prices. So I think we’re now seeing the first major event in the fight of the HB titans, as Mike Miller described. I guess, during the bubble, there was room for everyone. Now, it is survival of the fittest and Lennar seems to be the most agressive, cutting prices, personnel, whatever they can do to survive.
I used to work for Lennar as a lead construction manager. While I never saw the kind of defects that some have documented, they likely exist on a large scale (all builders, not just Lennar). A lot of it is due to inexperienced superintendants and low quality subcontractors.
That said, Lennar is my bet to come out of this intact. Not smelling like roses, but intact. They are the only builder I am aware of that actually has efficiency built into their business plan. Their biggest problem construction-wise is trying to cut too much cost at times. If they go under they’ll be the last one to go down.
After reading Morgan’s analysis of the home builders’ situation at this time, I agree with you, they probably will survive intact. They seem to be the ones drawing first blood to eliminate competition, as I posted below. I would say their acknowledgement of losses will be more of a plus for them than a minus in this environment, in sort of a twisted way.
Yeah, compare Lennar’s responde to the top 20 builder I’m with now (and me sounding the warning cry since early 2005). We’ve EXPANDED into the Phoenix market just as it collapsed and purchased a butt load of overpriced expensive land there. Also, instead of completely getting out of the Florida market like we should have, we’ve opened a lot more communities and gone from comparatively low intentory to a now ballooning supply.
In a way the incompetence and corruption here is a blessing in disguise, being an incentive for me to slowly edge towards the door just when the market is collapsing anyway…
“Also, instead of completely getting out of the Florida market like we should have, we’ve opened a lot more communities and gone from comparatively low intentory to a now ballooning supply.”
Lemme guess. Centex, right? I don’t blame you if you can’t respond, but this sounds just like Centex.
Devildog,
Where do you go from there? Remodeling, commercial construction, what?
I have a buddy in Reno working for a national company and he says they’re still building, but a lot slower.
Lip
No, not Centex. I’ll spill the beans when I get out of here. I’m a professional engineer, so there’s lots of other lines of work available to me. I’m being chosey though and turning down the land development and builder offers as there’s no future in it. You’d be amazed at the number of people in the industry that even now don’t have a clue. I know immediately I’m not going to work for someone who expresses suprise at my market assessment or trys the “yeah, but it’s different here” routine. I get a lot of “well we do a lot of commercial” to which I respond “what, strip malls? Commercial follows residential by 6-12 months”. Then silence on the other end as I imagine various portions of their anatomy puckering up tight.
“While I never saw the kind of defects that some have documented”
I guess you never heard about this, then:
http://www.cnn.com/US/9610/23/sinkhole/
When I lived in South Florida back in the mid-90s, this story was all over the news for months. That was my first clue about Lennar.
I’m talking about my personal experience. I know what I’m doing so none of my homes had those kind of defects
When I was working for a sub in institutional construction in South Florida, we knew some great construction supes who had integrity and whose main interest was in doing a job well. It was such a pleasure doing business with them. It was tough to see these great guys get knocked out of the business by foreign competition, as we ourselves did. Really sucked.
It’s important to keep reminding folks of the quality issue. While it’s easy to say “they don’t build ‘em like they used to” about almost anything, when looking at modern slap-dash construction, it’s clear that you’re not going to get even 30 years out of new homes without MAJOR work.
For one thing, slab construction with plumbing in the slab means in 20-30 years you’ll have to tear up all your floors and start jackhammering when your plumbing starts to leak (and it will!). Or do some makeshift workaround and run your pipes up instead of under.
The other thing is few people actually control their homes any more. There are CC&Rs in effect, and a homeowners assoication, that limit your right to do things ranging from having a vegetable garden, putting out a basketball hoop for your kids, or decorating your home for a holiday other than Christmas. (I have a sukkah outside my home this week. I couldn’t do that in a “gated community”.)
When looking for land to build a retirement home on in Florida, it took two years to find land un-encumbered by a Homeowner’s Association. New developments are *mandated* to have them in Orange County, Florida. And the HOAs can charge fees and assessments that are unregulated.
Hmmm… so, if we have no freedom when buying and pay twice as much as renting, why not rent? Amazing!
One of those articles mentions that Lennar was the first big HB to announce this past spring was a bust.
Interesting, Ben. It sort of seems to go along with Morgan’s analysis of how the HBs are getting into it with each other. That article was an eye-opener for me, sort of like, “DUH, why didn’t I realize that?” Of course the HBs will get into it with each other and will try to eliminate each other from competition. So viewed in that light, Lennar’s announcement of a spring bust could be seen more as a strategy to draw first blood, rather than as an admission that conditions suck.
Get out and buy some stock.Were in a bull market remember.This economy is roaring like never before.
I wonder how many crooked officials have told the NAR to fudge the housing numbers to make it all look good to the sheeple?
‘and will try to eliminate each other from competition’.
And this attitude survives only as long as the builders believe that they have some control over the price of their product. Competition is a fine thing, but outright survival is a whole new ballgame. Here in the Central Valley builders are still building and developers are still developing, while unbuilt lots set empty and unsold houses age. At a point in the future this game will end, and very real end of credit lines will force their hand. When I look around, the valley housing market seems very quiet - not only in lack of sales but a kind of dangerous quiet before a storm.
My husband and I look at new developments from time to time out of curiosity and an interest in architecture/design. We tend to like Lennar the best. Also, the only recent salesperson who seemed to actually hear anything we said was at a Lennar development. I actually rather liked that development, although I wouldn’t pay 550,000 for a 1800 sq ft townhome even if I needed a new house.
A lot of my negative image of Lennar comes from the story in the link I posted above. I was living in South Florida at the time and the local news stations were constantly broadcasting the story. I loved the visuals of the old tires and bedsprings popping up from the grassy area surrounded by the homes. But I really felt the pain of the homeowners, who bought the homes in good faith, only to find the development was built over an old trash dump or a sinkhole that was “filled” with trash. I put myself in their position and wondered how I’d feel, knowing I’d have a helluva time selling if I wanted to get out of there. All they wanted was their money back and I think they should have gotten it. As I recall, Lennar played hardball with the buyers and it went legal. I don’t think the buyers had the kind of pockets to sustain a prolonged tangle with Lennar. That’s when I got wind of how they deal with people.
With so much bad news why is stock market less than 1 % from multi year highs?
The market is a discounting mechanism and the only thing that is discounted are housing & lending stocks. I expected bear market to have taken hold by now.
The market is discounting the dollar as toilet paper. Nothing more and nothing less.
You know I think a lot of short sellers got screwed by the fed last week and are being forced to buy stock.I was one of them my friends.
Bummer, dude.
My condolences, arizonadude. Some of your money went from your hands to mine. I’m only hoping that the situation doesn’t reverse itself soon!
Yep. Large US stocks have been poor performers versus small stocks and the rest of the world for a number of years. Many investors appear to be rebalancing assets in favor of Dow/S&P500 because performance may well get better. With inflation and upwardly revalued foreign currencies many US stocks are now viewed as cheap.
The net result is that we’ll be able to sell our houses to each other for “$500,000″ to not “lose” money and our stock market will stay afloat, while the real costs of food, fuel, and imported products rise. [But, note that foreign markets have been doing soooooooooooo well for several years that they are due for a correction.]
The Market marches to its own drummer.
SHHH! I getting ready to move all out real soon.
“The market can stay irrational longer than you can stay solvent.” — John Maynard Keynes
This happens when people start ignoring economic data and start believing the Fed will save their bacon no matter what happens. As a result, good news is good news and bad news is good news.
Can anyone tell me why this stock market keeps going UP UP UP ?
Are investor thinking tha the FED will keep lowering rates like they did in Japan the past 15 years?
If business keep loosing revenue from lack of consumer spending stocks will have to head lower.
I think it is a short squeeze dennis.A lot of people were short the market and when the feds dropped rates it screwed a lot of people.
No, it has to be an omniscient secret cabal of government and financial entities driving the market up… I too once believed short squeezes exist from my over two decades of experience in the markets, but people on this blog taught me differently.
The PPT rewls! I heart the PPT!
The dow jones average is quite simply, the last vehicle they have left to manipulate…
Asset classes are not perfectly correlated.
The Japanese stock bubble peaked before their housing bubble. The US dot com stock bubble crashed as the housing bubble was getting started and lots of ignorant/amateur stock money went away. The US stock market doesn’t have as much room to fall, relatively, when you factor in the dot com meltdown, the rise of emerging markets, and inflation.
“Bank of Canada Governor David Dodge is raising a red flag about housing prices in Canada, saying that increasingly loose lending rules may be helping overheat the country’s real estate market.”
“‘One worries about the structure of the mortgage market, that we may be actually aiding, facilitating a rise in the price of houses that is really not warranted,’ he told reporters after a speech in Vancouver.”
“In his comments to reporters yesterday, Mr. Dodge further warned that housing prices outside of the fast-growing cities of Western Canada may be rising too quickly.”
********
Suddenly - it’s CYA mode for everyone!!
The joke about this statement is that the biggest bubble in Canada was in Western Canada! The central bank head feels that the bubble is in the “other” areas. He still doesn’t get it!
It’s like saying that outside of Florida, California, Las Vegas, and Arizona, the rest of the USA might be in a bubble!
I vote for Ben Jones to be the next head of the Bank of Canada!
I vote for Ben and his significant other for head honcho IMF.
Hey RJT
What Dodge said is what no other CB anywhere in the world has said beforehand (of a downturn)- extending no money down on terms of 30, 35 and even 40 years are creating price inflation in housing. - also he said that the BOE intervention for the CP market recently was ineffective at best and should stop. In a cozy country club like the world of CB’s. co-operation is required, so Dodge making a stand and sniping at the BOE is pretty radical (and warranted and true).
If you are at all frugal, you’d love this guy - 15 year old suits, presses his own shirts, etc - no BS, best CB governor Canada has ever had. Hands down.
BTW re bubbles outside certain Western cities has occurred here - his point was in a way the Energy / Resource capital cities can kinda justify rapid increases due to rapid immigation to the area and highly paid jobs and other economic fundamentals, but it can’t be justified where ther has been neither a rise in real wages nor in REAL (ie demand not created by above mentioned types of loans 30, 35, 40 yr, 103 % fin, etc.)
“In Baltimore, Tucson and Seattle, for example, sales in the first three weeks this month are off more than 40%.”
Good to see Seattle show up for the party. Better late than never. I suspected that when they did show up they wouldn’t see small declines as other markets did in the beginning but very large ones, quickly, to match the current environment.
Just like a true drunkard, who must catch up with the other party revelers who are about to take turns at the porcelain god.
Oh, no, Seattle’s different. That couldn’t POSSIBLY be right.
Slim reporting in from Tucson. Just got back from an economic outlook luncheon. Leading off was Dr. Doom himself, Marshall Vest from the University of Arizona.
He quickly quieted the room by using terms like “recession” to describe what’s going on in the housing market. He also noted that the overall Arizona economy was very close to recession and may very well be in one by the end of the year. (Personally, I think we’re already there and have been for about a year.)
One more thing: He also used the word “bubble” during his coverage of the housing market.
Such words did not make for a very happy lunch. The room was very heavy on REIC types and the institutions that finance them.
Wish I’d been there, Slim. Florida’s already in recession, just no one’s admitting it. But I think Mish posted something about it at his site.
40% off. WOW! I have been hoping all along that the last to leave the party would fall faster than the first. Due to the mortgage fallout that seems to be happening.
My brother-in-law is in the process of spending $70k+ (materials and labor contract, running over budget already) just to remodel his bedroom and master bath. But he insists it will be worth it because a house in Queen Anne will never go down in value–the neighborhood is too desirable.
But is Queen Anne that much more desirable now than in 1992 when he bought the house for $180k that is now valued at $800k? Granted, he has done a ton of nice remodeling, but still… $800k seems steep for a small 2/2 with no garage in Seattle.
I suspect that much of this is from the dull thud of bad news from the mortgage lenders to any prospective buyers. Things have changed forever in a way that will affect a huge number of potential buyers. Two years ago, I could have qualified for an insanely high mortgage loan — no more. Hopefully we’ll get some reports here from posters who have been to lenders this month (or next), about what they were told.
Increasingly I hear second-hand examples (friend of a friend) of people who bought their second home before selling the first and now are totally screwed — can’t eat, can’t sleep. I couldn’t either, if I were caught in that trap. But the only key that will open the trap is such a drastic reduction in prices that the buyers can buy with the mortgage they can qualify for. A cold shower on a cold day.
I love seeing Baltimore on the list of the doomed. So many clowns here strutting about, driving their ego-cars, and prattling on about how housing “should be expensive” and how “we’re rich because we near DC and it is different here.” Nope, not different at all, I guess!
“A major attraction of today’s auction was that the Bank would accept mortgages as collateral, which commercial banks have ceased doing since the US subprime crisis broke.”
Given the cloud of uncertainty which has engulfed ratings, how can the BOE (not to mention the Fed) possibly come up with reliable estimates of the value of mortgage collateral? And why am I guessing that their unreliable estimates might suffer from severe bias to the up side?
That just seems very , very dangerous. Where does a government stop taking such paper, and at what level of risk. That any government body would assume risk of this sort, risk that those much more knowledgeable and unbiased will not take, signals to me a serious admission of a belief in a major market correction.
And you would be right, the state is first and foremost the protector of the status quo. Expect them to throw everything they can at this - until either it goes away - or they run out of things to throw. Their reactions aren’t the mystery - it is the results that are.
I vote that they run out of things to throw.
“But the September figures might be much worse. Re/Max International, which analyzed existing-home sales in five major cities for USA TODAY, says September totals so far are down sharply from last year. In Baltimore, Tucson and Seattle, for example, sales in the first three weeks this month are off more than 40%.”
“‘I’ve given up forecasting how low housing sales will go,’ says Joel Naroff, president of Naroff Economic Advisors.”
I wonder how far in to this will sales become negative. Its not that out of the question. In San Diego, NOD are getting pretty close to sales. So perhaps we will see a negative sales in some regions
James, what exactly is negative sales, when foreclosures exceed sales?
If yes, SD is already there (at least someone posted to this effect over the past couple of weeks…).
Foreclosures aren’t subtracted from sales numbers presumably (doesn’t make sense). I don’t think it’s feasible for realtor sales to become negative - only homebuilders’ contracts (if canceled contracts is greater than new contracts), however that’s not considered sales.
It was a half joking way of talking about how far sales will drop.
With NOD/NOT rising so fast and sales going so low; the inventory is going to increase.
Hence a negative sales.
You had me going there. But, it would be interesting if no sales were taking place, just foreclosures. I suppose you could consider that negative sales.
There has been considerable debate about how to deal with cancelled contracts (are they included in sales numbers).
I really just look at agregate inventory and figure from there. The NAR data is often biased but you just have to adjust for that. What will become more difficult in the next few months is the biases will change.
Like the change in how SAT scores were calculated.
Or more on point, how the NAR changed the affordability numbers (to a 10% down ARM from a 30yr fixed 20% down).
cancellations, no?
“‘Insufficient understanding or failure to perform an independent and adequate due diligence prior to making an investment decision is simply unacceptable. That’s not investing — that’s gambling,
Greed, stupidity and lack of due diligence almost always ends in financial ruin for those who do not due the math and understand the risks of investing!
“due” the math? Hey, I have plenty of math due!
OT - Just got this email alert from the Sacramento Bee website:
Breaking News: Housing decline forces Dunmore to sell company
By Jim Wasserman - Bee Staff Writer
Published 1:09 pm PDT Wednesday, September 26, 2007
Granite-Bay Dunmore Homes, a local family owned builder since 1954, has become the first major home builder casualty of the slumping Sacramento-area housing market.
The firm announced its sale Wednesday to Sacramento businessman Michael A. Kane. The parties declined to provide financial details of the sale.
In a statement, company owner Sid Dunmore attributed the move to a decline in sales that “has had a devastating effect on most private and public home builders.
The firm, which will keep the Dunmore name and remain a locally owned builder, aims to resume home building within months, said John Slaughter, vice president of construction and operations. He said the firm and its new owner must restructure and negotiate agreements with its lenders and subcontractors who have filed liens for unpaid work.
In recent weeks Dunmore has halted construction at projects in Linda and Elk Grove and heavily cut staff as it negotiated a sale to Kane. The new owner could not immediately be reached for comment on the transaction.
Dunmore is being retained as an adviser to the new onwners. He is also keeping his Dunmore Land Co., which owns acreage in Natomas.
The news highlights the growing difficulties of home builders in a market that is mired in a massive oversupply of for-sale inventory. Many buyers are also reluctant to commit while prices are falling. Earlier this year, Dunmore was critical of some publicly traded home building giants who dominate the Sacramento market, saying they kept churning out hundreds of new homes even as the market shows signs of weakness.
Many of those builders have also offered discounts in the tens of thousands of dollars, a tactic that’s harder to match for private locally owned builders.
Wednesday, Slaughter said, “Within this market, building, selling and closing homes became very competitive, and vastly different than what it was a couple of years ago. We weren’t selling as much as we did while costs continue to go up. It became necessary, unfortunately, to make this change and Sid (Dunmore) did it to get more capital in the company.”
——————————————————————————–
Korporate Homebuilder Savants…
what are they good for?
Absolutely Nothing
“Earlier this year, Dunmore was critical of some publicly traded home building giants who dominate the Sacramento market, saying they kept churning out hundreds of new homes even as the market shows signs of weakness.”
From the June 25th Sacramento Landing blog:
Sid Dunmore:
“As long as we have negative media, it’s going to affect the buyers’ mentality. If we have positive media, it affects them on the positive side. If you see things coming out that interest rates are low, job growth is good, income growth is good, all those things, buyers feel good about where they are today.
There are prospects for continued employment, advancements, raises, things like that. Then they feel more comfortable about going out to buy in the market. It’s the insecurity that keeps them out. Right now, there’s just a lot of buyer apathy. Once we get past that, we’ll have a different market. It will balance itself out.”
Apparently not. Nothing like a short sale of your entire company to inspire people.
“You will find that the truth is often unpopular and the contest between agreeable fancy and disagreeable fact is unequal. For, in the vernacular, we Americans are suckers for good news.”
Adlai E. Stevenson, Jr.
While this should probably go in Bits and Buckets it made me laugh, so here it goes. Looks like the desperation continues in FL as this is posted on the Rochester, NY craigslist: http://rochester.craigslist.org/rfs/432863989.html
thank you for reading my post
visit my site for lots of photos http://savannaclubhomes.com
i am a realtor with realty 3000
please email me with any questions
seasonal and longterm rentals available as well as sales
boat launch 10 min on site storage for boat and trailer
your mate will also love it here
lots of do or not do have a look
That is word for word and line by line. My 8 years old niece could put together a clearer message than this garbled sell. No wonder the respect level is so high for the real estate “profession.”
FNBO just cut it’s MMF yeild from 6.00% to 5.05% and sent out e-mail notices to account holders telling them what “good news” this new rate was like we wouldn’t notice the huge drop.
A list of stupid comments from the articles:
…crisis in the mortgage industry.”
There is not crisis. You lent money to people who have a history of not paying the money back! There is no crisis there are no more opportunists that can get your easy money!
I’ve given up forecasting how low housing sales will go,’ says Joel Naroff, president of Naroff Economic Advisors.”
“And Stuart Miller, CEO of Lennar, has given up forecasting the builder’s profits after reporting a record loss of $514 million
Here is a hint Joel and Stuart: You aint seen nothing yet! As others on the this blog have said trees don’t grow to the sky forever. If they have given up forecasting are they going to give up their paycheck. Who needs some one who cannot do their job!
“‘Additionally, the collapse of the housing market itself has been both more severe and more precipitous than we had anticipated,’ Tillman said in testimony.”
Ms. Tillman have you heard of the Internet? Good. Have you hear of a Google? Good. Have you ever Googled House Bubble?
increasing defaults in the US subprime mortgage market, mortgage-backed securities had become almost toxic.”
It was toxic to start with. You get in bed with dogs and you are suprised when you get flees!
What will be interesting is when a major HB defaults. Some minors already have, but I wanna see REAL blood in the water.
Which one would each of you most like to see go BK?
I’ll start… Toll (I can hear the bell already.)
My money’s on KB or Centex. They’re not necessarily who I WANT to go BK, just what I think and that’s based on what I’m seeing on the ground around here.
I’m thinking Pulte
You may be right about Toll, though. My reasoning being, I don’t think Toll, because of its marketing positioning, can play the sort of hardball game Lennar can play in terms of undercutting competition.
Just for the record, I wasn’t forecasting Toll to go first or at all. I’d just like to see them go first.
I think we should have a HBB dead pool.
Average house prices in my area are 5x average household incomes (Arlington, VA). And now it takes more than a mere pulse to get a mortgage. So DUH!!! Of course sales are going to grind to a halt. At least until the price/income ratio gets back to the historical norm (with some variation due to interest rates).
Be careful with that assumption.
Due to anti-growth laws and state tax changes of the 1970s, California coastal areas have not been below 6x-7x since. They are now in the 12x range. Historical norms can be distorted for a generation or more due to financing, savings, property tax laws, etc.
If they fall to 6x here it’s a signal to buy…
“If they fall to 6x here it’s a signal to buy…”
If we were to assume that is true, who are the buyers? What is their profile? If the property costs 6-7 times their provable annual income, how are they going to finance the purchase, and through whom?
I don’t think enough price optimists have thought through this part of the process nor checked out the actual changes in real-deal lending availability for their ‘hood.
From USA Today: With sales falling for two years now, Yun says, “It’s my firm view there is significant pent-up demand.”
Firm view? Lereah used to use phrases like “fingers crossed…” Now Yun, in all his wisdom, has “firm views”…
The Wall Street Journal. “In a recent interview with a German newspaper, former Federal Reserve Chairman Alan Greenspan said people believed rating firms ‘knew what they were doing’ in complex mortgage products, but that in fact it wasn’t feasible for them to rate some of these bonds correctly.”
I know what I am doing Mr Greenspan, but in fact it isn’t feasible for me to stop spitting on you.
LMAO!
“it wasn’t feasible for them to rate some of these bonds correctly”
then they shouldn’t have rated them at all…
Hmm..not sure what the quality is, just slap AAA on it. Typical ratings agency crap.
Yep, I’ve had moments in life when it wasn’t “feasible” for me to tell the truth, too. “Gee, Dad, I have no idea how the car got dented.”
Its more like;
Q: Is this Orange juice?
A: Sure its Orange Juice drink.
Or other deceptive things like “no sugar added” for grape juice.
“‘I’ve given up forecasting how low housing sales will go,’ says Joel Naroff, president of Naroff Economic Advisors.”
Of what use are you, President Naroff?
i’ve given up…
we’re in deep doo-doo
how much do these guys earn?
Time to short Lennar, Beazer and Toll!…the worst is yet to come as we really get into 1)the real estate “dead months” and 2) The dreaded “resets!”
I think this will go on for much longer for a couple of reasons.
There are a bunch of ARM resets (the second and more deadly wave) in the 2009-2010 time period. Not to mention that CFC is still giving out more bad loans probably hopeful that to push off judgement day for another year or two. Rolling over the bad debt into new issues of bad debt.
Secondly the loans will reset through the winter and spring but will not fail instantly. There is a 6 month lag before the REO shows up on the market. Even then banks will have trouble dealing with the volume.
If things get bad enough there are a lot of bailout related possibilities. Mass is already talking about mormatoriums on forclosures.
So… That might have the effect of stretching things out for the builders.
“Mr Miller said market conditions had continued to deteriorate as a lack of consumer confidence (blah, blah, blah)..”
Other than housing, I haven’t seen the slightest shred of evidence of any drop in consumer confidence, at least not if retail/restaurant spending is any indication.
Here in the Boston area everything is busy, all of the time. I just don’t get it. Everwhere I look the parking lots are full, the roadways are jammed, the restaurants are busy, the Starbucks, Paneras, McD’s, et. al., are packed, the tourist areas/buses/tours are all packed. Recently a “high end” mall opened in a Western ‘burb with more high end stores planned North of Boston. As far as I can tell, the $$$$$$$$$$$ are being spent/charged.
Pen, my observations here in Chicago square with yours of Boston. Still, living in major metro areas, with large and diverse economies, distorts the perceptions of many consumers who will spend and take on debt to the very end. The attitude seems to be that any problem that might be out there won’t be coming near.
I liken it to the airport scene in Stephen King’s The Langoliers - there’s a strange sound out there but no one can see what’s making it over the hills.
I’m in Ohio and here in the “rust belt” I continue to wonder the same thing. Where are these people getting the money? Restaurants and malls are still full.
There have been several posts recently on this very thing…
I’ve been in Scottsdale, watching the 30K a year millionaires buy, buy, buy. At same time, I hear from neighbors (my in-laws, who are all over North Scottsdale) of repo men hauling off cars, ATV’s, etc. from the “very nice” neighborhoods.
I think these people know the jig is up and are on some kind of psychological spending spree. I hear, see, and read too many examples of people not being able to really afford all this “busy spending”. There is just no way, with average salaries, that people can continue to keep buying crap. Well, they can buy it, but they ultimately can’t PAY for it. This unwinding of the boom boom years will take some time….not just losing houses, but completely losing any cash and credit. In the meanwhile, even the saps losing their home will still continue…”spending’.
Never underestimate the power of “retail therapy.”
I hereby nominate Manolo Blahnik as my therapist of choice.
“And Stuart Miller, CEO of Lennar, has given up forecasting the builder’s profits after reporting a record loss of $514 million in the third fiscal quarter,
I would think forecasting Lennar’s profits would be a snap: None!
Prophetably Negatory
18 September 1998, Bear Stearns (LTCM’s prime broker) is rumored to have frozen the funds cash accounts following a large margin call. On 23 September, 1998…AIG, Goldman Sachs, and Warren Buffett made an offer to buy out LTCM partners and inject 4 Billion into the fund. The offer lapsed. LTCM collapsed.
26 September 2007, A rumor hit the street near the closing bell that Buffett is in negotiations, with Bear Sterns for a large stake of the company…..days before redemptions are about to collapse the troubled player?
tell me this, Oracle of the Housing Bubble Bloggers….when will the Redemption Song be played for the Risk Managers at the troubled hedge funds of the Pig Men?
Bears Stearns is Chicken Little’s bitch…
Risk Managers…b.b.bu..but the ratings agency told us the bonds were AAA..
I love how this “rumored” purchase of BSC by Buffet front runs the real news about the SLM blowup. MarketWatch has the Buffet rumor splashed all over the lead page with a photo of the Oracle and then beneath the SLM news. Fiction trumps fact. Sheesh.
Welcome to NewSpeak, where challenging news is good news.
Want to have a good laugh! Go to a websiter called Brokers Universe. At the top of the page look for “Market Conditions”. You can check out what realtorwhores are saying andf the comments are HYSTERICAL. Check out Sacramento which is a total disaster. You would think, when you read these realtorwhores comments, everything is peachy and there are nothing but blue skies for as far as the eye can see. I just spent half an hour reading realorwhore comments and I had to stop before I peed myself with laughter.
nice one, Mike… same goes for the realtors listed for northern Pinellas County in FL. even with some acknowledging that the market has been been a little bumpy, there’s still lots of sunshine and lollipops to go around for everyone!
what’s really interesting on that site is the disparity in the various realtor’s perception of how much of a buyer’s market this area is.
this woman is hitting the pipe pretty hard:
http://tinyurl.com/yrok4l
why, the market is a wonderful balance of buyer’s AND seller’s! average prices paid are 95 - 97% of asking, and average time on the market is a scant 45 days! for an extra chuckle, her profile is worth a read and should explain everything.
most of the other realtors have a somewhat less optomistic view of the market for sellers…
but who knows, maybe she just finds the right buyers…. hmm. maybe it really IS different here!… i know that i see a lot of the same usual suspect houses listed on the MLS and craigslist for my area, and have seen them for months. still a lot of overpriced shitboxes for sale that need some work. and what is the deal with putting tile in every room in the house? i don’t see that as an “improvement”.
One down more to go….
http://www.cnbc.com/id/20996017
Trabulse founded the Fahey Fund in 1997 and raised about $10 million from about 100 investors, encouraging existing investors to serve as reference for new investors, the agency said.
I thought the hedge fund rules (few that there are) required a minimum investment of a cool $1,000,000.
Here in the Boston area everything is busy, all of the time. I just don’t get it. Everwhere I look the parking lots are full, the roadways are jammed, the restaurants are busy, the Starbucks, Paneras, McD’s, et. al., are packed, the tourist areas/buses/tours are all packed. Recently a “high end” mall opened in a Western ‘burb with more high end stores planned North of Boston. As far as I can tell, the $$$$$$$$$$$ are being spent/charged.
Pen - that’s interesting, from my own perspective. Where I am, there are few local stories on the bubble, and those tend to focus on builders, not foreclosures. Maybe because Memphis Area foreclosures are perenially near the high for US metro areas — nothing worth reporting compared to bubble area bloodbaths.
Meanwhile, restaurants are closing down and I can’t recall the last time I was in a place that was filled to better than 30% of capacity. Maybe Picadilly (a local cafeteria-style chain). Mall traffic, Walmart, Costco traffic - all light. Coming off the freeway, you notice that everywhere the parking lots are a joke compared to the parking NEED. (Estimate we got from “normal” to here over about the last 24 months.) I’m curious to see what Christmas brings, and if it makes a dent in the tony suburbs, where there is really no buzz concerning defaults, and - so far - very few foreclosure sales. Because that just doesn’t jibe with the apparent unrelenting glumness of many shop owners. I’ve gotten an earful from a few; guess I must look sympathetic or somethin’.
Same here. Lots of empty tables at restaurants.
” Bank of America Corp. said it will lay off about 2,500 workers in Illinois and 1,500 in Michigan over the next two years in connection with its $21 billion purchase of LaSalle Bank Corp. from Dutch bank ABN AMRO Holding NV.”
Sept. 26 (Bloomberg) — Merrill Lynch & Co., the third biggest U.S. securities firm, may record losses of as much as $4 billion on fixed-income assets, resulting in the lowest quarterly earnings in almost six years, Goldman Sachs Group Inc. analyst William Tanona said.
Tanona cut his third-quarter earnings estimate to 15 cents a share from $1.95. For the full year, he expects earnings of $6.75 a share, or 25 percent less than his previous prediction. Merrill fell as much as 3 percent in New York trading before rebounding.
The losses would exceed those reported last week by Goldman, Morgan Stanley, Lehman Brothers Holdings Inc. and Bear Stearns Cos. New York-based Merrill may have to write down the value of mortgages, corporate loans and collateralized debt obligations, Tanona wrote in a report to clients today.
“In Baltimore, Tucson and Seattle, for example, sales in the first three weeks this month are off more than 40%.”
‘Bout damn time for Seattle.
I have been very grouchy about the continued ‘it’s different here, blah blah…’, and prices went on rising in a very aggravating way. I was thinking/hoping things would change when the funny money credit terms entirely went ‘poof’ recently, and wow! Sales off 40% in 3 weeks?! Now THAT’S what I was yearning for! Bring me more of this! More! More!
Agreed. See my post above. There has been all this talk about how the NW has/will lag on the downside. Secretly I was hoping that with all the negative news and lack of financing, the NW would skip all the BS and get on with it in lockstep with the early adopters of the downside. Looks like it has!
Yay team!
from channel9 news in No. VA.
HERNDON, Va. (WUSA) — A big time warning about the subprime mortgage crisis coming home to the DC region. Banks and mortgage companies are sitting on so many homes seized from borrowers that they’ve called in the country’s biggest auction house for help.
Hundreds of houses go on the block the weekend after next — with no minimum bid.
The signs of trouble are everywhere. In Herndon, Cypress Tree Place used to be a street of dreams. The “For Sale” signs show how quickly dreams can turn to nightmares — nearly a dozen homes on the market, some seized by the bank, some up for auction.
snip sob story
You can preview the houses this weekend — most are in Northern Virginia. They’ll go on the block the first weekend in October.
“The banks really want to sell these homes,” says Crystal Wright, a spokeswoman for Hudson and Marshall Auctions. “They want to sell because the longer they hold on to a non-performing loan, they’re losing money. So you can get the property at a great discount.”
The auction’s a sign that not even the go-go economy of the nation’s capital is immune to crisis. But realtors hope we’re at or near the bottom.
snip
I looked at the houses…I’ll pass
Why are the newspapers so biased? Why is it bad when home prices go down, especially when they’re just “reverting back to the mean” and not really below long-term historical appreciation (tied mainly to wage inflation). This is a disgusting bias that nearly all the media has.