The Crash Continues
Some housing bubble news from Wall Street and Washington. Reuters, “Sales of new single-family U.S. homes were off 23.3 percent from a year ago. Across the regions, sales were mostly down although the West did see a 37.7 increase. In the Midwest, sales were off 19.5 percent and down 6.6 percent in the Northeast. Sales were up 0.5 percent in the South. There were 523,000 new homes for sale at the end of the month. It would take 8.3 months to clear that inventory at the current sales pace.”
From MarketWatch. “Sales of new homes rebounded in September from summer sales levels that were much weaker than previously reported, the Commerce Department reported Thursday. The three previous months were revised sharply lower, which means the housing market was much weaker in the middle of the year than previous believed, and no one believed it was strong.”
“‘The crash continues,’ wrote Ian Shepherdson, chief economist for High Frequency Economics. Sales fell at a 35% annualized pace in the third quarter, he said.”
“The sales figures do not account for canceled sales contracts, which have surged in recent months.”
From CNN Money. “The battered markets for real estate and home building still have farther to fall, according to a range of economists who spoke Wednesday at a forecast conference sponsored by the National Association of Home Builders.”
“Mark Zandi, chief economist of Moody’s Economy.com, estimated that the excess inventory of homes on the market is close to one million, and he added that the glut could get worse if mortgage defaults and foreclosures increase, as it now appears they will.”
“‘We’re awash in inventory,’ he said. ‘I don’t think this [credit] crisis is over.’”
From Bloomberg. “Pulte Homes Inc., the third-largest U.S. homebuilder, reported a third-quarter loss after it reduced the value of its real estate and potential buyers of its homes had difficulty obtaining mortgages.”
“Revenue fell 31 percent to $2.5 billion. The company wrote down the value of its assets by $1.18 billion in the quarter. Orders for new homes fell 37 percent to 4,582, and the company had a backlog of 12,042 homes, worth $4.1 billion, it reported.
“Ryland Group Inc, the No. 8 U.S. home builder, posted a quarterly loss on Wednesday. Ryland said revenue during the quarter fell 35.2 percent to $732.3 million as the number of homes the company sold fell 32.3 percent to 2,495. The average selling price slid to $284,000 from $291,000.”
“New orders were off 20.9 percent to 1,876 units, and the value of the orders fell 27.0 percent. Ryland’s results include charges for write-offs for inventory and property values of $128.1 million.”
The Denver Business Journal. “Denver home builder M.D.C. Holdings Inc. battled a ‘turbulent’ housing market in the third quarter of 2007. The builder suffered a net loss for the period ended Sept. 30 of $155.4 million. M.D.C. reported $249 million in inventory impairments related to 7,000 lots in 132 subdivisions.”
“Nearly half of M.D.C.’s markets saw decreases in selling prices.”
“Home builder Tousa Inc said it would exercise the right to abandon a number of home-sight option contracts in response to deteriorating market conditions in the third quarter.”
“‘As a result, the company anticipates that it will incur significant deposit write-offs and abandonment charges in the third quarter of 2007,’ Tousa said in a filing with the SEC.”
The Dallas Morning News. “Centex Corp. officials said Wednesday that they have cut the Dallas-based homebuilder’s nationwide workforce by 40 percent and plan to further reduce overhead. Centex’s sales in the most recent quarter were down in every region of the country, including Texas, which has been one of the builder’s strongest markets.”
“Overall, Centex said that its average home prices were down 8 percent during the last quarter. In some markets, prices were cut as much as 20 percent.”
“‘Unlike in previous quarters, our Texas results were weak as areas like Houston in particular were especially hard hit by the disruptions in the mortgage market,’ said Centex chief financial officer Cathy R. Smith.”
“The Bank of England said the global financial system is at risk of further instability because of ‘ongoing uncertainties’ about credit-market losses. In a worst-case scenario, U.K. banks would have to raise as much as 170 billion pounds ($348 billion) if market conditions prevented them from selling the loans on their balance sheets to other investors, the central bank said.”
“The report also said the market selloff may be welcome because investors were taking too-optimistic a view on the risks facing the global economy. ‘A return to earlier conditions would be undesirable as that involved an underpricing of risk,’ the Bank of England said.”
“Nomura Holdings Inc., Japan’s largest securities firm, reported its first loss in more than four years after U.S. mortgage investments plunged, forcing the company to close some operations, cut staff and shut its Chicago office.”
“Nomura’s U.S. arm posted a $620 million loss on subprime, prompting CEO Nobuyuki Koga to shut the unit’s residential mortgage operation. The world’s biggest financial companies have reported credit and market losses of more than $30 billion after defaults on subprime U.S. mortgages contaminated securities backed by home loans and other types of debt.”
The Sydney Morning Herald. “ANZ Bank missed forecasts as provisions for bad loans increased. ANZ’s provisions for credit impaired loans jumped 39 percent last fiscal year to $567 million.”
“Investment banking firm Friedman, Billings, Ramsey Group Inc. said Thursday its third-quarter losses widened due to the weakening of the mortgage market. FBR reported losses of $214.7 million.”
“Financial guarantor MBIA Inc. followed the trend set by its rivals in reporting a third-quarter loss due to its cutting the value of its credit derivatives portfolio.”
“Though MBIA had a big mark-to-market loss, it did not follow the lead of some other financial guarantors in pre-announcing its results to give investors some warning of the effects of falling prices for securities backed by mortgage loans. MBIA’s mark-to-market losses were ‘well above the $175 million we had expected given the recent preannouncements by its peers,’ said Morgan Stanley analyst Ken A. Zerbe”
The Associated Press. “Triad Guaranty Inc. lost money in the third quarter as soaring defaults on home loans forced the mortgage insurer to pay more claims, the company said Thursday.”
“Triad paid $28.5 million on mortgage default claims and socked away an additional $78.3 million anticipating more defaults. The company’s premiums jumped by more than a third to $72.1 million. But for each premium dollar Triad collected, it spent $1.70 administering claims.”
“‘We believe delinquency and claim trends will only deteriorate further,’ said Bear Stearns analyst Michael Nannizzi.”
“Merrill Lynch & Co., the largest brokerage firm, may have to write down another $4 billion in the fourth quarter as the value of subprime assets continues to drop, according to CIBC World Markets.”
“‘Thus far, Merrill has taken the largest writedown of its financial peers, but unfortunately, we believe in aggregate it will only get larger,’ CIBC analyst Meredith Whitney said.”
“When Stan O’Neal’s rivals started backing away from subprime lending late last year, the Merrill Lynch & Co Inc CEO plunged in.”
The Wall Street Journal. “In a conference call with investors yesterday, Merrill CEO Stan O’Neal acknowledged that the firm had fumbled the CDO business: ‘The bottom line is, we got it wrong by being overexposed to subprime.’ Mr. O’Neal added that Merrill had misjudged the risk of many CDOs. ‘It turned out that both our assessment of the potential risk and mitigation strategies were inadequate,’ he said.”
“Credit ratings agency Moody’s is poised for further subprime-related surprises from banks and expects financial markets to remain nervous about bank exposures for months to come, it said on Thursday.”
“Moody’s downgraded its ratings on Merrill Lynch on Wednesday and warned it could suffer further. The rating agency said surprise loss revelations, prompted by the difficulty banks are having in estimating losses on subprime-related assets on their books, may strike again.”
“‘Merrill Lynch was a victim of that, but we don’t believe they were the only ones,’ Moody’s senior VP Lynn Exton told a financial conference. ‘As news comes out, we will be taking ratings actions as necessary,’ said Exton, who is responsible for large UK and Benelux banks at Moody’s.”
“The collapse of confidence in Merrill Lynch & Co. after the world’s biggest brokerage lost six times more than it forecast earlier this month helps explain why Treasury Secretary Henry Paulson’s attempt to rescue SIVs is troubled.”
“Investors aren’t willing to rely on estimates by Wall Street traders to value these bonds and there’s no central trading system or exchange. Fitch Ratings says the value of SIVs, which own more than $320 billion of bonds, fell to 73 percent as of Sept. 28 from 100 percent in July.”
“‘Continuing to mask transparency by means of rearranging risk without actually offloading or recognizing the true value of that risk is not going to help anyone,’ said Joseph Mason, an associate professor of business at Drexel University and a former financial economist at the Office of the Comptroller of the Currency.”
“Many of the 30 SIVs worldwide can’t find buyers for their commercial paper, debt that comes due in 270 days or less. The concern is that without the funding, the SIVs would have to sell their investments and might have to accept fire-sale prices.”
“The largest SIV, the $52 billion Sigma Finance Corp., declined to let Fitch disclose its value. S&P reports show the value of pieces of top-rated CDOs owned by Rhinebridge slumped 15 percent or more in three days last week.”
“One of the lessons that investors seem to have to learn over and over again, and they’ll have to learn it over again in the future, is that not only can you not turn a toad into a prince by kissing it, but you also cannot turn a toad into a prince by repackaging it,’ billionaire Warren Buffett said today.”
“Real estate wealth is expected decline anywhere from $2 trillion to $4 trillion out of a previous valuation of roughly $21 trillion when the total costs of recent credit crunch are tallied, the New York Times reported on Thursday, citing economists.”
“And financial firms could face aggregate losses of some $400 billion from expanding troubles related to the subprime mortgage market fallout, the paper said.”
“That is higher than the roughly $240 billion in financial institution losses from the savings and loan crisis of the early 1990s, adjusted for inflation, the paper said.”
“The losses in real estate wealth, while large, are substantially less than what investors suffered in the stock market collapse earlier this decade, which erased more than $7 trillion, or about 40 percent of market value, the paper said.”
“Two million subprime-mortgage foreclosures are likely to occur by 2009 if home prices continue their downward spiral, a congressional report said Thursday.”
“In the wake of the financial market turmoil that arose over the summer, there has been a remarkable lack of finger-pointing so far over the cause of the crisis. But one observer, Tom Schlesinger, the founder and executive director of a think tank that has followed the Federal Reserve closely for the past decade, believes the blame for the crisis falls squarely on the Fed and accuses the central bank of ‘regulatory foot-dragging’ that has harmed the public.”
“Schlesinger maintains the Fed’s prevailing regulatory philosophy has shifted from that of 20 or 25 years ago, which in essence was ‘here is the line between right and wrong, don’t cross it,’ to a current underlying policy that ‘anything and everything that might be called financial innovation ought to be embraced.’”
“‘This is a very faulty premise that deserves debate and reflection and ultimately, in my opinion, a changed perspective,’ Schlesinger said in an interview with MarketWatch.”
“Upon joining the Fed, former Fed chief Alan Greenspan said he had a ‘pleasant surprise’ when he found the Fed staff was not so keen on regulation either. Together, they interpreted congressional legislation with a view to ‘letting markets work,’ he wrote.”
“Schlesinger says this practice was actually ‘regulatory foot-dragging’ where the Fed had a clear obligation under law to police markets but went about it ‘with such reluctance that in some cases the supervision is difficult to detect.’”
“In an interview on ‘60 Minutes,’ Greenspan said the Fed couldn’t stop subprime mortgage originators. Schlesinger disagrees. Although the abuses came from independent originators and not banks, Schlesinger said the Fed had ‘all or most’ of the authority it needed to police the market under two laws passed by Congress.”
“‘The Fed’s unwillingness to flex the muscle that those statues granted is a real black mark on the central bank,’ he said.”
Across the regions, sales were mostly down although the West did see a 37.7 increase.
Huh? Without Jumbo loans, how was that accomplished?
The builders have been cutting prices the most in the West and they don’t include cancellations.
Yippee!
Does this mean we can look forward to more articles on outraged buyers with a sense of entitlement demanding refunds ?
IMO, turning ones back on regulatory obligations isn’t practicing ‘financial innovation’ nor free market principles. It is a dereliction of ones duty. In the system that we have, either this was the Feds job or it wasn’t. Which is it congress?
CONgressmen are oh so busy censoring one another over much ado about nothing, I doubt they would recognize dereliction if it stared them in the face.
What are you, some kind of anarchist? Be a good sheeple and watch the latest Britney Spears news….
Is anarchist above or below communist on the “hate america” list?
So the only reason the figure for the sales of new homes was up in September was that they revised the figure for August’s sales down so far.
So what happens when they revise the September figure in a month? I swear, you can’t tell anything about any of this data until three months out. I wish that newsrooms would quit reporting these preliminary numbers.
YOY is all that matters anyway. This month to month crap is a total joke. YOY is down and that is all I care about!
Well, krispy, I remember when the m-t-m #s turned negative for the first time in 5 years. That was back in July 2004 for many California zip codes. I extolled the m-t-m #s at that time, because it was a break from a 5 year trend.
I mean, I think you’re right that m-t-m #s don’t mean as much ast y-o-y #s, but they can be good indicators if you notice a huge difference or a break from a long-term trend.
“YOY is all that matters anyway.”
Even YOY is overly optimistic since last years is revised data while today’s data is unrevised and does not count all the contracts signed but canceled.
http://bigpicture.typepad.com/comments/2007/10/no-new-homes-sa.html
The link didn’t work for me.
I fixed it.
Big V….I want to respond to your comment regarding vacant space in the valley…..I am in 100% agreement with you…Lots and lots of vacant space….From what I am told by the guys that market that space it is functionally obsolete for today’s tech firms….Take for example Sabrato @ the corner of Central Expressway & Scott Blvd in Santa Clara….He tore down 5 buildings totaling 225,000 sq. ft that were olny 25 years old or so and is under construction for a new 512,000 sq. ft building…
I guess that helps explain the discrepancy between claims of growth in Silicon Valley and the commercial vacancy rates. Just office space, whereas we need lab space. Well, I hope they get it all converted soon because that will reduce cost for our companies, and they need it.
‘Real estate wealth is expected decline anywhere from $2 trillion to $4 trillion out of a previous valuation of roughly $21 trillion when the total costs of recent credit crunch are tallied, the New York Times reported on Thursday, citing economists.’
‘The losses in real estate wealth, while large, are substantially less than what investors suffered in the stock market collapse earlier this decade, which erased more than $7 trillion, or about 40 percent of market value, the paper said.’
So they think the housing bubble is smaller than the stock bubble? Hmm.
I don’t recall seeing the annual change in household wealth reported for 2006. They used to trumpet this number back in 2001/2002 when the stock market was getting pummeled, because with increasing housing prices, household wealth was still increasing…
Chilldogg,
I think they snuck it out late this year. Didn’t this used to be a spring release?
http://www.federalreserve.gov/releases/z1/Current/z1.pdf
Seven trillion dollars disappearing from the economy will completely overwhelm injections of a hundred billion or so from the FED or SIVs or whatever.
Deflation is in our future. Get out of debt and go to cash.
Yes and trade your declining $ for Chinese yuan while you at it.
http://www.bloomberg.com/apps/news?pid=email_en&refer=news&sid=aqNT0qlW_zQE
Got to add in losses in the stock market as a result of losses in the housing market too. Looks like the equivalent of the dot-com bubble outcome.
The question is how much of the loss is “easy come easy go” unreal paper money. And how much was borrowed against and counted on.
I’m not so sure about a direct correlation b/w the stock mkt and a housing downturn. What happened to the markey during the last slow housing mkt (’90-’95?)? Previous housing declines?
I believe that stocks boomed in the early 90s.
I also think that there is now a lot of money out there that’s no longer going to go into the housing mkt and will end up in the stock mkt (just as the housing mkt was partially fueled by all the investor dollars fleeing the dot com bust). Opinions?
Looks like the equivalent of the dot-com bubble outcome.
Except we were spared much of the negative outcome because the Fed dropped rates to 1%, creating our present bubble. What will replace this bubble?
It’s only a few trillion difference. No big deal.
The stock market hasn’t recovered – inflation has eaten hard. If you adjust for foreign currency rates it’s actually still off by 35% from peak in 2000.
Interesting link explaining it: http://www.safehaven.com/article-8685.htm
RE: ‘Real estate wealth is expected decline anywhere from $2 trillion to $4 trillion out of a previous valuation of roughly $21 trillion when the total costs of recent credit crunch are tallied, the New York Times reported on Thursday, citing economists.’
How the hell do these people know?
Like any of these economist chucks have one ounce of credibility anymore.
Every pronouncement for the last year has been completely disproven every time a new set of numbers from an outside source rolls in.
These jokers have been behind the curve for 2 years now.
Blows my mind that they stay on somebody’s payroll.
Many of the jokers get paid to tell plausible sounding lies.
““Real estate wealth is expected decline anywhere from $2 trillion to $4 trillion out of ….$21 trillion”
Sure, if this train stops now. It would appear we are already at about the 10% loss. If we loose another 25% that would be about $7Tr.
“So they think the housing bubble is smaller than the stock bubble? Hmm.”
The IMF seems to disagree.
http://www.imf.org/external/pubs/ft/weo/2003/01/pdf/chapter2.pdf
P.S. None of the housing booms the IMF covers in this report compares to the mother of all housing bubbles currently at hand.
“Credit ratings agency Moody’s is poised for further subprime-related surprises from banks and expects financial markets to remain nervous about bank exposures for months to come, it said on Thursday.”
(arthur anderson will have so much company, soon)
‘As news comes out, we will be taking ratings actions as necessary,’ said Exton’
As news comes out?
That comment raised my eyebrow as well.
Here is the business strategy for me new fee-based weather forecasting service:
We’ll assume the weather is fine until it rains. Then we’ll send you a text message telling you that it is raining.
long long ago when i was in boy scouts, every year at camp each troop was required to do soemthign to improve their campsite.
One year we built a “weather rock”
basically a big rock suspended by rope form a tripod. It worked liek this:
if the rock was wet, it was raining
if the rock was hot, it was hot
if the rock was cold, it was cold
if the rock was white, it was snowing
if the rock was swinging, the wind was blowing
etc.
if only i’d known then i could turn it into a business and make a fortune…
You left out the last line:
“If the rock was missing, it’s been ripped off.”
Aren’t they supposed to figure this stuff out on their own??
Ratings agencys did such a great job just as they did 30 days “before” Enron crashed! Where you get your fees from makes a differance. What a great faith based system especial for the gullible investors.
Can anybody tell me what it means when the power company comes out to an empty house that’s been for sale for 6 months and starts taking panels off the side of it and sort of looking underneath it? Does it mean something bad is happening to the house?
It sounds like they are investigating for theft of services.
If its the electrical panel they may be checking to see if someone has routed around the meter thereby getting free electricity….
They’ve noticed a power loss into the residence. Either a neighbor is running a cord over the fence, or there’s a serious problem in the service connection. It’s a good thing they checking into this and taking a look at the potential problems - unless you happen to be the neighbor with the cord…
Maybe they want to examine the pretty racoon families and/or giant mutant rat colonies that have moved in under there.
They could simply be animal lovers, interested in exciting urban biota. Or maybe one of their friends lost their Barbie, and that’s where they were playing with it last. Oh, I suppose they could be investigating for theft of services, as mongo suggests. But that seems so negative an interpretation. Let’s go with the giant mutant rats colony one.
Oh, and listen for screams, okay? Update us if it gets exciting.
Boy, gal. In a strange twisted way I really love your comments. ‘Far Side’ blogging at its best.
I’ll second that!
RE: giant mutant rats
With apologies to NAG, Beantown, Mazz was rated like 3rd for US Rat Capital due to age of buildings, poor trash management, and easy access to water sources.
Bubonic Plague could be the next Lyme’s Disease.
BRING OUT YOUR DEAD!
It means that somebody else in the neighborhood has somewhat of an indoor green thumb…
Grow-grow-grow your dope
without be-ing seen
staple-staple-staple up
more sheets of visqueen
(sung to the tune of “row-row-row your boat”)
Is it a new house or an older one? The electric co just replaced our meter. Another rental we once had needed the gas meter replaced.
Our meter was from 1955, the necessary work (because nothing had ever been upgraded) before the electric co would touch the meter cost the landlord $1500.
‘The bottom line is, we got it wrong….’
If Merrill got it wrong and it was the number one CDO maker, what the hell does that mean for everybody else?
I wonder if they will give back their bonuses for this time period when they thougth they “had it right”?
In context of this year, the huge bonuses reaped by Wall Street firms at the end of last year, can be clearly seen as taking money from the weak hands (those who have been or will soon be foreclosed on), and giving it to the strong hands (Merrill, Bear, Goldman, etc).
It is extremely blatant and telling that last year’s huge bonuses occurred just months before the so-called “subprime” meltdown in February/March.
Why hasn’t the media picked up on this inequity?
good point; how ’bout some bonus refunds for bad calls?
Ha! HA HA!!
if only …. too bad the only people that suffer financial penalties are average consumers. Pay a bill late? late fee. Bounce a check? fees,fees, coming & going.
Said for years (just ask my poor suffering spouse) that if the corps were held to the same FINANCIAL service standards as their CUSTOMERS youd see 99% of the this happy horseshit pile of bad quality & pissy cust service vanish overnight.
Cable outage ? pay cash - no BS ” credit ” to bill.
Lost Mort Paymnt? cash penalty to customer.
Bad product? Cash baby, cash. no rebate coupon BS.
why is it that corps can always avoid paying cash OUT but demand prompt payment w/penalties ? oh yeah. one word: lawyers.
in a perfect world nothing would get the greedy corps attn faster than a cash outlay, they’d sure as hell pay attn/fix problems THEN.
rigged system. but its all we got !
ROLLEBALL, here we come
Its a differant for the Wall St Boys when it comes to their fees, etc. They get their money “first”. No one said the game is fair.
“Home builder Tousa Inc said it would exercise the right to abandon a number of home-sight option contracts
Home-sight? Bunch o’ half-literate journalists. You’d think the editor would have caught that, at least.
In any case, letting those land purchase options go has been a big, quiet thing with a lot of developers in the DC area. I recently saw some moaning from the landowners who had sold such options to developers who are now letting the options go un-exercised. “We expected they’d go through with the purchase…” But that’s what the option is for: To buy it later… or NOT!
The landowner should be happy enough because they have the option money AND still have the land. The stockholders of the development company and builders, on the other hand… Well, it’s probably better than having bought the property already and now get stuck with it.
“The landowner should be happy enough because they have the option money AND still have the land.”
Exactly. Why the whining?? Isn’t it now free money?? Granted, I think options must be included as income in the year they’re exercised OR expire. (someone please correct if I’m wrong) Maybe they’re whining about the impending tax bite.
No, they were whining because they were betting on not only the up-front cash, but also planning to retire rich off of the final purchase price. So yes, they will have to declare the options income in the year they expire, but they had hoped to have (instead) some much, much bigger capital gains to report.
Well, that’s the chance you take with an option! Take it and enjoy the windfall, I say, because at least they got SOMETHING out of it, right? Something for nothing, some might even say.
Something for nothing is a good way of putting it. Paying taxes on it should be a happy problem.
Agreed, they had that money “spent” already in their minds.
No, they got the wording right. Tousa couldn’t see building any more homes in the area
It depends what their basis is on the land and how it is financed. It is possible that the land owner has a hard money loan, bank debt that is coming due (which they can’t refi since land lending has fallen off the face of the earth), or paid more for the land than it is now worth.
If they own the land free and clear, then you are right, they don’t get their wish price, but they get the option payment and look to sell during a better time. But, if they are a leveraged landowner…watch out.
“One of the lessons that investors seem to have to learn over and over again, and they’ll have to learn it over again in the future, is that not only can you not turn a toad into a prince by kissing it, but you also cannot turn a toad into a prince by repackaging it,’ billionaire Warren Buffett said today.”
Well, gosh dangit! And here I got this toad spit all over my face. But is the smart rich guy sure? Quite, quite sure? Because I have such a pretty ribbon ready to wrap up this box of slobbery toads with…it could work! Sure it could! I want a prince! I want a prince!
The good news is that Warren is very folksy, lots of people pay attention to him. This is more effective with the general population than some of us talking about the case-shiller index etc.
Yes, I often pay attention when billionaires start chit-chatting about money.
Wow, I’m beginning to respect the WB more and more with each passing news week. Looks like old-fashioned common sense has trumped new-fangled “deal making” once again.
No pun intended on the trump/Trump thing, but it is quite apt, no?
Warren avoided the entire tech bubble in the late 90’s. At the time many of his stock owners were complaining about it. His reply was that he didn’t invest in business models that he didn’t understand. Which was his polite way of saying that those internet companies were way overvalued.
And he said that he does not invest in Gold as he does not understand that.
Where are the trading curbs set today? After the 1987 crash, weren’t they set at something like 50 points on the DJIA? Could the Dow drop 2,000 points in one day?
Chic and others will know for sure but I think curbs start @ 200 pts…
could but wont.
http://www.sec.gov/answers/circuit.htm
I love the way they’ll stop trading during a “severe market decline”, but think it’s best to “let the market work” during periods of overt overexuberance. Seems to me that any downward limit ought to apply in the other direction as well.
The NYSE agrees with you with respect to the NYA… http://www.nyse.com/press/circuit_breakers.html
The same does not hold true for the CBoT
Wondered the same thing yesterday…here’s the Wikopedia explanation.
http://en.wikipedia.org/wiki/Trading_curb
When one considers the estimated losses in the California wildfires to be around a Billion Dollars, and it appears around $10 Billion has been lost, in this thread alone, due to the housing bubble…
It really puts things in perspective just how big this thing is.
And why heartless REIC shills should think twice about spinning those fires into their souless propaganda.
LAY/YUN have gotta be itchin’ to make hay of those fires.
LAY and Yun have obviously been told to sound bearish. The _AR is a little worried about the possible lawsuit fallout potentiated by Leareah. Their new job is to make a case to the Federal Reserve that “we need a rate cut”.
However, they will probably use the inevitable (temporary) fire-related rent-price increases in Southern California to justify their previous argument that “you can always rent it out”.
Too late, heard it from a realtor yesterday. Colorado won’t drop, there will be Californian’s moving here in droves. Prices going up again. Lowball offers will be declined. Incredible…….. I told her to hold her breath until that insurance money makes it to your personal bank account.
My favorite and only brother actually did just sell his Greenwood Villiage home outside Denver last week. He’s happy, been for sale since 12- 0 five.
For sake of your fav/only brother, glad to hear it. 22 months on the market is a LONG time in my book.
Yes they are still saying that crap all over the Denver area. I guess all the foreclosures mean nothing, strangly I am hearing more radio adds for builders now and getting calls from builders we visted some time ago.
Non-Seasonally Adjusted New Home Sales and HB Share Prices
September 2005: 99,000
September 2006: 80,000
September 2007: 60,000 - preliminary estimate
June-Sep, 2006: 18% drop from 98k to 80k
June-Sep, 2007: 18% drop from 73k to 60k
The September, 2007 estimate of 60,000 is roughly the same as the Septetember, 1996 number of 62,000. In September, 1996 Toll Brother’s stock was at 7, today it’s at 23; Centex’s stock was at 9, today it’s at 25; DR Horton’s stock was at 3, today it’s at 12. I guess these companies have much stronger balance sheets than they did 11 years ago.
Whoa! NY ASSociation of Realt-Whores put out their data. Huge drop in sales, 20.5% across the entire state. Some counties in the mid 30% range. Here’s whats REALLY interesting about this month; The only counties that saw an increase in sales were the long declining, very cheapest counties in the state. This is significant as I’ve been looking for evidence that the bust rolls through the “next cheapest areas” and this data set confirmed that.
It’s a schadenfreude moment for me today. I sit back and watch the Real-Turd scum starve.
http://www.nysar.com/pdfs/monthsales.pdf
Ouch! Mine was down 34% YOY although Onandoga only 9+% lower. I actually would have thought they were worse as they definitely have an inventory problem.
My Yates is down 46% !
The leaves are falling. Soon all the color will be the For Sale signs.
Ha! That is only 15 houses. We should be rounded off to zero.
Nice stuff eh?
“Moody’s downgraded its ratings on Merrill Lynch on Wednesday and warned it could suffer further. The rating agency said surprise loss revelations, prompted by the difficulty banks are having in
estimatingadmitting losses on subprime-related assets on their books, may strike again.”“The Bank of England said the global financial system is at risk of further instability because of ‘ongoing uncertainties’ about credit-market losses. In a worst-case scenario, U.K. banks would have to raise as much as 170 billion pounds ($348 billion) if market conditions prevented them from selling the loans on their balance sheets to other investors, the central bank said.”
The UK should be interesting to watch, as the Northern Rock bank run has set the stage for other anxious withdrawlers to do their thing with other banks…
eye-balling the exits, ready to run…get ready for somebody to blink.
“Two million subprime-mortgage foreclosures are likely to occur by 2009 if home prices continue their downward spiral, a congressional report said Thursday.”
Oh yeah? How may Alt-A and prime mortgages will foreclose? What about 2010 and 2011?
Also, can anybody tell me what the “option adjustable rate” dataset represents on this chart (click link)? http://www.bignose.org/~wcw/resets.png
The option-ARM balances are represented by the top, brown/gold portion of the bars. Without grid lines it’s hard to extract the data but for example, the option-ARM reset amount for Jan 2010 looks like $5 billion.
In a graphical data analysis course this graph gets a C.
Option-adjustable rate is a negative-amortization loan. Basically, if the FB only pays the minimum amount, extra interest will be added to the principal, and the overall loan balance will be higher than it was at the time of purchase.
And these generally have a stop-loss provision at 115 to 125% of the original loan, at which point the full interest and principal payment is required. Basically, Option ARM’s going the minimum payment route will never make it to their first reset, as the stop-loss will trigger the reset much earlier.
The Option Arms have a clause that the loan is to be fully amortizing in 30 years. The 1% initial payment rate on negative amortization loans go to full payment after year 5. A typical house in California will go from $1700/mo P&I to $4500/mo P&I.
Option adustable rate just means the ARM with a payment option. that is, each month you (the borrower) can pay however little you want, within limits, or however much you want. Outside of that, it’s like a regular ARM.
The problem, as has been highlighted here and other places, is taht the initial payment options allow you to pay only interest, or in some cases only a portion of the interest, hence never paying the loan down at all, or even turning it all into a negative amortization scheme where you end up owing more next year than you do this year.
This is a fine mortgage for disciplined people with money in the bank and a large but erratic income. Key words large income and discipline. It is TERRIBLE for people who need to use the low payment option just to squeak by to keep up with the mortgage on a continuing basis.
In the past, these were hard to get from your bank; in recent years, they were too easy. All in all, I’d guess these could turn out to be some of the biggest dogs in the mortgage dog pound.
“This is a fine mortgage for disciplined people with money in the bank and a large but erratic income. Key words large income and discipline. It is TERRIBLE for people who need to use the low payment option just to squeak by to keep up with the mortgage on a continuing basis.”
My first mortgage in 1996 was an ARM with a payment option. Fixed rates were 8% and I couldn’t swing it. But I remember my loan officer telling me to make the full P+I payment PLUS send in extra to pay down the loan, and to only use the minimum payment in case of emergency. So, those loans were available, but borrowers were really warned against using the negative amortization option.
to show how underhanded these loans are, here is a definition:
In the Great Depression, my father tells me there was a lot of comparable underhanded tactics which caused mass foreclosures. For example, balloon loans which would require smaller initial payments, and then one huge payment at the end of the term. If you couldn’t pay, then you walk away from the home. History is repeating itself today.
There are still balloon mortgages. My sister has one. (Yikes!) She has normal payments for 119 months, and then she has to come up with the entire remaining balance for the 120th payment!
the buyers of my property will face a rather large balloon payment to me in 2.6 years. I suspect they will not be able to pay.
RE: She has normal payments for 119 months, and then she has to come up with the entire remaining balance for the 120th payment!
Quadruple YIKES! Whatta death trap!
Hope she’s got some big $$$ equity to bring to the refi table.
Hey, she went to college! She knows what she’s doing!
No seriously, that might be a problem. She figures she knows what she’s doing, but when I asked her BEFORE SHE EVEN BOUGHT what exactly her plan was to deal with this, she just said “I don’t know yet, that’s a long way off. I’ll figure out something or refinance.” As far as I know, she has only about two weeks worth of salary in the bank. So no, not a lot of $$$ to bring in. This was 100% financing, no less.
That is not the answer you want to hear from a borrower. not unless you hold the mortgage and want the property back.
RE: As far as I know, she has only about two weeks worth of salary in the bank. So no, not a lot of $$$ to bring in. This was 100% financing, no less.
I assume she must be part of the attached.
http://www.nypost.com/seven/10252007/news/nationalnews/stress_mess_in_u_s_.htm
That’s “prime” loan pick your payment. Big time negative amortization because so many are justing making minimum payments. Question is whether these will reset sooner because of so many people making minimum payments and therefore hitting the max LTV’s allowed.
You may recall that this loan was promoted by Rock Financial for a LONG time around here, and at one point it seemed like you couldn’t sneeze without hearing their “pick your payment” ad. Yet, David Hall claimed only about 1.5% of their mortgages were of this type. I found that quite hard to believe.
Yea - but don’t you think a lot of Option ARMs will become fully amortized before 2009 - 2010? Most Option ARM holders probably pay only the minimum - which results in a balance added to their note. Because of this, the rates will reset earlier than predicted by the chart. I expect we will start to see a lot of Option ARM foreclosures before 2010 - probably next year.
I wonder if the mortgages that are “option adjustable rate” are actually being counted twice on this graph: Once for their subprime/alt-A/prime designation, and then once again for their payment option.
“Though MBIA had a big mark-to-market loss, it did not follow the lead of some other financial guarantors in pre-announcing its results to give investors some warning of the effects of falling prices for securities backed by mortgage loans. MBIA’s mark-to-market losses were ‘well above the $175 million we had expected given the recent preannouncements by its peers,’ said Morgan Stanley analyst Ken A. Zerbe”
Translation:
Investors can go pound sand, we’ll announce losses on our terms.
An idea crosses my mind… with many people hurting and many out of a job, do these people borrow or cash out their 401k’s (especially the layoffs) in order to survive? Does that combined with a slowing economy cause stocks to fall?
When push meets shove, anything can happen…
IMHO many of those 401ks were tapped long ago - and what might be left is melting away as we speak. Even before this really got going the average 401k balance couldn’t sustain an FB much more than a year tops. There’s no lifeboat there.
No link but it looks like the 401’s could get hit hard.
Despite potential tax and investment problems, more investors have been borrowing from their 401(k) plans or taking hardship withdrawals in recent months, some retirement plan providers say.
Many in the field expect more borrowing in 2008, as consumers struggle with tighter credit and potentially higher mortgage payments.
Increased borrowing on 401(k)s could be because of the credit crunch and slumping housing prices. To be sure, the indications are preliminary; it’s too early to say why it’s happening, according to the Hartford Financial Services Group
It boils down to this for homeowners that only have their 401k left, to draw from…
Keep your house now, and worry about your retirement later.
“do these people borrow or cash out their 401k’s (especially the layoffs) in order to survive?”
Yes… http://www.chicagotribune.com/business/yourmoney/chi-ym-borrowing-1014oct14,0,5181066.story
If to many take money from their 401s, the mutual funds will crashed as they don’t keep that much in cash. Would have to sell stocks for cash reserves and in a falling market per chance? Not good.
“Investors aren’t willing to rely on estimates by Wall Street traders to value these bonds and there’s no central trading system or exchange. Fitch Ratings says the value of SIVs, which own more than $320 billion of bonds, fell to 73 percent as of Sept. 28 from 100 percent in July.”
There is a central exchange, known as the asset market. Try selling your SIVs at a price the market will bear if you want to know what they are worth.
And just because some big banks cornered the market on subprime assets does not make the bid price an inaccurate measure of their value. Rather the amount the big banks paid looks in retrospect to have been just a tad euphoric.
Enron thought it could be the equivalent of a commodities exchange without all those pesky capital requirements and regulations. Since you could trade with the world’s most admired company, why worry about counter-party risk?
I thought it would be at least 10 years before the same thing happened again.
But guess what — the Wall Streeters, now that there are only a few huge firms left, are constructing their own trading floors to allow most of the stock and bond transactions to occur within them. Which means that eventually there will be few public trades — and unreliable public prices.
If this is true, I wonder how long public stocks are going to be around. Private firms already have a definite advantage when looking at the rigors of current regulation. If you can just borrow cheap money to build a business why bother with public shares?
Because you can’t find an investor?
“I wonder how long public stocks are going to be around.”
They will be around about as long as GFs are willing to buy them.
Sounds like the public market’s purpose will increasingly be that of unloading toxic assets on greater fools who live on Main Street then?
“The losses in real estate wealth, while large, are substantially less than what investors suffered in the stock market collapse earlier this decade, which erased more than $7 trillion, or about 40 percent of market value, the paper said.”
The big difference is that the above stock market $7 trillion was on paper and not in real assets. The trillions that will be lost in RE are real debt $ that people have borrowed. This is going to be a hundred times more painful to the guy on the street than the previous stock market crash
Yep, it is all about leverage.
“‘Continuing to mask transparency by means of rearranging risk without actually offloading or recognizing the true value of that risk is not going to help anyone,’ said Joseph Mason, an associate professor of business at Drexel University and a former financial economist at the Office of the Comptroller of the Currency.”
Spot on! This guy should be given a top position in government. We need more policymakers who speak transparently.
Has the U.S. stock market ever before been so stupid for so long? How can investers reconcile this…
“‘The crash continues,’ wrote Ian Shepherdson, chief economist for High Frequency Economics. Sales fell at a 35% annualized pace in the third quarter, he said.”
“The sales figures do not account for canceled sales contracts, which have surged in recent months.”
with this:
MARKET SNAPSHOT
U.S. stocks extend losses on housing woes
Dow falls 100 points; earlier data dented investor optimism over profit reports
By Kate Gibson, MarketWatch
Last Update: 1:31 PM ET Oct 25, 2007
NEW YORK (MarketWatch) — Wall Street on Thursday shifted ground multiple times before heading firmly lower, as investors digested a surprising rebound in home sales only to return to fretting about the beleaguered housing sector’s impact on the rest of the economy.
“The good news is that new-home sales rose in September for the first time since April. However, if you stop there, you would be taking away a very wrong impression,” said Stephen Stanley, chief economist at RBS Greenwich Capital.
http://www.marketwatch.com/News/Story/Story.aspx?column=Market+Snapshot
So ironic. Stephen Stanley has summarized our “soundbite” society.
The headlines tell us what those pushing the story want us to hear. What we need to hear–which often contradicts the headline–is in the story, or maybe between the lines, but few have time or patience to analyze and find it.
This is especially true if you look back at industry news stories. For example, from NAR or CAR.
I wonder if this is a function of the news organizations decreasing pay for their journalists in order to “compete” with the blogosphere. In reality, they are cooking their own goose. What good are they if they only regurgitate newswires? I still go to CNN.com just for a quick survey of the daily world gossip, but for financial news, I come here.
Then stock price movements confirm the misleading headlines. How curious.
“The largest SIV, the $52 billion Sigma Finance Corp., declined to let Fitch disclose its value. S&P reports show the value of pieces of top-rated CDOs owned by Rhinebridge slumped 15 percent or more in three days last week.”
Translation:
We’ll just crunch the numbers ourselves, this time….
I’m sure it’s all good.
Self policing is always a great idea! /s
We are gathered here…
“Real estate wealth is expected decline anywhere from $2 trillion to $4 trillion out of a previous valuation of roughly $21 trillion when the total costs of recent credit crunch are tallied, the New York Times reported on Thursday, citing economists.”
“…citing economists.”
Click.
I tell you what’s really annoying. For the last week or so, the market will tank sometimes over 100 points. Then lo-and-behold… It ticks way the hell back up again to save the day. I know there’s probably a ligit reason for this, but it’s almost like the truth behind the state of the economy is sort of indicating the early stages of stagflation.
When your money goes into a 401K, you get end of the day prices. But when do the 401Ks invest the money? Perhaps just before the end of the day?
Yep! The two-o-clock turnaround–right on schedule. It’s getting a bit tedious to watch re-runs day after day.
“‘The Fed’s unwillingness to flex the muscle that those statues granted is a real black mark on the central bank,’ he said.”
Their failure to accept culpability is yet another real black mark.
“Real estate wealth is expected decline anywhere from $2 trillion to $4 trillion out of a previous valuation of roughly $21 trillion when the total costs of recent credit crunch are tallied, the New York Times reported on Thursday, citing economists.”
Does anyone else (besides Hoz, who already has weighed in) suspect the eventual number to be ‘worse than expected’ (more than $4t loss)?
Yes, we all do! Today’s expectations are always based on yesterday’s performance, even though everyone in the “investment world” already knows that today’s performance does not indicate future results.
As long as people continue to rely on backwards-looking expectations, then people will continue to be surprised by the inevitable.
–
Slow but sure crash…
October 25, 2007
Bay Area: An average loss of $5,000 per month for current listings:
http://www.burbed.com/2007/10/25/bay-area-an-average-los-of-5000-per-month-for-current-listings/
Looks like the agent is honest in her claim based on the data that I collect.
Jas
If experts with approximately the same formal background and training come up with different conclusions based on the same numbers, then I would suggest they’re not looking at the correct level of information. What good are inconclusive numbers and digits? What policy decisions exactly should government make based on inconclusive summaries?
Their opinions are tainted by the interest groups they represent. Whci is why the American people receive nothing but BULLSHIT info from the ‘experts’ regarding EVERYTHING: the RE market, the Invasion of Iraq, the national deficit etc. .
Welcome to the Third World, USA.
We are so close to the edge of the precipice, when I read utter nonsense coming from the mouths of people…
That really ought to know better
“Moody’s downgraded its ratings on Merrill Lynch on Wednesday and warned it could suffer further. The rating agency said surprise loss revelations, prompted by the difficulty banks are having in estimating losses on subprime-related assets on their books, may strike again.”
“‘Merrill Lynch was a victim of that, but we don’t believe they were the only ones,’ Moody’s senior VP Lynn Exton told a financial conference. ‘As news comes out, we will be taking ratings actions as necessary,’ said Exton, who is responsible for large UK and Benelux banks at Moody’s.”
Aladinsane:
I think you just betrayed your preference for speaking over writing. You wrote “When I read …coming from the mouths of people.
Just thought it was funny.
Anyone want to take a shot at how big CFC’s loss will be tomorrow?
Not sure but did anyone catch the BoA memo?
Sent: Thursday, October 25, 2007 11:32 AM
Subject: Wholesale Lending Closing Effective 12/31/07
I am saddened to report that Bank of America Wholesale will be closing their doors effective 12/31/07. The last day to accept registrations will be 30 days from tomorrow.
Just looked at the mortgage ad in the BofA branch lobby.
30YR fixed rate with .833 pts. @ 6.12APR%
LMAO…and nothing is moving!
Seller’s simply can’t get this price to income ratio through their stupid fookin’ heads.
“…not only can you not turn a toad into a prince by kissing it, but you also cannot turn a toad into a prince by repackaging it,’ billionaire Warren Buffett said today.”
There goes GW Bush’s last chance of making prince then. Specially with his being a POISONOUS toad and all…
Guys help me. I have a Townhouse in my neck of woods ( SO CA - Burbank / Toluca Lake CA ) which is listed by bank ( i have been renting for past many years and am looking to buy my first home). I have cash to pay upto 300k and I am in NO HURRY at all. I just want to lowball the bank and see what they say. They have listed the townhouse with about 1800 sq ft ( 4BD, 4BT) for $716K. I was to lowball them to 400k ..lol !! It was build in 2003 ..How should I go about?
what are comparable rents in the area? median income for the area?
median income is around $67k and rents are $1300 pm for 1bdr.
Stock market up 10!
Party on Garth!
Prepare to laugh:
http://community.marketwatch.com/Landru
Landru is one with the body.
Andru’s accuracy is 39%.
Oh, and an influx if IMMIGRANTS? Yeah, like I’m sure all those immigrants are going to bring enough pesos with them to buy a million-dollar house.
Insurance giant AIg may follow Merrill’s lead on subprime write-downs…
Oct. 25 (Bloomberg) — American International Group Inc., the world’s largest insurer, fell the most in 12 weeks in New York trading on speculation the company may write down assets linked to subprime mortgages.
AIG spokesman Chris Winans said the company doesn’t comment on market speculation.
“There’s talk of a multibillion dollar writedown at AIG,” said Marc Weinberger, head trader at W. Quillen Securities in New York. “Considering what we’ve seen at Bank of America, Merrill Lynch and Bear Stearns, it’s certainly possible.”
Just wanted to post this real quick - the media is slowly catching on. Here’s a guy at MSN who says we need a recession sooner rather than later:
http://articles.moneycentral.msn.com/Investing/SuperModels/WhyWeNeedARecessionSoon.aspx
He even goes into how the government/elected officials will do anything they can to prevent a recession around an election year, and then when it eventually DOES show up, blame it on the party currently in the whitehouse.
The one thing they don’t seem to be able to figure out is that the internet has completely changed how we view information like this. Used to be that the news people would do stories on the current recession(when there was one), and then a story having something to do with the president or other high up political folk.
The public would largely be left with the impression that the current economic problems are associated with the current administration. Then they would click off the TV and go to bed.
NOW, it doesn’t work like that so much. There’s always someone like the people here who will remind everyone that the current economic troubles are a direct result of the previous administration’s foibles and follies thus placing the blame squarely on the shoulders of those actually responsible.
Politicians used to be able to count on the blame for the consequences of their current actions being blamed on their future replacement.
Not so much anymore.
SR
Talk about some ugly losses…how about $9.8B on subprime at AIG
http://www.marketwatch.com/news/story/aig-may-take-98-bln/story.aspx?guid=%7B7D2129DC%2DFAC3%2D416C%2DBBF3%2D41F67B8AE3A1%7D&siteid=yhoof
Stock is up afterhours though.
Bad news always makes stocks go up.
Sandicor.com has September data up for San Diego. The ongoing crash is evident from the summary statistics, which show a 4:1 ratio of new listings to sold listings by number, and a 4.3:1 ratio of new listings (by total list price) to sold listings (by total sold price). I expect these ratios to go up for October, due to the reluctance of buyers to purchase San Diego homes unless they are offered at fire sale prices.
TOTALS
Number of new listings = 3565
Value of new listings (by list price) = $2,714,879,919
Number of sold listings = 874
Number of sold listings (by sold price) = $632,347,651
http://sandicor.com/statistics/stats2007/09-2007/sfd-09-07-stats.pdf
P.S. 874 homes sold in October amounts to an annualized pace of 10,488. Given that over 20,000 homes are on the SD MLS, I guess homes are selling at an average 24 month rate?