Sitting On The Sidelines Watching And Waiting
Some housing bubble news from Wall Street and Washington. Bloomberg, “Toll Brothers Inc., the largest U.S. luxury homebuilder, said fourth-quarter revenue fell 36 percent and the cancellation rate rose to the highest ever as demand faltered in the weak housing market. In the three months ended Oct. 31, customers backed out of 39 percent of their orders, Toll said today in a statement. Signed contracts declined 33 percent.”
“Toll will have an expense of as much as $450 million for land writedowns and said demand worsened in October as excess supply held back customers. ‘We can’t predict how long this down period will last,’ Chairman Robert Toll said in the statement. ‘Many of our prospective clients are sitting on the sidelines watching and waiting.’”
“The number of contracts in the company’s western region of Arizona, California, Colorado and Nevada plunged to 17 from 131 a year ago. The number of contracts signed in the South region, which includes Florida and Texas, fell to 112, or 44 percent from a year ago.”
From MarketWatch. “‘Unfortunately, the pace of customer cancellations increased in this fourth quarter,’ said Toll’s chief financial officer, Joel Rassman. ‘We, and other reporting builders, have observed that October’s activity appeared weaker than September’s. These trends suggest that we still have challenging times ahead.’”
“‘We continue to think Toll needs to lower prices aggressively near-term to boost sales in order to maintain a minimal backlog and work through its long land supply,’ wrote Banc of America Securities analyst Daniel Oppenheim.”
“‘In a declining market, selling at what appears to be a low price today is better than selling at an even lower price tomorrow,’ he added. ‘More buyers fell out of backlog in the quarter likely given difficulty selling a previous home and lower confidence, as weakness at lower price points spread up the food chain.’”
“‘Demand has all but evaporated at most Toll communities, as shown by an order pace of only 656 in the fourth quarter,’ said Nishu Sood at Deutsche Bank. ‘Other builders have been far more willing to lower prices, but we think growing inelasticity will force all the builders to increasingly move to the sidelines.’”
“The analyst predicted Toll will ultimately have to throw in the towel and lower prices, ‘driving a longer impairment cycle than peers that have already dramatically lowered prices.’”
From CNN Money. “Toll…also had a less macroeconomic hope to help rescue sales. ‘Perhaps, as the presidential campaign heats up and moves to the front page, negative articles about housing will move off the front page,’ he said in the statement.”
“The latest S&P/Case-Shiller home price statistics for 20 of the nation’s largest metro markets showed a 4.4 percent year-over-year decline. ‘It’s important to keep things in perspective,’ said Brian Catalde, president of the National Association of Home Builders . ‘The current housing price correction is most pronounced in the once super-heated markets in California, Nevada, Florida and Arizona. In most other markets, price declines have been pretty modest.’”
“‘To argue that home values will continue to decline and never recover, somebody has to make a convincing case that it will cost less to build a new home five years from now than it does today – and that’s just not going to happen,’ said Catalde. ‘Despite today’s housing slowdown, the cost of land, labor and materials required to build new homes continues to go up.’”
The Financial Post. “British Columbia’s lumber producers are flooding the U.S. market with cheap lumber and mowing down forestry companies in the rest of Canada, an Atlantic Canada sawmill president said yesterday as an East Coast versus West Coast yelling match broke out in the forests.”
“Dundee Securities analyst Richard Kelertas (said) everyone is losing money and while the East Coast may complain, at this point it’s every mill for itself. ‘With this kind of market it’s survival of the fittest, so somebody from the West would say [to the East], ‘too bad’,’ he said. ‘The West wants to be the last ones to shut down.’”
The Financial Times. “Morgan Stanley has lost $3.7bn on subprime mortgage-linked investments in the past two months after a big market bet went disastrously wrong, the bank revealed Wednesday night.”
“Morgan Stanley said the estimated losses implied defaults in the range of 40 to 50 per cent for outstanding subprime mortgages written in 2005 and 2006.”
The New York Times. “The American International Group, the world’s largest insurance company, said yesterday that it wrote down nearly $2 billion in investments related to mortgages in the third quarter and expected to write down an additional $550 million in the next quarter.”
From Reuters. “Merrill Lynch & Co Inc said on Wednesday its total exposure to risky collateralized debt obligations and subprime mortgages is $27.2 billion, or about $6.3 billion more than what the company disclosed late last month.”
“Merrill’s larger figure is mostly because of a deeper level of disclosure surrounding its banking operations. Mike Mayo, an analyst at Deutsche Bank, has estimated that Merrill’s additional write-down could top $10 billion.”
“Banks may be forced to write down $64 billion because of falling prices on collateralized debt obligations backed by subprime assets, Citigroup Inc. analysts said.”
“‘Of the many skeletons hiding in the subprime closet, writedowns on banks’ positions on CDOs of ABS are probably the scariest,’ wrote analyst Matt King in London.”
“The U.S. asset-backed commercial paper market had its biggest weekly drop in two months as $40 billion of mortgage-related writedowns by banks gave investors more reason to avoid buying the debt.”
“The market has fallen for 13 straight weeks, shrinking about 29 percent since reaching a peak of $1.18 trillion on Aug. 8.”
“Industrywide, banks may have to mark down $250 billion to $500 billion of assets primarily related to rising defaults on subprime mortgages, which are made to borrowers with poor credit, Royal Bank of Scotland Group Plc analysts said yesterday.”
“Moody’s yesterday downgraded or placed on review the credit ratings on debt sold by 16 SIVs that manage $33 billion. SIV ‘debt ratings continue to be vulnerable to the unprecedented large and sustained declines in portfolio value combined with a prolonged inability to refinance maturing debt,’ Moody’s said in a report.”
“SIVs have been forced to sell at least $75 billion of assets since July.”
“Washington Mutual Inc. got what it wanted in 2005: A revised bankruptcy code that no longer lets people walk away from credit card bills. The largest U.S. savings and loan didn’t count on a housing recession.”
“The new bankruptcy laws are helping drive foreclosures to a record as homeowners default on mortgages and struggle to pay credit card debts that might have been wiped out under the old code, said Jay Westbrook, a professor of business law at the University of Texas Law School in Austin and a former adviser to the International Monetary Fund and the World Bank.”
“‘Be careful what you wish for,’ Westbrook said. ‘They wanted to make sure that people kept paying their credit cards, and what they’re getting is more foreclosures.’”
“As losses have mounted, banks have seen their credit card businesses improve. The amount of money owed on U.S. credit cards with payments more than 30 days late fell to $7.04 billion in the second quarter from $8.37 billion two years earlier, according to data compiled by Federal Deposit Insurance Corp.”
“In the same period, the dollar volume of repossessed homes owned by insured banks doubled to $4.2 billion, the federal agency said.”
“New foreclosures rose to a record in the second quarter, led by defaults in subprime adjustable-rate mortgages, according to the Mortgage Bankers Association in Washington.”
“People are putting their credit card payments ahead of their mortgages, said Richard Fairbank, CEO of Capital One Financial Corp., the largest independent U.S. credit card issuer. Of customers who are at least three months late on their mortgage payments, 70 percent are current on their credit cards, he said.”
“‘What we conclude is that people are saying, ‘Honey, let the house go,’ but keep the cards, Fairbank said.”
“‘We have people walking away from homes because they can’t afford them even post bankruptcy,’ said Henry Sommer, president of the National Association of Consumer Bankruptcy Attorneys. ‘Their mortgage rates are resetting at levels that are completely unaffordable, and there’s nothing the bankruptcy process can do for them as it now stands.’”
‘We continue to think Toll needs to lower prices aggressively near-term to boost sales in order to maintain a minimal backlog and work through its long land supply,’ wrote Banc of America Securities analyst Daniel Oppenheim.’
‘In a declining market, selling at what appears to be a low price today is better than selling at an even lower price tomorrow,’ he added.’
This, the industrys ‘best analyst’ called the bottom in early 2006, as I recall. And BOA spends a ton of money on research. Hey BOA, there is a PayPal icon in the sidebar.
Good one, Ben!
********
“Toll…also had a less macroeconomic hope to help rescue sales. ‘Perhaps, as the presidential campaign heats up and moves to the front page, negative articles about housing will move off the front page,’ he said in the statement.”
What this thought neglects is… that for housing sales to pick up again by the time we elect a new president - many buyer’s incomes would need to double. Or least be significantly higher.
That’s not going to happen in one year.
The way things are going selling out America with offshoring and outsourcing, incomes aren’t going to double ever. Let alone in a year.
Drive it on home…there will be no wage inflation. Even gov’t workers, believe it or not, will eventually feel the pinch. Muni gov’ts have been cruising for a bruising all decade and their tax base is now in peril. Raise taxes and this disaster will rachet up another notch.
With a lame-ass dollar, outsourcing can’t be the cure-all for American business. If there’s an upside, it could be that …
Outsourcing never was much of a cure-all for American business. Last year I interviewed at a number of places before I accepted my current job.
A surprising number of them admitted that they were hiring people to fix their outsourcing disasters. I’m sure a LOT of companies did very well with outsourcing, but I think that an even larger number just bought into everything the consultant told them, believing it was just that easy to save 50-75% on their labor costs.
I’m speaking of professional outsourcing only. I have no specific knowledge of manufacturing outsourcing, etc.
Outsourcing in the IT world, especially, looks like a cure all to bean counters and unimagitive execs. What they don’t count on is the differences in infrastructure and particularly culture and expectations. After it is all said and done they *might be* saving 20% and have the liability of having their business 1/2 world a way.
It might have been much simpler and cheaper to let the existing help know they were considering India and would they take a 20% pay cut?? Dollars to donuts most would take 80% of their current pay rather than 0% of it.
Outsourcing in the IT world, especially, looks like a cure all to bean counters and unimagitive execs. What they don’t count on is the differences in infrastructure and particularly culture and expectations
Yes. I was using “cure all” sarcastically; I don’t really believe outsourcing is a good thing in the majority of cases.
The problem is that a lot of non-tech savvy CEOs only see IT as a cost center and don’t understand that IT is a core strategic part of their business. When they send all that to an outsourcer who is just trying to get the contract done enough to get paid and has many other clients they really aren’t going to be able to compete.
Outsourcing is great: it lets you get rid of all the jobs while passing the savings onto your own wallet in the form of bonuses, absurd pay, golden parachutes, etc. Then, when the company/economy tanks, you’re safely out the door, enjoying your loot.
Oh, were we talking about how outsourcing benefits the company and the actual workers? Sorry - my mistake!
The damage is already done anyway. Market psychology has been totally reversed. Election years usually bring heebie-jeebies on top of that. Toll is also failing to remember that lenders and Fannie Mae are under close scrutiny as we speak, which means even further lending restrictions.
Bottom line is and will continue to be price.
Yeah… Binding and gagging the media wouldn’t put dollars in pockets enough to restart housing. Only inflation and/or time will do that.
Sorry Ben, there are very few opportunities to earn money by telling the truth, in the public or private sector. Had they listened to you then, they would have paid themselves excessive bonsues for one fewer year.
And exercised stock options and cashed in. How about it TOL and CFC bag, I mean stockholders?
What he is saying is the same thing I’ve been saying to people taking their house off the market to rent it until conditions improve.
1) Sell for below market now
2) Rent out, wait for market to fall substantially, spend money repairing damage done by renters, then sell for below market later.
How is 2 the better option.
Or, if you have no equity so can’t lower your price now.
1) Get foreclosed on now.
or
2) Rent for enough to cover a “substantial” portion (but not all) of the mortgage. Pay the difference out of pocket, plus have the renter calling you up to report problems which you have to pay to fix. Get foreclosed on later.
Again, how is 2) the best option?
Preach it, Darrell!
Here in Tucson, I’m seeing quite a rise in the number of For Sale/Rent houses. Sorry to say, but this strategy isn’t bringing prospective tenants out of the woodwork. Nor is it wowing the buyers.
wife and I are looking to rent single family home in DC but we’re not seeing much. Craigslist seems populated by flippers hoping to cover mortgages taken out in 2006. Hopefully some of those 6 - 12 month old “for sale” lawn ornaments will start including “for rent.”
right now we aren’t seeing any thing decent for 3k/month (our wishing price for a SFH in nice part of NW DC)
ben f- rents are still pretty sticky in nice parts of DC. I can still rent my 600 sq ft POS condo in Dupont for 2k/mo. For 3k you can get a very nice 2 bedroom condo in most of the nicer parts of town. but a SFH in Cleveland park? Try 5k.
With only a 33 percent decline in signed contracts, there are 67 percent of the previous periods’ level of contracts still getting signed. Who are the knife catchers? Hedge funds? Investers? I have a hard time imagining end users willing and able to buy at this point.
maybe it was 2007…can’t remember.
“The number of contracts in the company’s western region of Arizona, California, Colorado and Nevada plunged to 17 from 131 a year ago.”
17, in 4 states??? Wow.
It’s funny isn’t it. Remember Toll telling everyone we would live with our parents until we were 40 to save up a downpayment and how they would crush the shorts, etc? Not so much the media darling CEO these days. There are probaly small-town builders in each of those states that do more than 17 houses.
Energy prices don’t help Mr. McMansion. His houses are an embarassment now, like Hummers, for those rich in attitude but not assets.
The truly rich, less embarrassed, will continue to want bespoke houses. No one else will want that many rooms filled up with garbage they never use.
I used to joke about the Toll Houses being the bastard love child of those crazy kids Terrible Tudor and Faux Tuscany. They are fugly, no doubt.
And it would surprise me one bit if every wall in said McMansions, had a faux Thomas Kinkade reproduction on it…
fugly and horribly constructed. I even hesitate to use the verb “constructed”. They truly are slapped together.
The workmanship was pis$ poor when I worked for them in 1998. Can’t imagine what construction foul-ups occurred during the heat of the boom.
an aside: went out for lunch, drove past a McMansionville. Saw a handmade sign: BABY SALE
are FBs selling their kids to raise cash?
If you really like faux Tuscany, here’s one for you in Santa Monica (second one down): http://smdistress.blogspot.com/
do let me know when this goes on the market:
http://www.predock.com/venice.html
Hey Alad: Kincaid indeed! People seem to have more credit than taste. My favorite on those mcmansions are the faux windows/french doors with the plastic insert panes. Then there’s the faux crown molding and baseboards that don’t line up or end 6″ before the wall edge. Beyond the energy costs, I wonder about having to clean those behemoths.
Omigod txchick, this isn’t a serious house, is it??
That first paragraph is the most pathetic psychobabble I’ve heard in a while.
It’s a concrete house, for cryin’ out loud.
Kincade! don’t make me vomit my lunch.
I thought it was a joke on first reading.
My MIL, who has been my bubble indicator throughout this mess, *loves* Kincade. I would never have one of those in my house (retch) but I love that how he’s managed to convince the mall shoppers of America that somehow they are all getting a”unique” painting.
“It is akin to bones along the shore-the skeleton of some giant creature. ”
Like the rotting carcass of a wounded elephant seal, it attracts hungry birds and sophisticated architecture lovers.
That’s right on the Venice boardwalk, I’ve walked past it several times. Looks slightly less horrid in person.
My “favorites” are McMansions with absurd, 2 story living rooms, formal living rooms, etc. Let’s see: impossible to clean without a ladder, immensely wasteful of resources to heat and cool all that extra and unused space above you, wasteful of space - nobody is using the space 8 feet above the floor, and yet the ceiling continues up another level, etc.
They look like some sort of twisted monument to greed - almost like a church to one’s own delusions of wealth.
Friend of the family used to work for Toll. He coined a slogan about the construction quality of the houses he worked on. Here goes:
Guaranteed for Five Years. Then They Fall Apart.
I knew a developer who’s motto was “I want it standing, but barely”.
“You can get better quality but you can’t pay more.”
“Toll Brothers Miracle Houses…….
If it holds together, It’s a Miracle!!”
“‘In a declining market, selling at what appears to be a low price today is better than selling at an even lower price tomorrow,’ he added.”
Someone pinch me….. Are these guys finally getting it?
Toll House Cookie Crumbles…
“Toll will have an expense of as much as $450 million for land writedowns and said demand worsened in October as excess supply held back customers. ‘We can’t predict how long this down period will last,’ Chairman Robert Toll said in the statement. ‘Many of our prospective clients are sitting on the sidelines watching and waiting.’”
On the sidelines? They ain’t even in the stadium parking lot. Stop fooling yourself REIC, only the stupid buy now.
Heck, they’re not even in the traffic jam on the freeway that passes by the stadium!
Interesting stuff on WAMU. I was in there this a.m. depositing a check and they tried to sell me a credit card. Pretty aggressively in fact.
Did they try to give you shares at the teller instead of cash? LMAO!! Stock is down big today - again…
No but get this. The teller machine offers Russian and Arabic as language choices now. Sweet!
From news reports, it is now a question of Washington Mutuals solvency due to the Cuomo investigation. The deposit is guaranteed, the interest is not.
Props to Peter Weiner for that one.
Ya’ll think that’s his real name?
Doubt it Tex. He wouldn’t have made it out of High School alive.
I don’t know how it is pronounced in Texas or California, but up here it is pronounced ‘WHINER’ or by the parents ‘VINER’.
It took me a long time to figure out your quip! I’m just a slow boy.
If we are back to FIVA, conforming loans, then prices have to come wayyyyyy down because surprise, suprise, surprise!, we don’t have the wage base we thought we did.
“Affordability!”
“That word - I don’t think it means what you think it means”
“‘Be careful what you wish for,’ Westbrook said. ‘They wanted to make sure that people kept paying their credit cards, and what they’re getting is more foreclosures.’”
NO, they are going to foreclosure because people can’t afford mortgage payment on a loan that is worth more than the depreciating asset.
‘The current housing price correction is most pronounced in the once super-heated markets in California, Nevada, Florida and Arizona. In most other markets, price declines have been pretty modest.’
Which other markets? Detroit? Cleveland? Minneapolis?
Nahhh those locations are getting hammered too.
I’ve been watching Minneapolis, it’s starting to come down but not crashing yet. Wait until next spring after the thaw, then the panic will set in.
Forbes magazine says Minneapolis is the most affordable city in which you can live well.
Forbes also says Cleveland is expected to go up slightly. Housing didn’t surge there, so it’s still at reasonable levels. I’ve had many people tell me it’s a great city. I hear the same about Pittsburgh.
“SIVs have been forced to sell at least $75 billion of assets since July.”
Did they sell them at fire sale prices?
An excellent observation, in some cases (Merrill Lynch) since there were no bids for the crap, Merrill sold hedges covering $15B. By hedging, they booked it as “sold”. How many others did this is not yet known.
I’m not 100% on what that means. Could you explain, please?
From Merrill’s Q3 Earnings Conference call transcripts:
“Your first question comes from Glenn Schorr - UBS.
Glenn Schorr - UBS
As of the end of June, you noted that your ABS CDO related exposure was around $32 billion, $15 billion as of the end of September. You marked down around $6 billion. Where did the other $11 billion go? Last I checked, there were not a lot of sales on the market.
Jeff Edwards
Glenn, even in the most challenging times of the market in August, September, we were able to reduce our exposure through market transactions for a good part of the exposure.
Glenn Schorr - UBS
So most of that other $11 billion was sold? That is good. You mentioned that you planned to continue to do so if the market lets you.
Now since September 30, you know, the rating agencies have been active on the catch-up mode on marketing out some of the underlying collateral. Can you talk through how we should think about that, post these more conservative assumptions you used?
Very importantly, given that most of the remaining of your exposure is super senior traunches, how much of those super seniors have the EOD — event of default language — such that you can accelerate the cash flows upon the markdown of the collateral? …
Your next question comes from William Tanona – Goldman Sachs.
William Tanona – Goldman Sachs
Good morning. Quickly a follow-up on Glenn’s question in terms of the reduction in exposure. You mentioned that you were able to reduce it through market actions. Were you actually able to sell it, or were you able to hedge it? If you could give us a breakdown of what you were able to sell versus what you might have been able to hedge?
Jeff Edwards
The answer is both, but I don’t want to get into details about the breakdown. This is a market where there are both cash opportunities for reduction, and derivative opportunities.
William Tanona – Goldman Sachs
Is it safe to say that the majority was hedging though?
Jeff Edwards
I just don’t want to get into the details behind that.”
Um, so they basically marked it to Level 3 and stuck it in the back room somewhere, hoping it would go away. Right…
60% of something, beats 100% of nothing.
“‘In a declining market, selling at what appears to be a low price today is better than selling at an even lower price tomorrow,’ he added. ‘More buyers fell out of backlog in the quarter likely given difficulty selling a previous home and lower confidence, as weakness at lower price points spread up the food chain.’”
Even if you sell at the SAME price in the future, you have lost money due to the increased carrying costs versus renting, and also due to inflation.
My wife and i went to Toll comminity last weekend and ask what icentives were available i thought the two agents were going to jump out of their shoes they said “what incentives, look at the board we are doing very well sorry but we will give a few upgrades but no price reductions”. That was last weekend, i wonder if they will reconsider after the latest data fron Corporate?
Several points: 1) The large write-offs at lenders are today’s news. Tomorrow’s news is what happens when they try to roll over the 90-day debt which they acquired suddenly back in early August to avoid some of the effects of the liquidity crunch. This would probably have been rolled over without comment in an earlier environment; tomorrow, given the large write-offs and substantial doubts about anybody’s real numbers and values, the loan roll-over might not be a sure thing.
2) The bulls continue to insist that there is no problem, and that the situation will be corrected in minutes, not months. I think the market is showing how strongly it disagrees.
3) The global situation continues to deteriorate, largely unwatched, as the media focuses on money, gas, and commodities at home.
4) Welcome to the Election Week meltdown which I called three months ago. Sorry, I know it’s gauche to crow, but, as with many folks here, I, too have had a belly-full of the permabulls. It will be a relief to wash away their nonsense and breathe some clean, rational air again.
“‘To argue that home values will continue to decline and never recover, somebody has to make a convincing case that it will cost less to build a new home five years from now than it does today – and that’s just not going to happen,’ said Catalde. ‘Despite today’s housing slowdown, the cost of land, labor and materials required to build new homes continues to go up.’”
________________________________________________
BULLSHIT!
Land prices are going down fast everywhere. Also, doing some commerical stuff right now and these guys are fighting each other for work - lowballing each other… Try another lie REIC!
You beat me to it, crispers. I agree 100% on calling bullsh*t on this “prices for land, labor, and materials always goes up”.
Right, like the cost of sheetrock is going to prop up a half a million in price. That’s 2005 reasoning.
USG Corporation
Chicago, IL
New Orleans, LA
About 50 workers will lose their jobs when United States Gypsum Co. Inc. stops producing Sheetrock at its eastern New Orleans manufacturing plant at the end of the year because of the national housing slowdown, the company said Friday. The plant manager said the plant will continue producing Durock cement board, a backing for tile or stucco, but losing its signature gypsum wallboard production line means the plant must go from 107 workers to about 57. The closure is part of a national effort by the Chicago company to trim its operations because of the slowdown in new home construction. U.S. Gypsum has already closed at least three of its 27 manufacturing plants around the country.
Approximate Affected Workforce: 1-50
Source: Times-Picayune - October 27, 2007
Durock their pay!
Hoz, next time you’re in Chicago you should check out USG’s shiny new corporate tower. Pretty snazzy, although the ground-floor retail is still for lease…
People are brainwashed to think everything has to always go up, the GNP, consumption, etc. - this comes straight out of the creating money as debt paradigm held by the central banks.
Agree.
Everything except interest rates:
Last week, the Federal Reserve cut the fed funds rate by a quarter percentage point, but hinted that it might not continue to cut rates when policymakers convene again in December.
Right now, investors are pricing in a 92 percent chance that the Fed will again lower interest rates by a quarter percentage point in December. — from money.cnn.com
What a great irony. Apparently, “No more rate cuts” means an 8% chance of no more rate cuts.
About 6 months ago a mortgage broker encouraged us to pull out equity from our house (we bought during a dip in 2001 and had 75% down) so that we could use this “cash” to make money on investments. He had a fancy flatscreen on his office wall with all these computation charts. I kept saying, “but we have to service this new debt and we’d be doubling our P/I monthly payment.” I hadn’t found this blog yet, but knew that house prices were totally out of whack with what people could afford. Thank god we walked away…. This is the kind of “creative financing” that’s been foisted upon unwary people. Make money in your sleep, yadda yadda
My take is that even if he’s right, and those costs keep going up, one cannot assume that buyers will be automatically willing to pay more. Thus the builder’s Catch 22: higher costs, lower sale prices. A recipe for BK it seems to me.
Even if materials go up, we have probably a 10 year supply of houses already built. So who’s going to worry about the price of materials going up,.
You beat me to it crispy&cole….
‘Despite today’s housing slowdown, the cost of land, labor and materials required to build new homes continues to go up.’
So says the MINISTER OF THE TRUTH.
So the price of land is still going up, just like it did in Florida in the late 20s? Um…maybe not.
Isn’t one of the reasons builders are still building given record inventories is they can’t sell land they recently purchased at inflated prices and need some way to recoup some of that cost? That sure doesn’t seem like a scenario where land prices are even steady much less still rising.
Since when did the price of ANYTHING depend on how much it cost to produce it?
If there is excess supply and falling demand, the price, of anything, will continue to fall. This dude is going to learn economics the hard way (or learn that this kind of lie is particularly dumb).
One of the big lies during the run up was that prices would be more affordable if only local governments would ease building regulations. Prices were increasing sharply because that is what the market would bear, not due to other factors. So too it will be on the way down.
FYI:
The Toronto SkyDome was resold during a market slump for less than the value of the titanium in the roof. The new owners could have taken the roof of and made back their money.
Prices (not manipulated by governments or fraudsters) always adjust to demand.
‘Despite today’s housing slowdown, the cost of land, labor and materials required to build new homes continues to go up.’
This guy is SO FULL OF IT!!! I’m working on a remodel right now and material cost keeps dropping considerably monthly!! I’ve had contractors chomping at the bit to bid!
“Morgan Stanley said the estimated losses implied defaults in the range of 40 to 50 per cent for outstanding subprime mortgages written in 2005 and 2006.”
Cliff diving anyone?
http://tinyurl.com/3yomwf
Click on the individual index to see graphs…Markit ABX
Isn’t the necessary follow-up question how much will the underlying assets be worth once the default happens? Obviously a lot of defaults mean the paper won’t pay out at its expected rate and therefore will trade below par, but if the underlying asset is tumbling in value as well, the principal itself is also at risk.
What number are they using?!?
Hoz, I have to say this. There is a tagger in my neighborhood who puts “HAZ” all over the walls at the metro station. My brain always reads it as your name for a fraction of a second. I love dichotomy. Prudent financial analysis by day, teenage defacer of public property by night. Hey, on internet, you can be anyone, right?
I always wanted to be a ‘tagger’, but not many people can see the silos or the water tower.
Are you by any chance near Larium? I am not a great speeler of my own name.
Nope, sorry. Rockville, Maryland. Work in downtown DC.
The DC/MD/NoVA crowd needs to do a get together sometime. There seem to be a lot of us.
How about at :
The Dew Drop Inn
1600 Pennsylvania Av
Washington, D.C.
‘Tis for sale to the highest bidder.
I’ll show up for that party.
Well, that would be convinient for me, but the guys at the door usually loose your name on the admit list.
Sometimes it almost seems like there’s a little bit of justice in the world. “‘Be careful what you wish for,’ Westbrook said. ‘They wanted to make sure that people kept paying their credit cards, and what they’re getting is more foreclosures.’”
REIC cancelery, April 1945…
When Mr. Magoo started to drop the interest rates and turned on the money sigot several years ago, I remember saying, “Are they nuts! Any RV or car dealer will tell you that giving everyone free money without relying on credit reports, is asking for trouble.” Now we are getting trouble in spades. Remember all the praise Mr. Magoo was getting? All the accolades showered on him. A great economist! Brilliant! The best Fed Chairman ever! Finally, books arriving at Barnes and Noble telling us that Mr. Magoo was a genius and should have a title above and beyond Fed Chairman. He got one. He was dubbed, “The Maestro”. Well folks, it now looks like “The Maestro” was tone deaf. Of course, he’s now saying, “It wasn’t my fault.”
“…As I mentioned, delinquencies will probably rise further for borrowers who have a subprime mortgage with an adjustable interest rate, as many of these mortgages will soon see their rates reset at significantly higher levels. Indeed, on average from now until the end of next year, nearly 450,000 subprime mortgages per quarter are scheduled to undergo their first interest rate reset. …”
Mr Ben Bernanke Chairman of The Federal Reserve Bank
Nov 8, 2007 to the US Congress
http://tinyurl.com/22hprg
Federal Reserve . gov
“‘Despite today’s housing slowdown, the cost of land, labor and materials required to build new homes continues to go up.’””
Except not. The cost of land has gone down in many cases, as homebuilders and land speculators have liquidated their holdings. The cost of labor has gone down as people in the construction business compete for less building projects. And the cost of materials has gone down because of falling demand for materials due to less building.
What’s with the all-pervasive “prices *always* go up” mantra? Yes, in the long *long* term, prices always go up…mostly due to inflation. That is a false gain.
Trading curbs in place.
Some fibos hit on the S&P. If things hold here they could run the other way.
LOL !
Thats not fair.:(
“They” were supposed do have done away with the safety net this month !!
Remember ??
“Let the market police itself”.:)
..
I really think this is the big one . What of it Tx? Da’ boyz better hang on! Goog is lettin’ go… the whole things gonna blow!
I’m actually long a little BIDU so don’t ask me.
Wow, I feel dirty.
what a ‘ho.
I am hoping you bought that pos today???
at 350. Up about $16/share on it.
Hope you sold it when you wrote that… China is going to get killed tonight.
“Trading curbs in place.”
I thought they quit using trading curbs as of Nov. 2.
I’ve got a question. Is something financially/economically relivant happening on Nov 15? My wife read some articles the other day and she said they indicated some bad stuff might happen soon and referenced that date. Sorry, I don’y have context or any details….
FASB 157 but lots of them have fiscal years that end at other times.
http://tinyurl.com/2zxd9v
Accounting rule changes on Nov. 15th that would require disclosure of the value of level 3 assets.
“Toll…also had a less macroeconomic hope to help rescue sales. ‘Perhaps, as the presidential campaign heats up and moves to the front page, negative articles about housing will move off the front page,’ he said in the statement.”
Yes, and to quote Wayne’s World, perhaps monkeys will fly out of my butt.
It is funny that I don’t hear real estate subjects during water cooler session. I hear gold and oil a lot.
Gold and Oil
…the new bubble.
I’ve been watching oil since ‘03 and finally got in last year. Great, now all these FB evagal types are going to bubble up the whole gig and send prices plummeting next year. Or will this whole peak oil thing keep prices high. (sigh) only time will tell…
Tip,
“Morgan Stanley has lost $3.7bn on subprime mortgage-linked investments in the past two months after a big market bet went disastrously wrong, the bank revealed Wednesday night.”
“Morgan Stanley said the estimated losses implied defaults in the range of 40 to 50 per cent for outstanding subprime mortgages written in 2005 and 2006.”
Meet Iceberg…
“‘To argue that home values will continue to decline and never recover, somebody has to make a convincing case that it will cost less to build a new home five years from now than it does today – and that’s just not going to happen,’ said Catalde. ‘Despite today’s housing slowdown, the cost of land, labor and materials required to build new homes continues to go up.’”
-It sounds like Brian is the president on the Planet Denial.
They said the same thing about Beanie Babies and the cost of assembling stuffed animals.
PPT is putting up one hell of a fight. Might have met their match today.
The Dow is now only down 37 points as I write this. The PPT did one hell of a job ! Really, really sad.
You spoke too soon, pressboard.
Here’s my question:
What’s gonna happen when the housing/stock bubbles around the world begin to collapse like ours? The socialistic countries will be even worse off than us. It will change the econo-political landscape entirely. How will that affect the relative value of the US dollar?
That is what happened in the 30s. The US was china then. England had to fight the whole world just to stay afloat (WWII). They won (with US), rest of world suffered severe inflation/currency devaluation and life went on in a very different way. Dollar will eventually come back…
Very poor analogy… all the way around.
Sorry. Next time I will unplug my keyboard before I respond.
Someone posted a link to an interesting article a while back that actually made the opposite arguement - that people in communist countries are better prepared for a downturn because they already distrust the system, have a viable black market, home gardens, hoarded food, etc.
In our society, if the grocery store shelves become empty I think a great many people would just starve. Yet another reason to get our of the city - I’ve got moderate cash reserves and a year supply of food. But if the worst happens and people start going hungry it’ll get ugly real fast.
Dog, I’m with you on having the food storage, and I do have enough to last me for a while. How have you managed to store up a year’s supply?
Dry pack canning is the best way. See http://www.providentliving.org for how to…
I don’t now about starving to death. A majority of Americans have enough fat to keep them alive for a year if they cut their food intake in half. Besides you can get enough calories a day from one $5 fast food meal.
Someone posted a link to an interesting article a while back that actually made the opposite arguement - that people in communist countries are better prepared for a downturn because they already distrust the system, have a viable black market, home gardens, hoarded food, etc.
I’ll tell you this — Chicago has the most Poles, Ukrainians, Russians and Serbs in North America. The older Eastern Bloc folks lived through real privation under Communism and now live here, and they know how to scrimp and save and horde.
I see scores of Russians at the local flea markets and rummage sales during the summer, scooping up perfectly good products for pennies on the dollar.
Those former Eastern Bloc people will be far better prepared for a downturn than the typical condo-dwelling, credit-leveraged yuppie.
I posted a link to an article like that about Cuba. The article also pointed out that because of food shortages (which I think are sstill ongoing; I was there in 1982 and dining seemed fairly Spartan then!), the health of the average Cuban had improved a lot. They ate less and exercised more (without cars, they walked or rode their bikes), ergo no obesity.
“How will that affect the relative value of the US dollar?”
I consulted my crystal ball on this. It said once Amerikans agree to the North American Trade Union, they will abandon the dollar for the Amero. Socialistic countries will quickly regroup with European, Asia or African nation states as the global economy moves closer to the one-world government. Fighting will continue over energy sources as peak-oil becomes more evident. Gasoline production declines significantly and becomes more pricey, stablizing the Amero and Euro. Nation-states must form new trade alliances as no one nation can exists on its own. By 2012, the global elite will have completed the transfer of money from USD to oil revenues.
I hope the Amero, will just be a combo of the US and Canadian dollars. Mexico is way too 2nd world. It shouldn’t be included just because it’s on the same continent.
Mexico is literally the bottom of the tier. Someone has to do the dirty work.
As soon as I clicked on “add comment,” crystal ball lit up with this response:
Mexico is to be included because it has untapped oil, lumber, and water resourcesl Also, due to weather patterns, will be less affected by nuclear fallout from the middle east.
Mexico’s oil production is collapsing. Due to gov’t restrictions on who may invest in Mexican oil resources, don’t expect outsiders to contribute anything to oil prospecting in that country.
Crystal ball says: Look for radical changes in 2010. Fighting over dregs of peak oil on every contenient. North American Trade Union, Canada-US-Mexico, will unite and laws will change.
“‘Of the many skeletons hiding in the subprime closet, writedowns on banks’ positions on CDOs of ABS are probably the scariest,’ wrote analyst Matt King in London.”
Yo Ho Ho…
15 banks on a deadman’$ quest
Plastics…
“‘What we conclude is that people are saying, ‘Honey, let the house go,’ but keep the cards, Fairbank said.”
http://www.youtube.com/watch?v=ILL1tXpZVrw
People will keep paying the minimums on their cards so that they can keep charging on them.
A minimum payment is what 4% of the outstanding balance at the most?
They will keep that up until they can’t afford the 4% of their total balances and then just file BK on the whole mess.
There are a lot of people using those checks that the credit card companies mail out every other month or else they wouldn’t bother mailing them.
People are using those to pull out money to keep paying the minimum payments on all of their cards, while putting their gas, groceries, car payments, and everything else on their credit cards(including their rent if they are one of the millions of new homeless families).
Balances can get pretty out of hand fast when living this way. I think we will see an increase in delinquencies soon enough. Now that people can’t keep up the appearance of being able to afford their lifestyle thru their NOW BROKEN HOUSING ATM, eventually those credit cards will max out, and those checks will stop coming in with the bill.
Oh no!, what to do? Mr. Friendly Mortgage Broker left the business, and all of the new people don’t know what they are doing. They won’t do one of those convenient consolidation loans, that Mr. Friendly Mortgage Broker knows how to do.
Once they get divorced, and many will once the going gets tough, they will be able to file Bankruptcy with their lower household incomes. The banks will just lose a lot more later down the road.
What they forget is “universal default clause”
oops
Definition of “levels” of assets:
Bloomberg.com
Banks Face $100 Billion of Writedowns on Level 3 Rule
http://tinyurl.com/3xk8o2
“Under FASB terminology, Level 1 means mark-to-market, where an asset’s worth is based on a real price. Level 2 is mark-to- model, an estimate based on observable inputs which is used when no quoted prices are available. Level 3 values are based on “unobservable” inputs reflecting companies’ “own assumptions” about the way assets would be priced.”
No wonder Level 3 assets are called “mark to make-believe”, or “mark to fantasy”. They have even more pixie dust in their valuations than the infamous “mark to model”.
As have been stated before:
“Morgan Stanley has 251 percent of its equity in Level 3 assets…Goldman Sachs Group Inc. at 185 percent…Citigroup Inc…has 105 percent of its equity in Level 3 assets.”
Scarier and scarier.
A reply to Gwynsters comment about CA govt offering possible early retirements to balance budget shortfall from yesterday . . ..
Hey There Gwynster
You touched upon a subjest that has long been in the back of my mind for a long time. I will be watching any early retirement offers from the state with much amusement. Here’s why;
I dont think many people will take the offer. It’s my contention that most of the state paper pushers are middle/older female seniors who go to work every day for the social contact. A high degree of ‘em are, well, lets just say it plainly, cranky, hormonal, bitchy women! They excell at paper shuffling …. as long as it is done to THEIR long held routines. Dont EVER get on the wrong side of a Female Gubmnet Employee. Horror stories abound re vindictave out of control Child Welfare Case Workers. Usually female.
Case in point is my mother in law; this women will REFUSES to retire. She has been on the same CA DOJ job as a clerk for over 30 years. Maxed out pay/job grade, but she will not stay home. You see, going to a job where people are forced to interact with you when you are a social misfit (she is) is nirvana.
Why retire when you can get paid to go to work & annoy the hell out of people?
In futher support of this I present as proof, CHAIN E-Mails that come from many CA Govt Depts. My wife gets a least a dozen stupid, silly E-Mails from her mother in CA Govmnt. EVERY DAY !!! EVERY SINGLE DAY!!!!!
And the headers show a huge list of other senders & recipients of the emails, with cats as the main topic.
Now sure, we all need time to se-stress, and sending out a few personal emails isnt that bad … but the sheer volume that is coming out of CA govt offices is just BS! Jeez, I wish I got paid to sit around & send out EMails every day of cutesy wootsy cats, recipes, inspirational themes,etc.on the taxpayer dime.
But every dam year its the same bleating cry of ” we need more moneyyyyyyyy” !!! Oh please
Remember Arnolds election promise of ” blowing up boxes” ? Well, besides the DMV chief, what boxes have been broken??
CA govt is just to large to govern anymore. Too many special interests control the state. Its a shame.
Rant off - for now ….
In New York, everyone on the public payroll hopes for a retirement incentive so they can leave the state and stop being useful to other people as soon as possible. They are usually structured in such a way that public costs drastically increase, but the pols can pretend the opposite for a year or two.
Wow - you’re judging all female government employees by your MIL? Have worked for 2 states and have rarely run across what you describe. What I have seen and experienced is a bunch of women running around with like chickens with their heads cut off doing all the work while the hire up men go to golf tournaments or meetings where they take all the credit for work the women did. Most of them can’t even place or answer a call for themselves. Then the women go home where they repeat the same exercise in futility trying to run a home and raise children. I’m sure there are plenty of exceptions to both scenarios. I have never met a woman of any age that would rather be at work if they could retire and manage to live with any comfort or security.
I agree, crazy. Secretaries (oops, AA’s) work very hard for very little credit or pay.
crazy
you didnt read my post very well. the ones I’m referring to are a select but large subset of very influential group of govt worker females.
THATS why I added the example of mass forwarded E-Mails , with CATS as the main subject. DUhhh who loves cats ? OLDER WOMEN !!
and THATS why I also stated that the SOCIAL MISFITS or ODDBALLS will not retire willingly, as their work, in this case, being easy, guaranteed, mindless, plenty of time to kill impossible to fire state job work, IS their social circle.
As far as you “never meeting a woman of any age that would rather be at work than home” comment …. just tune in to Real Orange County Housewives for a prime time example. Most of those women have financially secure husbands/men but CHOOSE work over being a stay at home mom. I dont know what world you live in but working women who choose careers over kids/grandkids has been around for a long time, in all financial strata.
I do agree with you that a lot of male dept heads loaf big-time while the staff does the real work, but that is changing rapidly.
Ex; Ever see the roster of names at a school district headquarters? So many FEMALE directors & asst directors it will make your head spin.
Another Ex; many regional CA EDD depts are run by a FEMALE, with a large FEMALE staff. Good luck getting a return phone call from them! (personal exp)
Need more Ex: Call any HMO. Blue Cross, HealthNet, Kaiser.
G’head G’head…. All FEMALE RUN in 99% of the depts. staffed also as such. get on THEIR SHIT LIST & kiss yer timely med plan treatment goodbye.
If you further doubt or want proof kindly let me know, and I will gladly forward the 2 dozen daily E-Mails received, complete with everyones (40-50) names still attached from the CALIFORNIA STATE DEPTS from where they processed. Hope you like CAT PICS !!
Oh man, you are so right about CA state workers. I worked for the state for a couple of years and those old bats made my life miserable.
The proposed 10 % cut in all Calif. State departments will be the “bones of contention” next year. The housing downturn got the blame.
“Merrill’s larger figure is mostly because of a deeper level of disclosure surrounding its banking operations. Mike Mayo, an analyst at Deutsche Bank, has estimated that Merrill’s additional write-down could top $10 billion.”
I’ll have a debt on wry sandwich and please, no Mayo.
Pure artistry Ben! The master! I love the juxtaposition you made in the articles at the top:
‘Despite today’s housing slowdown, the cost of land, labor and materials required to build new homes continues to go up.’
…followed immediately by…
The Financial Post. “British Columbia’s lumber producers are flooding the U.S. market with cheap lumber…
Oh yeah, so, Mr. (NAHB) Catalde… land, labor, and materials never go down? Lumber isn’t materials?
And as for land, even that has been dropping in price in a lot of areas (take Central FL as an extreme example, but lots of other places are dragging as well).
Myself, I can only guess about labor costs, but I bet lots of other people on this board can pull in some data on that.
I think I better post future comments on my large-screened desktop; the typos lately are just horrible on this tiny hard-to-read-small-font laptop . . .
(yeah, gotta ejdamacation believe it or not )
I just saw the funniest thing. No telling how the DOW finishes. Could be a short squeeze.
When the market goes below 190 points, trading curbs go in place. What happens is you cannot sell into a downtick. You can only sell on an uptick. When it its 90 points, that goes away. Well I saw it go below 190, then watched it spike up to 89 then plunge back down again.
Well, in that case, there is telling how the Dow finishes: it will finish in the rough range of 90 to 190 points down, if the sentiment is to sell, and the only thing really slowing them down is the uptick rule. I’m not that good a market mechanic, so to speak, to get all the nuances of their trading limit rules, though.
stocks bouncing like crazy. I was wondering if Fed let out the secret news of another emergency rate cut…..
As said above, logical fibo targets were hit. Nasty is still weak so maybe the rotation will go into Ss over Ns now (stuff vs. tech)
but the pop was financials lead. Almost exctly like the pop back in Aug when there was a cut. I see no reason financials should be popping unless there is world there will be another cut after all.
Things don’t go down forever. You can use BKX 100 as maybe a point for new shorts on that group.
I don’t play stocks. I’m a fish and have no desire to be eaten by a shark. I’m 100% in treasuries since early July.
I just see a big pop up that is nearly identicle to the pop last seen in Aug when the Fed was saying “no cuts”, but leaked info on rate drop to financials a few hours before market close.
I can almost hear Maria Bartoromo screaming. UGH.
So all this volatility, who benefits? Goldman Sachs because they are a huge trading house and make money off commissions. So as volume goes up, so does Goldman’s revenue.
I have a question, do you think that the government will shut down the stockmarkets if all else fails to keep the markets from going into a real free fall?
The only reason that I ask, is that the market should have been down significantly today (my view), however it looks like if a loss, then insignificant.
“The market has fallen for 13 straight weeks, shrinking about 29 percent since reaching a peak of $1.18 trillion on Aug. 8.”
One Million, One Hundred Eighteen Thousand Millions…
$hot to Hell
Maybe, but in percentage terms, is that really significant. Just an inexperienced long term index investor talking.
I had to check on these figures.
The ABCP market at the end of July was 2.18Trillion
The market has dropped 70%.
Euroweek
My fault I did not realize Bloomberg broke ABCP into 2 groups now. US and the rest of the world. So its only down 24%
tom
interesting market observation. perhaps the insiders/traders made the same realizaton & figured out how to reset the downside limits ?
The NAHB can’t do the simplest math. Maybe that’s the problem. They seem to think that if housing prices went up 100% over five years, they’d have to come down 100% to reach the price prior to the upsurge. But that’s not true. Perhaps they will read this, so let’s do the math together. Let’s say that your house is worth $100,000. Over five years the price increased 100%, or doubled. Your house is now worth $200,000. Then the bubble bursts and prices decline by 25%. Your house is now worth $150,000. Prices need only decline by 50% to reduce the price of the house to $100,000.
What they’re doing is saying, prices increased 100% and then declined by 11%, so our model home has appreciated by 89%. That’s not true. Our model home was worth $200,000 at the peak. If it’s still worth 89% more than it was at base, that would be $189,000. But it’s not. It’s lost 11% of its value of $200,000, so it’s now worth $178,000.
No wonder they couldn’t tell buyers how much their mortgage payment would increase when they mortgage adjusted. They couldn’t do the math to figure it out.
I smell Paulson. Familiar smell. Like rotten dogshit. Party on, GS.
I’m vomiting on my keyboard. The Dow just went positive, Maria Bartiromo is preening and saying “I pressed the ‘buy’ button.!
All in all, that was a nice day in the market. Yesterday and the day before were outstanding.
I went short CDE today, (overbought) and long WM (oversold).
the cost of land, labor and materials required to build new homes continues to go up.’”
The cost continue to climb until people are unwilling to pay the high prices. Property is only worth as much as a person is willing to pay! That is exactly what is happening right now!
Does this look familiar? I showed you all a chart like ths a few weeks ago and someone commented on how symetrical the double bottom was. These things happen over and over.
http://finance.yahoo.com/q/bc?s=%5EDJI&t=1d
This is even more illustrative. See the slightly higher low on the second downdraft. Like ringing the dinner bell.
http://finance.yahoo.com/q/bc?s=%5EDJI&t=1d&l=on&z=m&q=c&c=
Yep, it’s amazingling easy, until it’s not. I guess that’s why I constantly leave money on the table
Until it’s not . .. that’s what stops are for.
Chick, any good resources for this (book/website)?
Thx
http://www.hardrightedge.com
lots of good free info on there
They keep aggressively trying to get me to refinance my little rent-condo in Cambridge. Sent me unasked for HELOC checks through the mail, which I thought was bordering on criminal (what if someone else had signed them?). BTW I loved that modern house you found. Good eye!
Here we go… why stocks came back!
http://www.cnbc.com/id/21692639
“08 Nov 2007 | 02:51 PM ET
New York Attorney General Andrew Cuomo was wrong to file subpoenas against Fannie Mae and Freddie Mac without consulting their federal regulator and may have overreached his authority, the regulator wrote in a letter Thursday. “
“‘To argue that home values will continue to decline and never recover, somebody has to make a convincing case that it will cost less to build a new home five years from now than it does today – and that’s just not going to happen,’ said Catalde. ‘Despite today’s housing slowdown, the cost of land, labor and materials required to build new homes continues to go up.’”
—–
WRONG
I spoke with someone in the real estate development industry the other day. He said that prices have dropped…..by about a third, all very recently.
How is this possible? Easy. Take a 35% profit margin by the contractors (which they could charge because their services were in such demand) and cut it to 5%.
Labor cost is completely demand driven. You can either have no work, and get paid $0, and have your overhead eat you alive, or you can have work and get paid less than you were being paid, but keep the lights on. What’s your choice?
The Case-Shiller inflation data should not be looked at by those with heart ailments. (Ignore the article spin and look at the existing housing price change data for various periods within 2002-07, and the inflation data (CPI) )
http://www.nahb.org/news_details.aspx?sectionID=148&newsID=5639