The Decline Is Understandable: NAR
Some housing bubble news from Wall Street and Washington. “Sales of existing homes plunged by a record amount in September as turmoil in mortgage markets added more problems to a housing industry in its worst slump in 16 years.”
“The National Association of Realtors reported Wednesday that sales of existing homes fell 8 percent in September, the largest decline to show up in records dating to 1999. The seasonally adjusted annual sales rate of 5.04 million existing homes was also the slowest pace on record.”
“The median price fell to $211,700 in September, down by 4.2 percent from the sales price a year ago. It marked the 13th time out of the past 14 months that the year-over-year sales price has decreased.”
“Lawrence Yun, NAR senior economist, said the decline is understandable. ‘Mortgage problems were peaking back in August when many of the September closings were being negotiated, and that slowed sales notably in higher priced areas that rely more on jumbo loans,’ he said.”
“Total housing inventory inched up 0.4 percent at the end of September to 4.40 million existing homes available for sale, which represents a 10.5-month supply at the current sales pace, up from a downwardly revised 9.6-month supply in August.”
“‘It appears raw inventories are stabilizing, but the housing supply is a bit inflated now because the sales pace does not reflect underlying market conditions – sales were dampened by the mortgage cancellations,’ Yun explained.”
“Single-family home sales are 19.8 percent below 5.46 million-unit pace in September 2006. Regionally, existing-home sales in the South are 18.7 percent below a year ago. In the Midwest, existing-home sales are 16.2 percent below September 2006. Existing-home sales in the West are 27.8 percent below a year ago.”
“In the Northeast, existing home sales are 13.5 percent lower than September 2006.”
From the Street.com. “Centex reported a $644 million loss for its second quarter as the plummeting housing market forced the homebuilder to record nearly $1 billion of land impairment charges. New sales orders fell 13% on a unit basis. The company also had an 8% decrease in average sales prices, as well as higher sales incentives.”
“‘Market conditions were extremely challenging during the quarter, reflecting the serious disruptions in the credit and mortgage markets that occurred during that period,’ said CEO Tim Eller. ‘In response, we meaningfully reduced prices in order to improve affordability for our home buyers.’”
The Dallas Morning News. “Centex said its home purchase cancellation rate is still running over 35 percent. Homebuilding revenue for the quarter was down more than 30 percent in the Southeast and 26 percent in the Northwest.”
The Nation’s Building News. “The pronounced weakness of housing demand has provoked major downswings in permit authorizations and housing starts since late-2005. Unfortunately, sales volume has fallen so fast that very little progress has been made in reducing inventories of unsold new homes, despite the fact that the government’s inventory numbers exclude homes left with builders due to sales cancellations.”
“The number of new homes for sale still is close to the record high reached around mid-2006 and the month’s supply moved up to a heavy 8.2 in August, as recorded by the government.”
“For-sale starts exceeded new-home sales by a huge margin during the 2005-to-2006 period, generating outsized increases in the for-sale inventory, and only recently have sales exceeded for-sale starts. Furthermore, completed homes have been accounting for a larger and larger portion of new homes for sale.”
“It’s increasingly obviously that sizeable price cuts are needed to sell completed new homes in many parts of the country. After all, prices more than doubled during the boom in some places and measures of housing affordability still remain quite low.”
“NAHB’s surveys of builders have been showing rising proportions of companies enacting price cuts as one type of sales incentive offered by builders during the past year. We’re also seeing more dramatic cuts by some companies during the past month.”
“Indeed, several public companies recently advertised discounts of up to $100,000 for special weekend sales, apparently with good success, and at least one public company has auctioned off homes with bids starting at half the list price.”
“The average price cut came to 8%, and 37% of those cutting prices had dropped them by more than 10%. But only half the builders said their price cuts had been effective in bolstering sales or limiting cancellations.”
“The housing contraction also is showing up in the employment numbers for the retail sector. In this regard, building materials and garden equipment stores lost 17,000 jobs in September and furniture and home furnishing stores lost another 2,000. Everything considered, the housing contraction now is costing the economy roughly 60,000 jobs per month and there’s certainly more to come.”
From Business Week. “Alan Greenspan said Tuesday that a bloated inventory of new homes has unsettled the U.S. economy. Homes financed by subprime loans comprised roughly 25 percent of housing starts, Greenspan said, so when the subprime market collapsed a whole segment of the sales market went with it.”
“The rapid decline in sales caught builders with a lot of their profits tied up in construction or vacant new homes, forcing them to hold ‘fire sales’ that had repercussions elsewhere in the economy. ‘Where the problem lies is in home prices — new home prices, very specifically,’ he said.”
From Kiplinger. “In Washington, D.C., agent John Sullivan says developers are ‘caving like crazy.’ He remembers one deal this past summer: ‘I might be exaggerating to say that I ‘negotiated’ a price cut,’ he says, ‘because as soon as we expressed interest in the condo, the sales rep offered to take $30,000 off the price.’ The builder also threw in a two-year lease on a second parking space.”
“Merrill Lynch stunned Wall Street for the second time this month Wednesday with the disclosure that it was forced into a $7.9 billion writedown of bad debt tied to risky mortgages and so-called structured paper.”
“The announcement marks a turning point in the credit crisis that has consumed investors in recent months and has observers wondering how much more pain will be felt by Merrill’s rivals in the brokerage industry. Revenue plunged 94% from a year ago.”
“‘In light of difficult credit markets and additional analysis by management during our quarter-end closing process, we re-examined our remaining CDO positions with more conservative assumptions,’ said Merrill chief Stanley O’Neal, whose firm pushed into the subprime lending market just last November. ‘We expect market conditions for sub-prime mortgage-related assets to continue to be uncertain and we are working to resolve the remaining impact from our positions.’”
From Bloomberg. “Ambac Financial Group Inc., the world’s second-largest bond insurer, reported its first quarterly loss after reducing the value of subprime mortgage-linked securities the company guarantees by $743 million.”
“Ambac guarantees payments on collateralized debt obligations, promising to pay CDO holders in the event of a default. The value of that insurance has tumbled in line with a slump in the price of CDOs backed by subprime mortgages.”
From Reuters. “National City Corp, a large U.S. Midwest bank, on Wednesday said third-quarter profit fell 80 percent, hurt by rising mortgage and home-equity losses. National City set aside $361 million for credit losses, up fivefold from a year earlier, as residential and home equity delinquencies, charge-offs and foreclosures increased.”
“‘Results were clearly affected by the unprecedented disruption and weakness in the mortgage and housing markets,’ CEO Peter Raskind said.”
“Results also reflected losses related to its former First Franklin Financial Corp subprime mortgage unit. National City sold the unit last year to Merrill Lynch & Co, but kept several billion dollars of loans.”
“Standard & Poor’s may cut the credit ratings of 207 Australian and New Zealand residential mortgage- backed securities as turmoil in the U.S. subprime market spreads to home-loan insurers.”
“It’s the first time in five years S&P has put securities backed by Australian and New Zealand mortgages on negative ‘creditwatch,’ said Kate Thomson, an analyst at S&P in Melbourne, said today.”
“Mortgage-backed bond sellers are already offering higher yields on securities to entice buyers back to a market that stalled in August after BNP Paribas SA, France’s largest bank, followed Bear Stearns Cos. in freezing withdrawals from hedge funds, triggering a liquidity crunch in the global credit markets.”
“Australian lenders including Calibre Financial Ltd. and FirstMac Ltd. last week sold mortgage-backed bonds at yields more than double the rate of previous sales, according to data compiled by Bloomberg.”
“Overdue payments on U.S. subprime mortgages rose to the highest level in five years in the second quarter, according to the Mortgage Bankers Association. The U.S. housing market will worsen before it improves, with home prices remaining under stress, S&P said last week.”
The Wall Street Journal. “Subprime mortgages aren’t the only challenge facing Countrywide Financial Corp., the nation’s biggest home-mortgage lender. Some loans classified as prime when they were originated are now going bad at a rapid pace.”
“These loans are known as option adjustable-rate mortgages, or option ARMs.”
“Countrywide first offered these loans in 2003 and quickly became a leader in this profitable and growing part of the mortgage market. Mortgage brokers liked the higher commissions and borrowers were drawn to low payments. As lending standards loosened, more of these loans included less-than-full documentation.”
“In addition, at Countrywide, ‘they were giving these loans to riskier and riskier borrowers,’ says UBS analyst Shumin Li.”
“Among option ARMs held in its own portfolio, 5.7% were at least 30 days past due as of June 30, the measure Countrywide uses. That’s up from 1.6% a year earlier. Countrywide held $27.8 billion of option ARMs as of June 30, accounting for about 41% of the loans held as investments by its savings bank. An additional $122 billion have been packaged into securities sold to investors, according to UBS.”
“From 2009 to 2011, monthly payments on some $229 billion of option ARMs will be adjusted to include market-rate interest and principal, according to Moody’s Economy.com. More than 80% of borrowers who are current on these loans make only the minimum payment, according to UBS.”
“CEO Angelo Mozilo told investors in September 2006 that he was ’shocked’ so many people were making the minimum payment. He called a sampling of borrowers to find out why. The ‘general answer…was that the value of my home is going up at a faster rate than the negative amortization,’ he said. ‘I realized I was talking to a group…that had never seen in their adult life real-estate values go down.’”
“Of the option ARMs it issued last year, 91% were ‘low-doc’ mortgages in which the borrower didn’t fully document income or assets, according to UBS, compared with an industry average of 88% that year. In 2004, 78% of Countrywide’s option ARMs carried less than full documentation.”
“Countrywide also allowed borrowers to put down as little as 5% of a home’s price and offered ‘piggyback mortgages.’”
“In one California branch office, employees could win prizes, such as a trip to Hawaii, for selling the most option ARMs, says Cindy Lau, who worked for the company for more than six years. Only a small portion of borrowers ‘understood the loan and knew what they were getting themselves into,’ Ms. Lau adds. She says she was fired in August for low production.”
The Wall Street Journal can pretend to be shocked by what Countrywide did with its lending these past few years, but I must point out that at the very time this was occurring, they and the rest of the press were treating this CEO like he was some kind of rock star, bringing wealth to the masses.
The entire lending market was predicated on the notion that prices would continue going up. In that world, income or assets were not needed. Now that prices are going down, the whole scheme is unwinding and feeding on it’s self. I live just south of the fire areas in San Diego. I cannot think this will help prices or the market here given the extent of the damage.
Yup…
The last few years have turned housing from a mediocre investment, but a wonderful stability generating asset, into a flat out ponzi scheme. The only thing that allowed this to keep moving up was the influx of new buyers pushing the prices even higher. This was, imho, absolutely the definition of a ponzi scheme, only that this time the underlying asset does have some value. Just nothing CLOSE to the value predicated by this stupidity.
Also, to add to the fun, people BORROWED all the money to participate in the scheme. An absolutely wonderful way to break the back of a banking system, and most certainly, to push the borrowers into a financial hel* from which they are unlikely to recover.
micheal, i was reading the palm beach post comments yesterday, and those realtywhores kept trying to (unsucessfully) blast you. question: do they do that all the time?
The CEO was a rock star up until the point when real estate stopped going up.
Wait… I thought the NAR said “real estate only goes up!” Good thing we can trust them when they tell us that the price declines are only temporary, all the problems are contained, etc. Idiots - for any business to function, there must be TRUST - trust that you are not being hosed by crooks. They have totally given up any hope of having such trust placed in them for a long time.
You can not trust the media. PERIOD. I no longer use them for any information but the weather, and then only if my internet connection is down.
Press, for the most part = band wagon riders
Also, press, for the most part = press release compilers
What ever happened to the guy that said “10% per year was in the bag ?” Where is that guy now ?
What ever happened to the promise that the sub prime contagain would be “contained” ? Remember that ? Where are these people now ?
Its really funny that the NAR thinks the fallout will be limited to a few months because of the recent mortgage availability issues.
Don’t they realize this is the tip of the iceberg ? The fact that house prices can fall is only now being understood by potential buyers and when they see this happening month after month, they aren’t going to buy or if they do, it will be at a GREATLY discounted price.
And the further prices fall, the more “homeowners” are going to get squeezed. And the more they get squeezed, the more consumer spending gets cut and the more jobs will be lost. Its a vicious circle ! Nobody sees that yet. Stupid media.
The Fed can cut and cut, but its not going to help. The only thing that will help would be to somehow get millions and millions of FBs enough cash flow to be able to afford their mortgage payments so that MBS holders can get a return on their investment. Good luck with that !
As far as I am concerned the ride is just beginning. Wait until people start getting desperate.
And NOBODY is talking about the other viscious circle that is about to begin—As CDOs continue to lose value, institutional investors (hedge funds, banks, insurance companies, invetment banks) will have to sell real assets to cover their reserve/capital requirements. The assets that will be sold are primarily corporate stocks & bonds.
Hedge funds don’t have to sell assets to cover reserve requirements, but they do have to get cash to cover redemption requests from inverstors that want out (if they aren’t making any money there is no need to pay out profits). They often have clauses in their partnership agreements that let them suspend redemptions if selling assests will hurt the fund or they think they can’t get resonable value for the assets. The question is, will they want to admit to the investors that they don’t have the cash/liquid assets to cover the redemption requests?
I bet not. So, how will they get the money? I guess there is enough delusion about this being a temporary crisis that we will see at least one round of insiders pumping capital contributions into the funds to cash out the first group of people trying to leave. I certainly hope so. I’d like to see the insiders lose some of the obsene profits they have been pulling down the last few years.
agreed. havent watched network news in a long time.completely useless.10 second sound bites. gossip in place of anything important. endless commercial interruptions. more time spent on leading in to the story than the damn story itself.
what a shame our powerful news organization has devolved into mobbing britney or paris over every wink of the eye.
then again, thats what most of the sheeple watch. I know my wife does. she doesnt care at all about anything beyond flavor’s latest lineup, or survivors antics.
(I make her upset when I predict survivors or american idols next moves. geezuz its not hard - been on the air for years now & its all scripted . . . why people are so fascinated with the minutae of others personal lives is so baffling to me . . . I guess its due to having no life or creative ambition of their own / living their lives through others? )
I’m not some intellectual snob but jezzus h christ people WAKE UP from yer tv induced coma !!
the hard part is to act all surprised & interested as the latest little contrived drama unfolds, without groaning in derision !
An analysis prepared for The Wall Street Journal by UBS AG shows that 3.55% of option ARMs originated by Countrywide in 2006 and packaged into securities sold to investors are at least 60 days past due.
What is amazing to me is that one would have to figure that most of the option ARMs are still in “pick a payment” stage. So Countrywide is already seeing significant deliquencies in a group that can choose the lowest payment?
That is scary. Can you imagine what it will look like when the option part of the option ARM expires?
Oops, forgot to close the bold
That’s the problem, they’re not still in the “pick the payment” mode. If you pick the lowest payment for too long, and you hit the ceiling on principal amount, you springboard to a higher payment, well before your 5 year fixed period is up.
The limits noted in the article are between 110% and 125% of the original note. If you are at 110%, and you pay the “low payment” of 2%, but the accrual is at 7%, you hit your limit in 24 months, NOT 5 years.
As you note above, this is only the beginning. It will get MUCH worse.
what is also interesting is that banks report the option arms as being paid at the fully amoritizing rate instead of just as a minimum payment.
So, the books are pretty cooked.
And these were considered prime too…..sheesh.
What will be REALLY interesting is 5 years into the future when FB mortgages expire and they have to remortgage ! What is going to happen when the outstanding balance is $500K and the appraisal is $300K and the FB is broke ?
Lest anyone think a loss of 40% is unrealistic, that is only about a 6% loss compounded over 5 years !
Is the loan originator going to offer the FB another term ? How will they package and sell off that mortgage, with a loan to value of 166% ! What MBS group would buy that ?
Sooner or later someone somewhere has to absorb these losses. They aren’t just paper. They will materialize as CASH deficits.
This is going to get very interesting.
And even still, as “prime” option ARMS begin to default no one wants to mention that the banks were including the unpaid interest as income. When the loan goes into foreclosure all that “income” will disappear with it.
From the 1942 movie Casablanca: Captain Renault: I’m shocked, shocked to find that gambling is going on in here!
That quote superimposed on a photo of the NYSE would make a fabulous button/bumper sticker/etc.
http://www.marketwatch.com/news/story/existing-home-sales-crater-september-credit/story.aspx?guid=%7B89E82F82%2D4CB1%2D463E%2D9E5D%2DF500EF2F9A2C%7D
“Sales in September “were artificially depressed” by credit problems, said Lawrence Yun, senior economist for the real estate trade group.”
(fun)Yun’s excuses are getting to be downright absurd.
I wonder how many people out there believe NAR’s crap.
Remember that even if MOST people don’t believe this spin, it doesn’t cost the NAR anything to try. And some people will choose to believe it- because it makes them feel better- and therefore the spin can be expected to have some “braking” effect controlling the fall in sales volume.
I would guess that NAR’s goal is to have the bubble “leak” rather than burst; in other words, prevent a panic that would put even more buyers on the sidelines. At this point, they’ll settle for a low but stabilized level of buying.
He neglects to mention that the credit problems were created by people not having enough money to pay their mortgages. So that means that sales were depressed by the simple fact that prices were higher then people could afford and mortgage industry was no longer able to paper over that fact.
I would hope that Yun is just delusional, I would hate to think that someone actually got up every morning so they could go to work and lie through their teeth.
Can you say “politician?” By definition, they need to lie to half the public.
Angelo Mozilla was SHOCKED! SHOCKED! as he licked his lips…
And set up his option sales…
I thought Halloween was next week. Too bad I already bought my candy — MSNBC’s business section has a lead article advising consumers to cut back on Halloween spending.
“Merrill Lynch stunned Wall Street for the second time this month Wednesday with the disclosure that it was forced into a $7.9 billion writedown of bad debt tied to risky mortgages and so-called structured paper.”
As discussed earlier, things aren’t bad if businesses are reporting lower profits. They are bad if businesses are reporting losses. I expect there will be more losses. Not only will there be more writeoffs of past deals, but there will be fewer new deals, and thus fewer earnings to offset against the losses.
Someone who knows told me that an underwriters’ reputation is so valuable they cannot afford to lose it. But what if ALL the underwriters lose their reputation? Trust in U.S. business may be about to take a bigger hit that in the aftermath of 2000.
Halloween spending? WTF? Am I supposed to spend money for Halloween now too?
Anyone else think that the holidays were invented by the retailers to try to get us to spend above our means? I am beginning to think that might be the only purpose of X-mas season at all. Give the retailers an end of year bounce..
Let’s see. I bought Halloween candy this morning. The few decorations I haave were bought several years ago. No kids to need costumes.
We don’t spend much on Christmas or birthdsay presents either. So I guess we don’t do much to help retail economy.
Got 800 pieces of candy for the swarm of Brooklyn kids. Love to see them every year.
We can afford it. We didn’t buy in a bubble, and paid off our 15 year fixed self-amortizing mortgage.
Life is short. What is important? Square footage?
With you!
Life is the only thing of real value.
I miss Halloween over here in Russia. Good to hear you are ready for the big day. Have a great time!
it’s because of you the terrorsit are winning.
and you are why they hate are freedom.
have a nice day : )
Downright un-American of you Wolfgirl.
My kids are almost grown and don’t want to trick or treat with their dad, so I just go sit in Border’s Books and read for a few hours and don’t spend a dime on candy. Call me selfish for not helping the economy.
You’re selfish! cuz you’re not helping the economy!
And be careful, someday the gov’t may require savers to register with their local authorities.
Lol, yeah, shame on me for preferring to hang on to my cash.
Actually, I expect in the future we won’t be paid in money, but with credit limits. That way, savings will be impossible since the credit limits won’t increase with inflation and nobody will really own anything.
And so we sold our souls to the company store.
Saving money on candy *and* books! Way to go!
We’ve been winding down the holiday spending for a few years. We first went to picking names and limiting gifts to $25. Then the whole extended family decided to give up gifts and give to charity. Next step was everyone deciding no gifts at all for anyone except children. Worst part was explaining to co-workers or friends we don’t do gifts - very socially unacceptable.
I would argue that by not squandering money on frivolous junk and instead pocketing the savings, you are indeed helping the economy. You also did your part to help curb the obesity epidemic.
Last year, the significant other and I agreed that our X-mas gifts to each other would be to forego getting each other presents. We, of course, ended up getting each other small things, but we did not spend nearly as much as we would have in previous years. It was just so much better that I believe that we have started a new tradition. So, retailers, your plans to begin advertising X-mas in September is not going to work on us.
Halloween spending?
My Nixon mask was paid for 30yrs ago!
My Halloween budget? Zero dollars. I don’t go to Halloween parties — did that when I was a kid and had quite enough of it, TYVM. I also keep the doors closed and locked and the porch light off, so as to deter the little beggars.
Of course that’s the point of Christmas, to boost profits. Go back 100 years and none of this shite went on. Same with greeting cards. Christ, they have cards for some many BS fabricated holidays it’s insane. SPeaking of that, I need to go pick up some St. Swindlers Day cards and mail them out early this year.
I’ve always joked with my wife and most of my family that many of these holidays were invented by Hallmark. (Valentines Day, Grandparents day, etc). I constantly feel like I need to buy cards for people……
You mean you don’t celebrate “Pizza Delivery Guy Day” or “Meter Reader Day”?
Don’t forget “international talk like a Pirate Day” and System administrator appreciation day. Those are REAL holidays and I celebrate them every year.
I went Halloween shopping yesterday. The 2 stores I went to were packed with inventory although there were lots of college age shoppers in the 2nd one. (SU’s Mommies and Daddys are subsidizing those purchases.)
Usually when I do my last minute holiday romps I’m facing a crazy scene of leftovers with costumes pulled apart and merchandise haphazardly thrown to the floor. So the perfectly maintained rows of plentiful stock were quite an attention getting situation.
Read of an interesting type of trick-or-treating: adults dressing up in costume and going door to door asking for canned food donations to the local food bank. Well advertised beforehand, and they gathered so much stuff that they were having trouble giving it away. Something new.
Our local food bank seems to excel at the TV news stories that show a warehouse full of empty shelves. The idea is to show the public that their cupboard is bare, so please give money and food to help the starving Tucsonans.
To me, it shows that they don’t know squat about inventory management, and I’m not about to donate money that will enable them to continue their ignorance.
“Our local food bank seems to excel at the TV news stories that show a warehouse full of empty shelves.”
Same here. Eff ‘em. If they didn’t give it all away to the illegals who line up every day for their “food basket” to fee their anchor families, maybe there would be some left for those who are truly in need.
That wouldn’t fly when I was growing up. The little kids would mark your house with an “X” since you didn’t give any treats and the big kids would come back later that night and give you the “trick”.
Even the meanest man in neighborhood called Mr. Green cause he lived in a green house handed out candy on Halloween in my old ‘hood.
Suppose to nest in Slim’s comment above about Halloween.
Love Halloween, love the noise and the kids, love the candy too. If you don’t, just leave a bag of candy on the doorknob.
That way the kids won’t string your yard with toilet paper.
I really like that idea, turn out the lights. Maybe we can spread that idea here!
L.Y.’er:
So you knew things weren’t so good back in August, but you said nothing about it at the time.
‘Mortgage problems were peaking back in August when many of the September closings were being negotiated, and that slowed sales notably in higher priced areas that rely more on jumbo loans,’ he said.”
The National Association of Realtors reported Wednesday that sales of existing homes fell 8 percent in September, the largest decline to show up in records dating to 1999.
Didn’t we just hear last week that sales are at their slowest pace since at least 1988, when Dataquick began keeping records? BTW, there was a guy from Dataquick on KPCC’s Airtalk a week or two ago who said his best guess was that sales are at the same pace they were in 1985.
Why do the realtor numbers always look so much more optimistic than Dataquick’s, and why don’t the journalists covering these reports ever mention the glaring discrepancy?
You can not trust the media. PERIOD. Throughout this entire debacle they have lied, distorted and obfuscated the TRUTH. The only thing they are good for is following Britney Spears around and reporting on her bad behavior.
That’s because while they are filling the air and newspapers with rubbish stories concerning some celebrity non-entity, the sheeple are not watching what’s REALLY going on.
I always laugh when I hear the network anchor announce an upcoming segment, “Next, the news in depth.” When it comes up, the “news in depth segment” lasts about 50 seconds. That’s just about the length of the average person’s attention span.
Is it any wonder that the politicians can spin lie and cheat while their paymasters - the CEO’s of big corporations and The Financial Gangsters of Wall Street - go on their merry way plundering and lying and covering up their fraud and mis-deeds. We have seen it time and time again with the Savings and Loan debacle and then the Enron’s and now the CountryWide’s.
You also have to remember that these tv network anchors and network bosses, will not rock the boat by allowing the HARD truth to come out - until they are unable to hide it any longer because even your waitress at Bob’s Big Boy has heard rumors - because they will be struck off the “A” list and not get invited to the White House Xmas party, etc, where they can rub elbows with the important people in the USA. Look at Dan Rather. He didn’t follow the party line - and now I doubt if he even gets invited to a K-Mart opening.
Americas news media outlets are the bottom of the barrel as far as “western” news media outlets are concerned. The best media outlet is the BBC but, sadly, even the BBC is being slowly being suffocated these days.
Does anyone even care about legacy network news anchors these days besides political bloggers with an axe to grind?
Dan Rather is still on TV, doing one-hour investigative reports for HDNet in which he doesn’t have to tiptoe around the political sensibilities of CBS’s advertisers and shareholders. Good for him, I say.
Dan Rather got canned because he and Mary Mapes blatantly lied and got caught — just another sign of how unreliable the MSM is.
Be fair to Dan. He didn’t lie — he just saw what he desperately wanted to see, and proceeded to tune out every piece of evidence to the contrary.
I see a new career for him as a Realtor.
1985 was armageddon in Houston… things are going to get much worse than anyone now alive has ever been through.
Yes, and you should see the neighborhoods now. They don’t call them “hoods” for nothing.
Handyman specials?
“Total housing inventory inched up 0.4 percent at the end of September to 4.40 million existing homes available for sale, which represents a 10.5-month supply at the current sales pace, up from a downwardly revised 9.6-month supply in August”
Where do they get these numbers. In Orlando, we have over 2 years inventory at the presant sales rate and getting higher each month. Thats on MLS and does not include FSBO’s, builders who don’t list and those elusive “I would like to sell, but don’t have to so I think I’ll wait.”
You can go to the NAR website and get some interesting stats. Hold your nose while you wade thru the BS.
Yun is Lereah reincarnated. Tell the truth. Don’t be so optomistic when it isn’t warranted. If the public understood the real market prices would come down faster and Realtors would sell more! Duh!
Yun’s baseless cheerleading is having a negative effect on his own group. How many times has NAR called bottom? I lose count.
“Total housing inventory inched up 0.4 percent at the end of September to 4.40 million existing homes available for sale, which represents a 10.5-month supply at the current sales pace, up from a downwardly revised 9.6-month supply in August.”
“‘It appears raw inventories are stabilizing, but the housing supply is a bit inflated now because the sales pace does not reflect underlying market conditions – sales were dampened by the mortgage cancellations,’ Yun explained.”
Someone help me out with this. Should the mere fact that supply is increasing AT ALL during this time of year be alarming in and of itself? That is, doesn’t supply usually decrease as we head toward Fall and Winter. I don’t know, that’s why I ask.
No, very few buy houses between thanksgiving and new years. That’s why between Christmas and new years is when my wife and I are planning on throwing around some really low ball offers for another house
Be greatful for NAR and their distortions. NAR offers hope to the FBs and inspiration to the knife catchers. The hope keeps the FBs from dumping their alligators into a declining market; the inspiration persuades the knifecatchers to commit new money to the market. Both actions act to dampen and slow the price declines.
But some of us want massive price declines since that (or a 50% raise) is the only way I can afford anything around here.
Oh, you’ll get your price declines. Just hope you don’t get them all at once.
But…the slower prices fall the more realtors will go hungry.
Oh yeah, like someone posted recently…”don’t shoot, let ‘em burn.”
‘How many times has NAR called bottom? I lose count.’
It’s been about every month for the past year and a half, hasn’t it?
Does ANYONE believe one word coming out of their lying little noggins anymore?
Merrill Lynch stunned Wall Street for the second time this month Wednesday with the disclosure that it was forced into a $7.9 billion writedown of bad debt tied to risky mortgages and so-called structured paper.
Is there some important distinction that I’m missing between “writedown” and “loss”? It sounds to me like they lost $7.9 billion.
A writedown could be a reduction of overall profit. It doesn’t necessarily mean ML lost money.
As noted above National City had a large writedown, but they still made a profit overall, albeit a much smaller one than the prior year.
The write-down just means something they own lost value. It’s not an actual loss unless they sell it.
It’s not a $7.9B loss if they are able to sell for more than their current held value, but it’s a greater loss if they are still wrong (high) on the new value.
Does anyone believe that these banks are taking a “rip the Band-Aid off” approach to these write downs (hit the values HARD, and hit them ONCE)?
I don’t.
“Revenue plunged 94% from a year ago.”
Even Intel’s revenue never went down that much.
Besides the $79B writedown, Merrill still has hundreds of Million dollars profit. But the worst is yet to come. It will be clear when the commercial paper and CDOs become liquidity again.
Loss generally implies that you didn’t make money during the quarter. Negative profits. Write down means that the value of something declined and that amount could be larger or smaller than your other profits. Almost all the big investment banks had write downs on their loan portfolios, Merrill was one of the few that had a loss. Goldman somehow increased their profits from a year ago (even with the writedown).
When housing prices kept rising, when mortgage fraud was increasing, when affordability reached an alltime low, the FED just stood by and watched. They let things go unchecked. Why should they do anything different now that prices have begun to fall? If you scream for the FED to let free markets work when things are going up, then let free markets work on the way down too. It’s the only way to have a healthy economy. Artificially propping up something is not what a free market is all about. Although, Larry Kudlow and Jim Cramer will argue with me on that one.
The Fed says it’s too big to fail. They will do anything in their power to keep this propped up.
I wish they would raise rates and prop up the dollar.
Why should they diminish our purchasing power so that Wall Street might be able to hold on to their ill-gotten gains?
Postponing the inevitable.
http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vIjeSh1hyZOk.asf
Actually, while all this was going on the FED kept raising rates to cool it off. No one noticed.
I hardly call raising rates to 5.25% cooling off.
Ditto.
Ditto, too.
And it took them 17 meetings, with their paltry little .25 increment raises, to even get to the 5.25, didn’t it? Hardly a rush to ‘cool it off.’
.25% incremental increases over 2 and 1/2 years?
That’s raising rates?
They didn’t seem to have problem dropping them much faster.
LOL. 5.25? Try Paul Volcker raising the Prime rate to 21.5%. People noticed that.
housing up in NE and Mid West” NAR
stop whining
Manhattan at best!
“I realized I was talking to a group…that had never seen in their adult life real-estate values go down.’”
That’s the thing I finally figured out a couple of years ago. I could not understand how people who saw the last bust could be suckered again so easily.
The answer is: it isn’t them so much as the younger “bulletproof” crowd.
All I can say is I’m glad I got those puts back yesterday. Sometimes it’s better to be lucky than smart.
There’s a reason why the real estate cycle is so long. It takes time to raise the next generation that didn’t feel the pain of the last bust. I sure plan on giving my kids a good fiscal education so hopefully they can benefit from the cycle and not get taken to the cleaners.
I’m with you there. I’ve already started showing my kids (10,7, 3) what’s going on in our local market (to make it concrete for them), and explaining to them why so many friends of ours are having trouble selling their houses (and why I’m not buying).
“it isn’t them so much as the younger “bulletproof” crowd.”
My theory is that that’s why we see these bubbles once a generation…15-20 years.
Except that we saw 2 in this gen. First Internet, now housing. There are some VERY short memories out there.
Don’t cocaine epidemics follow the same, 20 year or so, pattern? I remember reading once that it takes about that time to wash out the memory bank.
There’s plenty of old and stupid people too. The nanny-state sees to it.
Yes, but it’s a matter of diminishing returns. Maybe only 1/2 the people who got snookered the first time will fall for it the second time. And only 1/2 of them will fall for it the third time. No, the bread and butter are the first-timers.
In the past this has been significantly offset by the fact that first-timers had relatively little money, while the second/third timers had a lot more. Now relatively few have any cash reserves at all. So they had to lower the lending standards, which put first-timers on an even keel with second & third-timers.
It’s not just young people, it’s areas of the country that have no slums that “used to be nice neighborhoods”.
People who have grown up in an old American city (Chicago, Philly, Boston, New York, Baltimore, etc.) know can see with their own eyes that real estate not only goes ‘down’, but it can go down for 50, 60, 70, 80 years before coming back up.
I was just speaking with a Realtor in Harlem (upper Manhattan) who was telling me in the same breath that (1) Real estate always goes up, and (2) the old Harlem mansions are now all restored to their former nineteenth century glory. She apparently didn’t see the ironic contradicitons inherent in those two points.
Agreed, to a point.
I didn’t really grow up in an “old” American city, but rather, grew up in a city that saw its share of declines (Rochester, NY). I also spent another few years in a rust belt city that also lost much of its manufacturing base (Buffalo, NY). That said, while I may have been influenced to see this for what it really was, an unsustainable bubble, I cannot ignore the fact that historical price data, that was readily available to all in all locales, SCREAMED bubble. Accordingly, asserting that the bubble was a “generational thing” is nonsensical as anyone who conducted any amount of research would have seen this for what it was. In my view, all were aware of the run-up in prices, but nonetheless, took the risk to proceed. Think about it, who takes out a risky loan and doesn’t ask themselves, “Self, what if prices drop and I cannot sell this for what I paid for it?” That’s right, no one does!
Seeing contradictions isn’t something anyone in this country is very good at. Heck, it’s become rather obvious we have a hard time seeing anything at all…
This is a great point, and one that is not limited to the old-fashioned east coast cities. Many of the inner-ring Los Angeles suburbs were once solidly middle-class but are now high-crime slums.
The same phenomenon is also observed in the far outlying areas that were developed during previous housing bubbles, which became ghettos after demand vanished, and have never since recovered. Palmdale/Lancaster is an excellent example of this.
How many of us have elderly relatives living in shoddy neighborhoods that “used to be nice,” and why don’t we make the mental connection to recognize that that could be *us* in 30-40 years if we buy in the wrong neighborhood?
But all that was ignored during the “just buy something, anything” mania of the last few years.
I had family members that lived and grew up in CAMDEN, NJ. Camden, now one of the worst hellholes in the nation, once was a decent, blue-collar neighbhorhood. Yes, real estate can go down, and sadly I expect to see a lot more places go down Camden’s path in the future. But the wealthy will have their gated communities, so all will be well for them.
You got that right sohonyc. I grew up in a town that was the largest led mining town in US history. Our history was well documented. One of the reasons I never got into Real Estate.
Around 1900 lots in our town were selling for 35,000. When all the Led was gone Prices crashed and “NEVER RECOVERED”.
In 1970 my Dad bought a house on a Half acre one block off Main street for $186. Yes , 186 DOLLARS!
In 2005 , I sold a 50 x 150 lot on Main Street , Zoned commercial with a 1000 SF slab for a 2 story Building and a Remodeled Trailer and a 12 x 20 New Porch for $3,000.
105 Years , and Mania Prices Never came back.
“I realized I was talking to a group…that had never seen in their adult life real-estate values go down.’”
These are all my friends. And include most 20-somethings. FWIW, most of them consider this recent downturn a blip and expect prices to continue to increase for the next decade or so.
I told one friend that I thought perhaps real estate was no longer a good investment, and that the days of making money off RE was over. He looked at me like I had declared war on Christmas.
And to think that on this very thread, we’ve already declared war on Halloween. Shall we go for the trifecta and train our guns on Valentine’s Day?
Slim, you may recall that up in these parts we have Sweetest Day. Just finished boycotting that one myself, but not without a little squawking from my daughter.
Thanksgiving will be spent celebrating my birthday AND Michigan’s imminent victory over the Buckeyes, Christmas spending will be trimmed down significantly, then it’s on to trash Valentine’s Day. Right there with you.
Say, wasn’t there someone trying to point out “group think” around here lately?
There’s the best example of “group think” imaginable - shopping on cue for holidays like trained monkeys.
I hate Valentine’s Day. To me it signifies everything that is wrong with this consumer economy: if you love me you’ll buy me overpriced perishable crap ?! I guess I don’t love you, do I.
NoooOOOOOoooo! Not Valentine’s Day! Not that! Let’s take out ‘Appreciate your Boss Day.’ Or, August 5th, ‘Friendship Day’.
I thought August 5th was “Safe Word Day”…
My vote is for “Sweetest Day.”
That’s the crazy thing. Housing has NEVER been a good investment. It goes up with inflation in the long run. It’s only perceived to be a good investment because historically, people have had amortizing loans. It was FORCED SAVINGS that built up your nest egg, little else.
I had someone tell me that they had already made $x on their townhouse in a year. I didn’t have the heart to tell them that I had saved $x during that same timeframe by NOT buying a townhouse.
All it takes is some discipline to actually save money. Without that discipline, you SHOULD buy a house if you can afford the payments on a 30-year fully amortizing loan. It would be better for the masses to overpay, be trapped in a home that they don’t like, but that they pay off over time, than for me to be paying for their sorry selves if they rent their whole lives and save $0 for retirement.
To be fair it was forced savings, favorable tax treatment, and borrowing at treasury type rates that made housing a pretty decent investment for so long.
Agreed. Take out the leverage, you get $0 real return. Add in very tax efficient leverage, you do better.
Do I hear 13,500? Anyone? Buehler? Buehler?
I wonder how ‘ol Benny S is doin’? I suppose he’d tell me to get long at a time like this, huh?
Actually, probably working on the 3rd generation that hasn’t seen price declines in most places. ’80’s were localized and then popped back up. Only those in their 80’s remember 20 years of flat or declining values.
From the Chicago Tribune:
“No question a housing bust has arrived, but its broader economic impact still remains difficult to gauge, especially on the hard-to-predict psyches of American consumers. Even with evidence of trouble mounting, results are mixed, and some forecasters express surprise the economy hasn’t stalled more abruptly after credit tightened this summer.”
http://tinyurl.com/yo8nzv
I honestly thought I’d see a big slow down in selling balloon rides… let’s face it my business is based on a “want” not a “need” and they aren’t cheap… business is great right now… denial…you bet!!!
As a society, we’ve let our “economic education” take a back seat to a lot of things… who cares about personal finance education?!
More from the Tribune article:
“If housing is such a drag, then why aren’t retail sales down more? Why aren’t more homes selling for fire-sale prices? Are Americans in denial?
A chorus of pessimists say yes, including Paul Kasriel, chief economist of Northern Trust, who expects a dramatic slowdown. “It is denial,” he said. “You get accustomed to a certain lifestyle financed through credit, and it’s difficult to abandon. But eventually you have to.”
Sorry if this is a double post.
I really thought my business, selling balloon rides, would be adversely affected by now. We’re selling a service that is not cheap and is definitely a “want” not a “need”… business continues to be very good…
More from the Chicago Tribune:
If housing is such a drag, then why aren’t retail sales down more? Why aren’t more homes selling for fire-sale prices? Are Americans in denial?
A chorus of pessimists say yes, including Paul Kasriel, chief economist of Northern Trust, who expects a dramatic slowdown. “It is denial,” he said. “You get accustomed to a certain lifestyle financed through credit, and it’s difficult to abandon. But eventually you have to.”
Northern Trust’s Kasriel admits that he expected housing to start strangling other parts of the economy well before now. He doubts profit-rich corporations and a healthy global economy will save the day. And even if the Fed cuts interest rates when its policymaking arm meets again Oct. 31, the bursting of the real-estate bubble eventually will take a toll, he predicted. “It’s taking longer than I thought to start, but it’s like a glacier. It’s inevitable.”
HotAir….Are you in Albuquerque NM ???
I’m in Wisconsin.
jct
Maybe he is just giving all the FB’s a place to jump from….
I think the normal, human, tendency is to try and hang onto a level of spending or generally accepted behavior. Relatively few people want to appear “out” of the mainstream and until something like a consensus appears, until a signal appears that says its okay to drop out of a trend, many people will resist changing.
Look at major league baseball players; to NOT have a goatee seems to be an act of courage. Virtually everyone will continue to wear them until someone significant shaves and admits they looked really stupid wearing one. Then the “ok” for dumping them, en mass, will occur and they’ll vaporize virtually over night.
We all like to think of ourselves as acting autonomously but we’re all susceptible to “group think” on one level or another, in one area or another. Aren’t all of us here, to one extent or another, finding something like “comfort” from others who share our “non-mainstream” thoughts on real estate?
I think someone said it well recently; its nice to come to HBB if for no other reason to find out one might NOT be completely nuts in having dire observations on RE.
Its impossible to predict when an “all clear” signal might sound on backing off spending or what it might look like but its hard to believe spending can be sustained at recent, relatively high, levels much longer.
“Look at major league baseball players; to NOT have a goatee seems to be an act of courage.”
I was thinking that about sporting the ultralarge pinch of chew. LOL
Absolutely agree. I feel like I am the only human without a tattoo!
You aren’t. There are 2 of us.
I don’t have one, either. Well, okay, that accidental one. And then that one I did myself while on a drunk camping trip in college. But it came off, mostly.
One of my sisters has a mushroom with a fairy sitting on it on her back. Silliest thing in the entire universe. Now, if she were to add a rainbow and a unicorn, THERE would be some classiness. Oh, my, yes.
Every day I thank myself for never getting a tatt. They look like big ugly blue bruises to me. Will look really good on old pale saggy skin later too.
thought about getting a tattoo of a barcode, in an easily accessible place, that read ‘ 20% off ‘ , to use in the self-checkout lines like Lowes, etc.
heck, 20% off is realistic & wouldnt draw much attn . . . !
just have to lookup a universal barcode that works anywhere. like VISA.
But I like goatees. Not on ME, of course. On men. And on goats. Actually, girl goats have goatees, too. And they look good on them. I used to milk my goats, Sally and Rusty, and that damn Sally would keenly watch me with her wicked little yellow eyeballs and then kick the bucket hard as she could so that it would shoot away like a comet. Maybe I hate goats, come to think of it. But I still like goatees.
Hey, it’s stream of consciousness time, almost! Like James Joyce. Or I just need more coffee.
“Northern Trust’s Kasriel admits that he expected housing to start strangling other parts of the economy well before now. He doubts profit-rich corporations and a healthy global economy will save the day. And even if the Fed cuts interest rates when its policymaking arm meets again Oct. 31, the bursting of the real-estate bubble eventually will take a toll, he predicted. “It’s taking longer than I thought to start, but it’s like a glacier. It’s inevitable.”
Like a glacier. Unstoppable. Suddenly Avalanche without warning….
“…the hard-to-predict psyches of American (actually any) consumers…”
Funny, greed and stupidity seem to be very easy to predict.
Back into the opium den for you Mr. Yun. See you in 30 days when they wheel your dumb ass out for another round BS.
LOL!
Ooooh! Funny!
The SF Chronicle has an article predicting that “4,800 subprime loans made to Bay Area borrowers in 2006 are likely to fall into foreclosure in the next couple of years.” To me this figure sounds like it’s off by at least an order of magnitude.
Even if we believe the rather tame and widespread prediction of two million foreclosures nationwide over the next few years, the Bay Area’s share of that based on population alone should be at least 30,000. And it’s fair to assume that a far greater share of the buyers here used dubious mortgages with unstable terms compared with their counterparts in middle America.
I wouldn’t be surprised if we see 100,000 Bay Area foreclosures in the next few years. I don’t think that’s even that wild a prediction.
I agree simply because in the Bay Area, if you aren’t making at least 200k, then there really isn’t a realistic way that you can buy a home here using a 30 year fixed- even now. Some insane number of buyers used IO and ARM loans… something like close to 77% in 2007 alone. So if that be the case, then you have a schenario where people making the maximum amount of income took out the maximum amount of risk on loan products that only function when home values go up.
I look at it this way: the Bay Area’s prices were really and truly supported by artificial means- aka- exotic loans. I’d say the BA did this more so than any other part of the country. The safeguard that locals throw out is that we have this protective blanket known as the Tech industries to save us all. But remember- all those highly paid tech workers making in excess of 200k per year were also the same people who took out IO and ARM loans. So if that’s the case, the upper 10% of the buying population is already either barely making it, or about to start missing payments once the loans reset. This is if you ignore the fact that despite the tech industry, 70% of the population works in non-tech related jobs and of those, the majority pay less than 50k per year. Looking at it this way, there is simply no support- either from the top end or low end of the economy to support the prices now or even prices pre-2002.
Of course the Bay Area has always felt special and detached from the rest of the country. Indeed- Wall Street seems to be magnetically attracted to Tech these days since it is about the only sector of the economy with good news- But none of this “good news” is going to mean anything, and not even to the everyday people who work for them save a sprinkling of CEO’s and upper execs.
“The SF Chronicle has an article predicting that “4,800 subprime loans made to Bay Area borrowers in 2006 are likely to fall into foreclosure in the next couple of years.” To me this figure sounds like it’s off by at least an order of magnitude.”
And they are still exclusively focused on Subprime, no mention of AltA at all, as if none of those loans could possibly go belly up.
And they probably aren’t taking re-financing into consideration either.
s
I agree with your numbers. And they are not wild.
The fact that even people working in tech making 200k were taking out ARM and IO loans makes me also think that 4,800 seems grossly understated.
100,000 Bay Area foreclosures ??
Not without some “Black Swan” event IMO…..
The bubble of the last few years has been a black swan event, hasn’t it? Prices have never been anywhere near this out of whack, even in the Bay Area. In the tech bubble, rents were higher and so were incomes, but houses cost half as much. There’s no fundamental reason why we won’t correct back to 2000 prices. And if we do, the number of households who are severely underwater (by more than $100k, say) will be way more than 100,000. And many or even most of them have adjustable rate mortgages.
Even those who don’t would be economically rational to walk away from the mortgages. I think 100k is a very conservative estimate. What’s great is that we won’t go to our graves without knowing the answer - we’ll know within a few years!
Many, Many people who purchased in 1989-90 were underwater 1991-93 and did not walk because #1. They did not want to leave the valley for whatever reason and #2. there job still supported their ability make the nut….
IMO, it will take a “event” that effects jobs to a significant degree to see your “100,000 forclosure” prediction to materialize….
I haven’t been able to track down historical figures from the 1990s yet, but according to the most recent article I could find on the subject from RealtyTrac, in September 2007 “1,635 Bay Area households were notified that their properties were scheduled for foreclosure auctions, compared with 357 at the same time last year. Auctions can be postponed or canceled at the last minute, but the notices show the homeowners are already at least six months delinquent.”
If this pace remains constant on average for the next five years (certainly not out of the question, since the bubble is only just starting to burst in the Bay Area), then that’s 98,100 “foreclosure auctions scheduled” notices between now and 2012.
They don’t say what percentage of households who reach this stage manage to avoid losing the house, but I am guessing it’s small.
I’m not even including the 5,000 or so houses that have already been foreclosed/auctioned so far in 2007. Nor do I think all the foreclosures will be through the pipeline by 2012. I stand by my prediction: 100,000 Bay Area foreclosures by the time the dust settles.
They call em earthquakes. Not Swans.
I hate the black swan saying. People put together a siutation that is only marginally stable. A fairly regular event occurs, things go bad and people pull out the black swan.
A real statistical anomaly is the giant tsunami in Sumatra. That was a black swan.
We had your “earthquake’ event in 1989 which was first of the one/two punch when we had the S & L debacle….That sent us into the recession of 1991-95…..The “Black Swan” I speak of is not a earthquake which we all fully accept as inevitable with the only question being as to degree….The “Black Swan” I speak of is something we don’t expect….Some kind of crippling attack on the water supply for example….
It could be worse: they could be calling it a “perfect storm”.
A black swan is something which is widely believed to not exist, such as points in time when median real estate sale prices go down on a national basis (as they have year-over-year for 13 of the past 14 months).
Yup, here comes the primal scream into the fed meeting. Yesterday was a lovely bull trap.
Without knowing much about, that’s how it looks to me. From where I sit, looks like a “controlled crash” is in progress. And Hank Paulsen is shooting blanks where China is concerned. LMAO! Paulsen really give the administration a real snow job about how he could “handle” China. Now his boxers are around his knees.
“Ya thunk?” Hannah Montana
I just tallied it up and I’m having a pretty darn good year trading 90% from the short side. Had to sit for several months but that was okay too.
That’s been my problem - knowing when to just let my money sit in order to not lose it. But then you’re a lot more experienced and working with a lot more money than I am. Hopefully I’ll get to your level in a decade or two…
Charts, luv. Learn them, live them, be them . . .
I’m still in the infancy of my financial education, but believe me, I’ve learned a LOT from people on this site, and from YOU in particular.
just let my money sit ??
Isn’t that Buffetts fundamental rule ?? Preserve Principal ??
Do you want to open a hedge fund?
“Yup, here comes the primal scream into the fed meeting. Yesterday was a lovely bull trap”
I am so busy watching local fire news and can’t focus on financial news. Is anything new?
San Diego shut down and Wall St. up and running.
My mini shelties smell like firesmoke. I keep hugging them as I watch the fwy exits close up near me.
Hmmm. Let’s see. 1.) The housing/credit bubble is popping. 2.) I found a giant patch of Shaggy Mane mushrooms by the mailbox and sauteed them with butter.
Those are the two main events of significance on this day. I’ll report if more stuff happens.
Truly, though, ouro—keep your little doggies safe, and yourself too. It looks pretty bad on t.v. Good wishes to you there.
I agree Ouro - the financial markets dim in importance when one has to protect one’s four-legged children. Keep hugging, be ready and realize it will all be over soon.
I am doing a small treasury spread - essentially betting that the Federal Reserve does NOTHING. With the market pricing in a 25 bp reduction in rates (87%), the risk/reward ratio is favorable. If I am wrong the Yen appreciates another 3-5%. If the Fed does not act, I make 20bps.
This is a very risky trade and is suitable for me, myself and I. It is also going against publicly stated comments from the Federal Reserve.
Randall Kroszner, Federal Reserve Governor, a Voting Member
“In the months ahead, the Federal Reserve will continue to monitor developments in the financial markets and act as needed to support the effective functioning of these markets and to foster sustainable economic growth and price stability.” – October 23, 2007
I ‘m out until after Fed meeting next week. I have lost an arm and a leg in Helicopter Ben’s blades twice in the last three months and don’t intend for it to happen again. There will be other opportunities.
Among option ARMs held in its own portfolio, 5.7% were at least 30 days past due as of June 30, the measure Countrywide uses. … Countrywide held $27.8 billion of option ARMs as of June 30, accounting for about 41% of the loans held as investments by its savings bank.
Sounds like the risky loans are making up a good chunk of “investments” held by the savings bank. I’m gonna go out on a limb here and say this probably won’t end well.
I know that some have explained the whys to this question but one more time please so when my wife asks I can sound like I know what I’m talking about. Down the street from me a developer is finishing up on streets, utilities and a very long new block wall. This is across the street from another new development that has many finished but empty houses. Why is the first developer doing all this work? I’m sure will they will start pouring foundations in a month or so. I remember someone saying that they have contracts and must finish. This is in city limits, are they in contracts with the city to finish? The county? The State? Why would they be going ahead with another new development? These are still happening all over town.
The development pipeline is years, not months. While developers can drag their feet up front, once ground is broken they really need to work to completion as fast as possible to minimize interest payments. Also, everyone in the industry thinks their bulletproof. They may even acknowledge things are bad and another developer/builder would be stupid to build, but not them - they’re smart and savy. You didn’t mention specifically if it was the same developer or two different ones. If it’s the same one for both developments, it makes even less sense, but they may be in serious financial trouble and their only asset is the land which has fallen in price. Thus, the only way they can appreciate the value is to develop it, never mind that no one actually needs the lots.
In my opinion it’s a waste of good farmland.
‘In my opinion it’s a waste of good farmland.’
Hell, yes! Testify!
Two reasons they keep going. First, they have to pay their loans on the land, and they need the cash-flow from the home sales to do this. Second, most communities require developers to post a bond for all of the community services. Once they start the first thing in that development, they are bonded to finish the whole thing, regardless if they ever sell a single home. I have noticed in central Florida that a lot of the half done communities originally started by a single developer now have 3 and 4 different developers trying to finish out the communities while the new, unlived-in communities just sit as undeveloped weed farms.
DC is spot on regarding the Bonds…..Back in the 70’s muni’s got stuck with bankrupt developments half finished….Now, all infrastructure must be bonded to garuntee completion…
Similar question. Smallish development next to me spent all spring putting in curbs & gutters, sewer, power. Now the lots are just sitting there, no activity. They’ll have to pay higher taxes on these now unlike when it was ag last year - can these revert to the city? This happened after the last big crash, but now all the old abandoned streets are built up.
The Bonds garuntee payment to all subcontractors so there are no mechanics liens on that work….If the developer paid cash for the land then he sits there with a non-performing asset…If a lender has a loan on the property and the developer chooses to walk, then the lender ends up with a non-performing asset…..One more thing to consider….Typically, land loans and construction loans are made with what we call “personal guarantee’s”….In other words, the borrower (Developer) must sign a personally guarantee (or a modified personal guarantee) for the loan that has been made….That forces the developer to stay in the deal because if he walks, the lender can come after his first born….
CFC is tanking - How is that investment doing B of A ??
that 18 will be resistance forever. Might be 5 years before it’s breached for good.
Earnings are out Friday, after the bell, I wonder how big the “one time writedown” will be?
Oh, it will just handed out to the press by the “Numbers We Just Pulled Out Of Ass” Department.
Sorry, “Our Ass”, but you knew what I meant.
Like “Chief Economist” or “Senior Economist” or “Spokesman” or “Leslie Appleton-Young”.
Census vacancy data out Friday morning. Depending on what it says, Friday could be a big day.
Are you suggesting that a higher-than-expected number of vacancies will spark a rally in the homebuilding sector?
They might have to print the number landscaped on the page to get it to fit on one piece of paper.
Or perhaps put it on the CNBC ticker:
CFC writedown amount: 9,9999999999999999999999999999999999999999999999999
And just keeps scrolling by.
LMFAO!!!
Txchick, is that an assumption that CFC will survive??
To dream the impossible dream
To fight the unbeatable foe
To bear with unbearable sorrow
To run where the brave dare not go
To right the unrightable wrong
To love pure and chaste from afar
To try when your arms are too weary
To reach the unreachable star
This is my quest
To follow that star
No matter how hopeless
No matter how far
To fight for the right
Without question or pause
To be willing to march into Hell
For a heavenly cause
And I know if I’ll only be true
To this glorious quest
That my heart will lie peaceful and calm
When I’m laid to my rest
And the world will be better for this
That one man, scorned and covered with scars
Still strove with his last ounce of courage
To reach the unreachable star
Is that anything remotely close to a recomendation to go long again after tomorrow’s earning’s dump them off a cliff for a bit? I can see a big bounce coming out of that, and wouldn’t mind some more free money off of CFC.
Fannie and Freddie are down big too. Government bailout being rethought???
“Lawrence Yun, NAR senior economist, said the decline is understandable.
Excuses, Excuses! Lawrence, the only thing that is understandable to you and the NAR is missing your predictions over and over again. The NAR and Lawrence have completely lost their credibility from the general public!!!
The lack of NAR culpability for a preponderance of misleading statements is understandable.
The lack of NAR culpability for a preponderance of misleading statements is understandable.
For a business Yes, For a not for profit that gets significant tax breaks NO.
Of course it’s understandable, that makes it less scary…spin, spin, spin.
If he were honest he would say “the decline is understandable, but the ultimate duration of, depth of, and pain generated from the decline is a complete mystery.”
Of course, “it’s still a good time to buy and sell real estate!”
….like they didn’t know the extent of the loss.
http://articles.moneycentral.msn.com/Investing/Dispatch/071024markets.aspx
Texas Template
http://articles.moneycentral.msn.com/Banking/HomebuyingGuide/HousingHorrorCouldHangAroundForYears.aspx
Office of Federal Housing Enterprise Oversight? What the hell do they oversee? Their navels?
No - that’s under the jurisdiction of the Department of Homeland Omphaloskepsis.
It appears the existing-home sales have bottomed out. I call a bottom here and now — home sales can only go up once they have cratered, right?
ECONOMIC REPORT
Home sales crater on credit squeeze
Sales of single-family homes at 10-year low; inventories highest in 20 years
By Rex Nutting, MarketWatch
Last Update: 11:15 AM ET Oct 24, 2007
http://www.marketwatch.com/news/story/existing-home-sales-crater-september-credit/story.aspx?guid=%7B89E82F82%2D4CB1%2D463E%2D9E5D%2DF500EF2F9A2C%7D
Wow! Maybe the media are FINALLY getting it!
http://www.reuters.com/article/reutersEdge/idUSN2244667820071024
And from Reuters no less. Wonders will never cease(or something like that).
My Jaw is agape. Reuters has been a huge cheerleader for the “buy until you drop and then borrow some more” lifestyle that fueled this utter clusterfrack we call the housing mess.
I feel the winds of change a-blowin. Got my hot air popper running full blast now…
Yes, Neil, I got popcorn.
How’d you like them Armageddons? I’m stunned.
Aw, c’mon, weren’t you the one who kept posting “It’s Armageddoning real good”? You knew what was happening. You’re not stunned, you’re right!
“It’s safe to say this is the largest writedown” by a U.S. securities firm, said Charles Geisst, a finance professor at Manhattan College in Riverdale, New York, and author of “100 Years of Wall Street.” “The only other time we had such big losses was the third-world debt crisis in the 1980s. Even then, the losses didn’t match this one.”
Bloomberg
What will Bloomberg say when Citi has to write down ?
“These loans are known as option adjustable-rate mortgages, or option ARMs….Countrywide first offered these loans in 2003 and quickly became a leader in this profitable and growing part of the mortgage market. Mortgage brokers liked the higher commissions and borrowers were drawn to low payments.”
Borrowers were “drawn” to low payments? They fail to mention they were “drawn” to these payments because that’s all they could afford. Most won’t be able to handle the resets, but nobody cared about that during the boom times, and I’m sick and tired of hearing these borrowers say “I had no idea”. If they had spent half as much time reviewing the financing as they spent on picking out their granite countertops and stainless appliances they would have had a much better idea. Tough luck.
From the Article:
“CEO Angelo Mozilo told investors in September 2006 that he was ’shocked’ so many people were making the minimum payment.” He goes on to say, “I realized I was talking to a group…that had never seen in their adult life real-estate values go down.”
Uh huh.
Imagine that people would believe that real estate never goes down. I wonder why they would believe such a thing? Perhaps the sales mantras that the RE industry used relentlessly over the past few years perhaps?
And I’m sure he’s shocked - SHOCKED - that people would be making minimum payments on these loans.
Statements like these are making this real estate meltdown seen like quite the dark comedy.
“In one California branch office, employees could win prizes, such as a trip to Hawaii, for selling the most option ARMs, says Cindy Lau, who worked for the company for more than six years.
2nd prize went to the Countrywide employee that sold a 30 year fixed loan…
A set of stake knives, wooden.
“the government’s inventory numbers exclude homes left with builders due to sales cancellations.”
There is a HUGE undercounting of new home inventories because of the exclusion of cancelled sales from the reported numbers. Too bad lenders don’t exclude builders from construction loan payments on homes left in inventory due to sales cancellations.
Anyone ever listen to “Real Estate Insiders” on AM radio? Three guys out of Detroit I think. For some reason it’s not on in my town anymore. They used to swoon over the secure advantage loans.
Glad I just listened and didn’t do anything, though they did talk a lot earlier this year about the ARM resets that were coming up.
Sales fall as US housing recession deepens
By Eoin Callan in Washington
Published: October 24 2007 20:52 | Last updated: October 24 2007 20:52
The US housing recession deepened last month as demand fell to a record low and the value of Americans’ homes slid amid tightening lending conditions.
Sales of existing homes showed the largest fall since records began with a drop of 8 per cent in September to an annual level of 5m, the National Association of Realtors said on Wednesday.
The surprisingly steep drop in demand suggests the housing market is entering its worst phase on record and underlines the risk to economic growth from falling home prices and declining activity in the sector.
The Federal Reserve views the downturn in the sector as the most significant threat to growth but the central bank cut rates aggressively last month in an attempt to prevent the economy falling into recession.
The decline in home sales and prices last month was significantly greater than economists expected and drove bond yields lower as investors priced in a greater likelihood of interest rate cuts by the Fed.
Ian Shepherdson, an economist at High Frequency Economics, predicted that persistent weakness in the housing sector would prompt the Fed to cut rates by a quarter-point when policymakers meet next week.
“The housing crunch is accelerating. The Fed can’t stand by and watch,” Mr Shepherdson said.
http://www.ft.com/cms/s/0/6f0168b8-8268-11dc-a5ae-0000779fd2ac.html