The Next Natural Step In The Evolution Of The Downturn
The Union Tribune reports from California. “San Diego County home prices fell to a 3 1/2-year low in October, while sales activity rose from September in spite of last month’s wildfires, DataQuick reported Tuesday. The overall median for October stood at $460,000, down $10,000 from September and 6.1 percent lower than October 2006’s $490,000. The latest figure represented an 11.1 percent decline from the peak of $517,500, reached in November 2005.”
“The last time the median was this low was in April 2004. October sales totaled 2,327…still 32.5 percent lower than year-ago levels, and marked the 41st consecutive month of year-over-year declines.”
“There were 1,085 houses resold, down 40.1 percent from a year ago. Condo resales totaled 529, down 14.8 percent from a year ago.”
The Wall Street Journal. “As the glut of unsold home remains stubbornly high and housing demand slides, home builders face a dilemma: to sell, or not to sell?”
“Lennar Corp., for one, has joined the ‘not to sell’ camp at its development in Orange County, Calif. The Miami company plans to finish building 259 homes, the first phase of a 1,100-unit development in Irvine, but it has decided not to sell any of them until the constrained mortgage market and swollen housing inventory improves.”
“‘We are better off holding off on sales at this asset and not discounting as steeply as the market is discounting right now,’ says Emile Haddad, Lennar’s chief investment officer, who oversees the company’s large West Coast projects.”
“Analysts expect more builders to mothball projects in the coming months, as they decide that the losses from selling homes at huge discounts are greater than the costs of carrying properties on their books.”
“But it’s not an easy decision. Builders are facing increasing pressure from lenders to service their debt and also have overhead expenses to support.”
“‘It’s the next natural step in the evolution’ of the housing downturn, says Nishu Sood, a home-builder analyst at Deutsche Bank. ‘This normally happens during a recession when you just don’t have a base of demand. But it’s like that now. In some of these locations, you just can’t give a house away.’”
“Standard Pacific Corp., of Irvine, Calif., has been offering discounts and other incentives of as much as 25% on certain homes.”
“Lennar CEO Stuart Miller recently called some price cuts ‘unrealistic and maybe even ridiculous.’ ‘The market has just deteriorated more and more. We don’t want to go below a certain floor, and that is the floor of reasonableness,’ Mr. Miller told analysts on a conference call in late September.”
“Lennar’s move in Orange County is unusual in that the company is mothballing homes. Builders typically mothball partially developed or undeveloped land because vacant homes require watching. One alternative would be for builders to sell their land instead, but that market is even more dismal than the one for housing.”
“Recent land transactions in California, Phoenix and Southeast Florida, while few in number, have fetched discounts of 70% and 80% on finished lots, according to Zelman & Associates.”
“‘They have all this land that they need to turn over, so they keep building,’ says Paul Puryear, an analyst at Raymond James & Associates. ‘We would recover so much quicker if you could just turn it off, but you can’t turn it off.’”
“Considering there are too many houses already looking for buyers, it might seem surprising that builders are building at all. But…it can take years for a housing development to makes its way through the development pipeline. By the time the builder has spent money putting in roads and sidewalks, the housing market may have turned.”
“‘Many builders are stuck between a rock and hard place,’ says Jonathan Dienhart, director of published research at a housing research firm in Costa Mesa, Calif. ‘They can’t make money by building, and they can’t make money by not building. They have to choose the lesser of two evils.’”
“Lennar’s Mr. Haddad says the builder had to finish constructing the first phase of its Irvine project, called Central Park West, where the mix of condos and town homes had an average price of $700,000.”
“‘You create a stigma for a community if it’s only half built,’ Mr. Haddad says. The 14 buyers who signed contracts for the 259 homes got their deposits back.”
The Contra Costa Times. “The mortgage morass has engulfed E-Loan, an online loan firm that said Monday it intends to chop more than 400 jobs from its Pleasanton headquarters as part of a wrenching and broad restructuring.”
“Employees were notified they would be dismissed at the end of last week. E-Loan intends to cut 410 of the roughly 925 jobs at its headquarters in the East Bay, said Laurie Azzano, a spokeswoman for Pleasanton-based E-Loan.”
“‘It’s a challenging mortgage climate for all of us right now,’ Azzano said.”
“In the past year, 8,100 East Bay jobs in four key industries tied directly to housing — residential construction, specialty trades construction, real estate and credit intermediation — have vanished.”
“‘E-Loan is not a subprime lender,’ Azzano said. ‘The company has a higher quality borrower. These layoffs are not a result of the subprime in particular but the mortgage problems as a whole.’”
“Industry veterans said the E-Loan job reductions epitomize the misery in the housing and mortgage industries. ‘Every lender I know of has laid off dramatic numbers of people,’ said John Holmgren, president of an East Bay mortgage group.”
“East Bay loan agents routinely find fresh evidence that the problems in the industry haven’t started to decrease. ‘We hear from agents all the time that they go out to call on broker clients and find when they get there the office was closed,’ Holmgren said.”
The Press Democrat. “The postmortem on how the housing bubble burst has exposed the precarious relationship between homebuyers and the people who helped them get a mortgage.”
“Angry disputes are erupting between struggling homeowners, who claim they didn’t understand the terms of their loan or the risk they were taking, and lenders and loan brokers, who say they fully informed all their clients and point with pride to the many homeowners they helped get a loan.”
“‘In so many ways, what we’re seeing today was caused by all this crazy borrowing and lending,’ said economist Christopher Thornberg, who has repeatedly warned of a looming real estate crisis. ‘I can’t emphasize this enough. This was imminently predictable.’”
“Brokers and lenders say the criticism is unfair. They maintain that they provided an important service, plowing through scores of arcane loans to find the best one their client could qualify for. They say they were under pressure from borrowers and from real estate agents who could take their business elsewhere.”
“They say it was the lender’s job to decide if the borrowers were qualified and able to repay the loan.”
“No one takes responsibility for the inflated incomes that many borrowers submitted to justify a mortgage, especially in 2005 and 2006 after three years of soaring home prices. One lender’s review of 100 loans made without proof of income found that nine out of 10 applications overstated the borrower’s income.”
“While some borrowers may have been misled, others were eager to get a loan regardless of the cost or the risk, several real estate and loan brokers said. ‘I know a lot of lenders who suggested to people not to proceed with the loans. Sometimes they’d go somewhere else, to someone who would give them the loan,’ said Bob Accornero, a real estate broker in Santa Rosa.”
“‘Those are the same individuals coming back and saying, ‘We should have listened. Is there anything we can do?’ said Anna Macias De Leon, owner of a First Priority Financial office in Santa Rosa.”
“‘Lenders had a fiduciary duty to do the right thing for their people,’ said Accornero. ‘Lenders needed to get warm and fuzzy with their people and say, ‘Can you really do this?’’ That’s what they didn’t do.’”
“Homebuyers need to make sure they understand the terms of a loan before they sign on the dotted line, Harper said.”
“‘The lenders are trying to make the biggest mortgages they can. It’s up to you to say, ‘Wait a minute. I don’t think that makes sense for me to bite off this much,’ said Harper, whose service has seen a 300 percent increase in demand for housing counseling this year.”
“People don’t ask enough questions, he said. ‘Simply because a lender tells you that you qualify for a certain amount doesn’t mean you can afford it,’ he said.”
The Times Delta. “Dozens of foreclosed homes are flooding the Visalia-area market — many of them suddenly owned by Fannie Mae because owners could no longer make mortgage-loan payments.”
“But just because these homes have been taken back by Fannie Mae and its various lending partners, don’t look for bargain-basement fire sales — even in a down real estate market, local real estate professionals say.”
“‘We had eight offers on [Fannie Mae-] foreclosed homes in August,’ said Sherrie Weece, a licensed agent for the past eight years in Visalia. ‘All were turned away by Fannie Mae and came back to us.’”
“The reason? The offers came in at an average of $60,000 less than the ‘market price’ set by Fannie Mae, not enough for the mammoth privately owned mortgage conglomerate, even in a sluggish market where prices are declining, Weece said.”
“‘We’ve tightened [Fannie Mae's] underwriting and pricing,’ said Daniel Mudd, Fannie Mae’s CEO, during the Friday briefing from Fannie Mae headquarters. That’s the reason why the August sales fell through in Visalia, Weece said.”
“Weece said that her company currently has 45 foreclosed homes in its inventory. ‘Sixty more are on the way,’ Weece said. ‘This is a good thing for prospective buyers.’”
“Nine of the 11 homes in the Visalia sample were located on the edges of the city, with only two homes located in established neighborhoods. An eviction was served on one of the homes in Visalia. A fresh foreclosure noticed was taped on another home, along with dead strips of black straw that used to be fresh sod.”
“‘Some of these homes haven’t been occupied for four or five months,’ Weece said.”
“Visalia City Councilman Greg Collins has warned for years that development far from Visalia’s core areas might have downsides…in the event of an economic downturn.”
“‘But [foreclosures are] a separate issue,’ Collins said. ‘Even a well-funded infill project in the middle of Visalia would have a hard time selling in this market.’”
OT, Here’s a funny piece summing up the current problems. The Brits know how to tell it like it is.
http://garynorth.com/public/2637.cfm
When the hammer finally falls in formerly great Britian, they won’t be able to keep the stiff upper lip.
- There is tremendous resentment of immigrants and they give 130% loans on those houses. There is a lot of pent up unrest over there.
I see the condescension did not allude you.
Europe, Canada and Australia are starting to crack now. The spreading out of the problems is going to keep the losses going on for years. It’s the U.S. this year. Other countries will be joining in the next few years.
Let’s not forget Japan! Especially the Tokyo area. They are STILL building apartments and gigantic condo blocks like crazy and rents and prices are still very bubbly. There is a lot of ‘icanaffordthatmonthlypayment’ thinking here. The average family income in central Tokyo (23 wards slipped from early 2006 US$ ~70k to late 2007 ~64k) while the average Tokyo metro family income is around US$ 45k.
The average new house/condo in central Tokyo is about US$ 1.5M and metro Tokyo is about US$ 600k. I saw this on the news a few weeks ago.
But the Tokyo real estate market is so heavily rigged, it’s not even funny. Only a few large brokers and banks who own real estate agencies can sell homes, so they artificially keep the prices insanely high here. The only thing that keeps this whole house of cards from falling is the ridiculously low interest rates here (2.1 - 3.0) for a 30 year fixed rate mortgage. But Japan is getting hit by both deflation on some items and inflation in others due to high fuel costs, so it’s anybody’s guess what could happen here.
IN the neighborhood that I live in, Shinagawa City (part of the 23 central wards), There was a small 80square meter condo about 15 years old that was for sale last fall at around US$ 249k, I took a look at it, it’s OK, nothing special, it’s still empty and now the owners want nearly US$400k for it, despite a slowing demand for housing, the economy and that housing starts are just starting to fall.
But older Japanese landlords are probably some of the most thick headed in the world, despite glaring contrary evidence, they believe that they deserve their late 1980s bubble prices and that it couldn’t possibly ever go down in value. And due to some screw government accounting rules, you are allowed to not depreciate your real estate holdings and borrow from banks the full value of your property at it’s highest values.
Japan is in for some even harder times than the US!
Very interesting - I always thought that Tokyo incomes were much higher than US incomes. What about the rental market: can you estimate for us what those $1.5M and $600k typical condos would rent for?
jbunniii -
You should know better!
You live in San Francisco - where, anecdotally, everyone’s income is “much higher”.
Median household income: $57,833.
sf jack - an astute observation from a fellow denizen of the Potemkin Bay Area!
Add India too in the list to join shortly in the game.
Agreed.
I just read in a Swedish online newspaper, “Mortgage meltdown headed for Sweden next”. I had a hard time believing that. But the article said, “there is a chance our real estate bubble is bigger than even the U.S.”
Most vulnerable countries in Europe:
1)Sweden
2) Denmark
3) United Kingdom
4) Spain
5) (maybe) France (don’t know about that)
That was brilliant. The first big laugh of the day (and the day is almost over!).
Brilliant!
That link totally locked up my computer. Not sure what the issue is. I have high speed satellite, but maybe I’m still not fast enough. Wish I knew what he said.
I had the same problem.
Here’s the gist.
One guy is playing a banker and the other is interviewing him.
Market sentiment: One day a guy says…We’re dooooommmmmeeddd Jump out of a window. Sell, sell, sell. Then the next day… Oh, happy days are here again… buy, buy. buy.
One analyst back in August said, and I quote, “We don’t know if we should buy the dips and sell the rallies, the exact opposite, both or neither.”
And this is the kind of shrewd analysis that their paid millions a year for?
Exactly.
They move to sub-prime:
How’s this sub-prime work?
So, a guy walks up to an unemployed blackman in a rotting suburb of mississipi and says, “how’d you like to buy a house with a shaky foundation and a crumbling porch? It’s a great investment.”.
And this guy offering the loan is a banker?
Oh no, he’s a salesman whose paycheck is 100% dependant on how many laons he sells, not the qality of the loans.
So, these loans are packaged and sold to Wall Street where they’re repackaged and suddenly this package of dodgy credit is high quality.
And how is that?
We give them good names.
And the names fit?
Oh no… it’s just a good name with words like high grade and enhanced and structured.
Wow, those are good words… I guess it wouldn’t do so well if it were called “loans made to unemployeed black men bundle of shoddy debt”…
No.. no.. that would be a bad name so wouldn’t change the bad loans into high quality debt.
And, you bankers take huge fees for coming up with these names?
Oh yes, can’t expect us to do it for free.
So, how did it go wrong?
Well, someone asked “How much are these houses really worth”? Everything would have been fine had no one asked how much the houses were really worth.
So, how do we fix it?
Oh, simple… The central banks just need to give us back all the money that we’ve lost so we can go on doing what we’ve been doing.
But isn’t that rewarding bad behavior?
No, it is keeping the economy healthy, and (switch to ominous voice) if you don’t, it won’t be us that suffers… it is your pension that will suffer…… fade to black!
Priceless, very funny, and spot on.
How much better off might we be if our elected leaders would spend six minutes watching this instead of six minutes with a lobbyist at a fund raiser?
Thanks, vmaxer.
I now have bourbon and coke on my computer screen and up my nose.
Those guys should do a series on “simple explanations of a f_cked up world” and telecast it live on CNN.
“struggling homeowners, who claim they didn’t understand the terms of their loan or the risk they were taking, ”
————
I believe them. They did not understand because they did not care to understand. The terms did not matter. They knew the loan would reset but they would refi, RE only goes up and the whole point was to get the foot in the door with the lowest payment. They were buying an option on the house, not buying the house.
“People don’t ask enough questions, he said. ‘Simply because a lender tells you that you qualify for a certain amount doesn’t mean you can afford it,’ he said.”
The definition of qualifying used to mean that the lender decided if you could afford it. That quaint definition was rescinded during the bubble but is coming back with a vengeance.
It would have made no difference to ask questions, to which the answer inevitably would have been some variation of “real estate always go up.” As long as real estate went up, parties on all sides of the home purchase transaction made out like bandits. Now I guess it is up to the Fed to get real estate going up again so the party can play on (never mind them 17m+ vacant homes that keep cropping up in MSM stories…).
Hey Bear: We had a loan broker throw us out because she suggested we lie about having a business and get friends and relatives to write letters that they had hired my other half as a handyman (joke is he doesn’t even know what a hammer is - I’m the one that does all that stuff). When I asked “Isn’t that fraudulent and risky?” She told us to leave because she doesn’t do business with stupid people. I can see where someone who didn’t work legal for years and isn’t too sophisticated could have been misled and strongarmed with the usual threats of you’ll never own a home, that’s how it’s done now, blah blah blah. Not that I don’t blame them for taking the bait, I’m just suggesting there’s plenty of blame to go around.
“When I asked “Isn’t that fraudulent and risky?” She told us to leave because she doesn’t do business with stupid people.”
Yeah, dishonest people always say that sort of thing when you call attention to the fact that they might be scamming. I’ve been there. One b*tch nearly fried my ear over the phone when I called her out for a shady tactic back in the day when I wuz in the institutional contracting biz.
I would report her.
Back in 2004 we had a broker try to get us to lie about our income. I also pointed out that this was fraud and he said it wasn’t. I said “Well, when the IRS come knocking on my door looking for their money because I can’t pay it because I lied about my income, are you going to pay it for me? Which one of us will go to jail in this scenario?” He still tried to argue with me that it was perfectly legal. Needless to say, we didn’t use his services.
Is there any chance at all this person has ever originated an FHA loan?
Because I would seriously love to file a qui tam lawsuit against her tomorrow morning.
“Now I guess it is up to the Fed to get real estate going up again so the party can play on (never mind them 17m+ vacant homes that keep cropping up in MSM stories…).”
I just don’t see how this could possibly happen. I don’t know where you got the 17 million vacant homes but if that is correct, it’s astonishing. I keep going back to “How are these builders/speculators servicing this debt?” It has got to be eating them alive. Is there some sort of special arrangement with the banks we are not hearing about? Every time I see/hear about a vacant house, I think dollar signs. I think we’re only in the 2nd inning of this mess. There is a MASSIVE correction looming.
17 million sounds high to me too. Every Google hit I can find indicates that there are roughly 2 million vacant homes for sale in the US at present. Are there 15 million vacant homes sitting around NOT for sale?
Yes, it is correct. This link has a graph over time about it:
http://housingbubblebust.com/HsgData/CB/Existing/USHsgVacant.html
It’s from census data that can be found here:
http://www.census.gov/hhes/www/housing/hvs/historic/histtab8.html
Most of the vacant home are “year round vacant, which from the way the data is organized at census.gov looks to me like it means that it’s not it the for rent or for sale categories (since those are separate, but I could be wrong). It wasn’t until the last few years that the percentage of vacant homes went up beyond its 40 year trend line. Also, its not clear what the state of a home in a “year round vacant” home is. Are they talking about condos or SFH? In what shape is any particular home (ie it may be too damaged to sell, but if it exists in any form it is counted as a home)? It’s really hard to say how meaningful the total vacant homes number is.
Holy crap, I did a bit more digging, and there ARE 17.9 million vacant homes in the US as of the third quarter of this year. See the Bloomberg link below for example. What’s strange is that this article and others indicate that there are only 2.07 vacant homes FOR SALE in the US. If true, that means there are nearly 16 million vacant homes just sitting around, waiting either for tenants or for the market to improve? These figures are absolutely incredible. What are there, about 100 million households TOTAL in the US? And over 15% are vacant right now? Somehow I haven’t caught this statistic in the past, even though I read this blog nearly every day. I swear, this housing bust has generated information overload this year, which is especially gratifying after 2005-2006 felt like watching paint dry.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aqC1BcDzp0BY&refer=home
“Here’s what you qualify for, here’s your monthly payment.”
People are so used to “here’s your monthly payment” being a fixed loan (a la their car payment), they never even thought to inquire about whether or not they had an adjustable rate.
That sums up why none of my clients are behind. Throughout 2007, nobody has been more than a couple of days behind. Right now, nobody is even one day behind. The reason is, no ARMs, no I/O, no neg-am, no high LTV. “Lenders should ask ‘Can you do this?’” says Ben’s post. Yup, that’s just the question I asked, and because there were no tricks, the borrowers knew if they could do it or not.
You’d've had nearly *no* clients if you were lending in SoCal. The *only* way to get people to buy was to offer baaaaaad loans. End o’ story.
Quite right, Rintoul. I was living in So Cal most of that time, and although a few people asked for loans there, I simply didn’t have enough money to get in the So Cal biz.
Heck az,
I didn’t need any one to ask me if I could do this. I saw what the prices were going for and common sense told me I couldn’t afford to buy a house in the SF Bay Area. I just couldn’t figure out how other people were able to finesse the purchase of a house. Well I got an education when I started reading the HBB.
“I just couldn’t figure out how other people were able to finesse the purchase of a house.”
******
They were able to do it because of they acquired an outsized appetite for risk as compared to historical norms.
This primarily was enabled by the policies of the Greenspan Fed, among other factors.
Should read above: “… because they acquired an outsized appetite…”
Went through similar problem when I bought my car - they kept asking about financing and quoting monthly payments - it took nearly 10 minutes of badgering for them to tell me the price of the car. Problem was that the price is different between if you pay cash or if you finance. We were going to pay cash, but the price was $1K less if we financed, so we did. The next month we paid it off in full.
Love it.
Here’s a lot of free info on how to buy a car the painless way - including recent purchase data (MSRP, invoice price and price paid).
carbuyingtips.com
“People don’t ask enough questions, he said. ‘Simply because a lender tells you that you qualify for a certain amount doesn’t mean you can afford it,’ he said.”
they were using home loans just like credit cards. just because the c.c. company is willing to offer you lots of credit, dosent mean you can afford it.
Any of you wanna go over here and post and educate some people after this fluff piece was writin’ in my local paper. http://www.vvdailypress.com/news/valley_3682___article.html/victor_homes.html
LOL!!!! from the article:
Over the past year, Victor Valley home prices have dropped 21 percent from $181 to $142 per square inch with only 135 of the areas 4,282 homes selling in October.
“$181 to $142 per square inch” whats this guy been smokin!!!
LOL!
I was going to post my opinion, but then i read this:
1. No flaming. Do not be hostile.
2. No comments that are obscene, vulgar, lewd, sexually-oriented, threatening, libelous, or illegal.
3. No racial slurs or insults.
4. “Remove Comment” flags offensive comment for removal.
That pretty much rules me out.
Do not, by any means, post on the city data website. It’s run by realtor shills, and they wouldn’t take kindly to you. It seems that freedom of speech has escaped them.
lol, ex-nnvmtgbrkr.
You can be as flaming as you want to be here.
“…not that there’s anything wrong with that.”
“Do not, by any means, post on the city data website. It’s run by realtor shills, and they wouldn’t take kindly to you. It seems that freedom of speech has escaped them”
I wrote a flaming piece on LA land blog(LA times) basically calling the LA times a shill for the REIC. They did not publish it. They do not like me very much.
I believe them. They did not understand because they did not care to understand. The terms did not matter. They knew the loan would reset but they would refi, RE only goes up (sarcasm noted)
My buddy with farmland in Iowa and a condo in Biscayne Bay has that mentality - that his real estate only goes up. He never ever acknowledges that there are downturns in his real estate. Here’s hoping economic forces give him an “attitude adjustment.” He won’t admit he’s wrong, even when the adjustment happens. It probably is happening in his Biscayne Bay property but he keeps saying the value is going up.
I think delusion’s quite common in those sorts of circles. I’ve also heard proclamations such as “mission accomplished”, and “you’re doin’ a heck of a job Brownie”.
(just pulling your leg Bill)
“…(just pulling your leg Bill)”
I only have 2 questions:
(1) What’s the inside joke, and
(2) Who the f_uck is Bill?
“Lennar Corp., for one, has joined the ‘not to sell’ camp at its development in Orange County, Calif. The Miami company plans to finish building 259 homes, the first phase of a 1,100-unit development in Irvine, but it has decided not to sell any of them until the constrained mortgage market and swollen housing inventory improves.”
Belatedly, the builders have finally got the message, that lowering the prices of houses by $100k, just wallops the comps and creates bad blood in the same areas where people paid a lot more a few years ago…
And nobody is really buying now anyway, who are they trying to kid?
So instead, they are just going to finish building the homes they can’t sell, and ride them down in value, until they aren’t worth much.
Yeah, that’s the ticket.
He didn’t say hold until the Rebounding Spring Buying season, but I kind of heard it humming in the background anyway.
They couldn’t see the downturn coming, yet they can see how long they will have to hold these deteriorating assets?
My thought is they carry the inventor on the books at an inflated value for a while. But then have to sell and realize the actual loss. Like the banks with debt they won’t sell because it will be apparent how worthless it is.
“Lennar Corp., for one, has joined the ‘not to sell’ camp at its development in Orange County, Calif. The Miami company plans to finish building 259 homes, the first phase of a 1,100-unit development in Irvine, but it has decided not to sell any of them until the constrained mortgage market and swollen housing inventory improves.”
I have been watching That development go up since 2005 on corner of Jamboree and Michelson right off the 405. Last time i checked early 2007 the commercial shopping portions were already midway to completion but the residential hi-rises yet to go up.
That is a well-sited location for a mixed use major development right in the heart of the busy S OC commercial hi-rise district which runs along the 405 from Harbor blvd south all way past Jamboree. Problem is the RE/mortgage meltdown has been a major blow to that area-lots of banks/lending operations in that area, including New Century( Are they defunk now ?) just a few blocks away.
That development looked like it was moving along at full blast compared to other less-promising sites such as the Platinum in Anaheim.
Their just announced pullback in planned #of units is an indication that the RE meltdown and possible recession has hit the OC local economy.
I am seeing some bad economic tidings here in LA as well. Home depot is dead-dead!! All local merchants extemely slow. Typically Oct-Nov up to Thankgiving slow every year but i am seeing abnormally slow.
Just to follow up on that central psrk west topic : there has been an enormous amt of construction of condos/apts/mixed projects both mid and hi-rises all up and down Jamboree. Just across the 405 from CPW on corner of main and Jamboree a huge condo/apt project was recently put up. More mid-rise clusters put up just down the street. And 1/2 mile north of the 405 on Jamboree/Alton pkwy several large mega mixed use projects are in the pipeline.
What lennar & City of Irvine face is an enormous supply of units coming to market as the RE hits a downturn. They cannot command $600,000- one Million per unit Plus condo fees as during the peak. That is a problem as the HB’ers have to cover the hi-cost of buillding in the S OC, and the city of irvine demands hi-grade infrastructure inprovements around these housing projects. (HB’er cannot throw up cheap crap in S OC as in the IE). If they convert to apts or downsize they suffer enormous profit loses.
This is happening in Dwtn LA as well. The hi-end condo market is tanking ,and everywhere the builders & the city will be bickering and hardballing over who gets stuck with the bills.
What the builders did in the early 80’s was just pull the plug (finish their specs) for about a year or so, then they reopened with much smaller floor plans at less than 1/2 the price.
One area was supposed to be IT, had a client buy new there instead of resale. She called me in a year crying that the POS she paid over $250k had $100k homes going up across the street. BTW the smaller homes were like 1,200sqft. 3brs, not tiny by my standards and selling above and below $100k. The kinda crap she bought were horrid 2,400+sqft garbage with valted ceilings selling at $250k+.
We will see the builders do the same this time. Labor and materials will be cheap with the kind of market contraction we will see. I have no problem seeing the builders throwing real starter homes up at $80/ft (with the land in many areas, including much of inland CA).
The builders won’t make much, if anything, but they will keep the business in tact with their best people waiting for the next wave of GF’s.
Lennar are a bunch of liars.
The only things they’re mothballing in Irvine are Jack and Sh!t. And Jack just left town.
“Lennar’s move in Orange County is unusual in that the company is mothballing homes. Builders typically mothball partially developed or undeveloped land because vacant homes require watching. One alternative would be for builders to sell their land instead, but that market is even more dismal than the one for housing.”
Something really smells fishy about this move by Lennar. If I was a member of the Irvine City Council, I’d be real alert. Because there’s NO WAY Lennar is going to spend time and money building then babysitting a bunch of empty homes. This is some sort of hardball tactic, but I don’t know the background of the project, so I have no idea what’s in it for Lennar. But there’s got to be some advantage to Lennar doing this and whatever it is, it means misery for someone else, either the bank or the city, etc.
Extortion of the local government. “Reduce our property tax on the lot or we’ll conveniently forget to lock the doors, and let squatters run rampant in your neighborhood.”
Interesting idea, I think you’re on to something.
For those who aren’t familiar with the area, The Irvine Company (TIC) owns all of the undeveloped land in the area. They dole out the land to developers in measured quantities, stipulating density and type of housing in the contract. This maintains high property values in the area allowing them to demand a premium on the land. This also makes for a very cozy relationship with the City of Irvine (CoI) as high values equals higher revenues.
The newest projects are on former military bases that were deeded to the CoI (large areas of flat valuable land in the middle of suburbia). Just thinking out loud here, but I’m sure the CoI turned to the locals masters of land development for advice on how to maximize their return of ingiftment. I believe it would be a safe bet to assume the same type of stipulations TIC uses are in place with the CoI’s deal with Lennar, plus the added bonus of sticking Lennar with the costs of cleaning up the toxic sludge the marines left behind.
I need to think about this a little more but I think it’s very possible Lennar is beginning a power play with the CoI in order to modify the original agreement. Perhaps higher density, renegotiating the price of the land or both are on their mind. Maybe Joe Six Pack might be able to afford a house on land his taxes supported for decades after all.
On the other hand, a power play vs. the Republic of Irvine could make for some serious entertainment. Neil, please pass the popcorn…
Hey, maybe that’s a way to “Fix” the real estate mess. Mothball all the extra homes and then pass some sort of “Save the Value of Our Homes” law that limits the number of houses that can be on the market in a given year. That’ll crush the middle class and keep housing unaffordable, which is the goal after all.
Something is up indeed. To actually carry it out is suicide, and they got to know that. I think there’s gonna be some news (not good) on Lennar in the coming months.
ex-nnv, having lived in South Florida during the 1990s and seeing how Lennar deals with its customers and now seeing how they’ve dealt with one development over here where the residents are still lacking a pool and clubhouse (according to my county commissioner’s office) and seeing how they’ve dealt with Mike Morgan, I’ve drawn the conclusion that they’re ruthless beyond belief. Lennar is not going to go down without a fight and that fight will be dirty. They would not build a bunch of houses and let them sit for no good reason. They’re in this for blood and this is some sort of hardball tactic toward some entity, government or financial, the goal of which is to extract profit or gain a profitable advantage.
It’ll be interesting to watch.
“Standard Pacific Corp., of Irvine, Calif., has been offering discounts and other incentives of as much as 25% on certain homes.”
“Lennar CEO Stuart Miller recently called some price cuts ‘unrealistic and maybe even ridiculous.’ ‘The market has just deteriorated more and more. We don’t want to go below a certain floor, and that is the floor of reasonableness,’ Mr. Miller told analysts on a conference call in late September.”
25% discount unreal and ridiculous? Oh, but I’m sure that the 200% to 300% price increases in OC over the last 5 years were rational and realistic. I’m sure there some fundamentally sound reason why price increases of 30% to 50% are justified. (sacrcasm off)
If this dude thinks 25% is ridiculous, i can’t imagine what his reaction will be this time next year.
If this dude thinks 25% is ridiculous, i can’t imagine what his reaction will be this time next year.
What exactly is the expression when “receiving” the Joshua tree?
Seriously, they’re just trying to create a sense of urgency; more REIC FUD. Nothing more, nothing less.
Got popcorn?
Neil
I agree. But deceptive ploys only work on FB’s. And, as we know, FB’s do not have buckets of cash for any type of down, which is what your going to need if you plan on buying and financing one of those grossly over-priced dwellings. No, the folks with cash (us) immediately smell and recognize BS for what it is, raise our middle fingers in derision, and calmly point to the Joshua tree that they will soon be the proud owner of.
“What exactly is the expression when “receiving” the Joshua tree?”
Now that Hedgefundanalyst no longer posts here we might never know the answer to that question.
I think it has something to do with Bono and prison?
“If this dude thinks 25% is ridiculous”
I think what he means is with the cost, (Land, Material, etc) to build those particular homes (built late in the cycle) a 25% discount was selling below builders costs.
Really? Either:
A) margins well above 25% - what a liar.
or
B) hahaha lol he he. You “surged” into a declining market??
with the massive profits these guys were making during the boom, i would think they make alot more than 25% on these homes.
It all depends on how stupid they got with land prices.
I think a lot of builders in CA are hosed more because of what they paid for the land then anything else.
‘zactly.
Here in NoVA, builders were able to build townhouses and sell them at a profit for $180k in 2000. Those that held the same undeveloped land could build them same model for a little more (inflation) and still profit. Those that bought land during the boom are screwed.
They’re just trying to cover their asses so that later on, when some nincompoop tries to sue them, then they can say “We tried to hold out for the sake of our customers, but Standard Pacific Corp. ruined it for everyone.”
“Lennar CEO Stuart Miller [said] ‘The market has just deteriorated more and more. We don’t want to go below a certain floor, and that is the floor of reasonableness,’
Quelle idée, the floor of reasonableness! That is a totally new economic concept, but upon reflection can only mean one thing: the price below which the continued existence of the company is untenable.
Lennar Homes-Where we send prices through the floor of the living room not the basement.
Dont’t worry. It cost about 10K to hold an unsold house each month. Lennar is holding the new 259 houses for better price, that will cost the company 2.6 millions each month for those unsold houses. The longer they hold, the more they will lose. The CEO is acting like individual home owner, saying “I will not giving the house away”. When a CEO become more emotional in this scenerio, you know they are in deep shit. I hope this company will be in bk soon.
How about……. buy these from us for your new section 8 housing, or we let them rot, and you will have to deal with the squatters and meth labs
——————————————————
But there’s got to be some advantage to Lennar doing this
I have a feeling it is something like that. Build it and sell it back to the local gov. I mean, they’re only going to build a certain amount of houses. Perhaps such a transaction would give them enough to pay back the lender and net a small profit. They can always stiff the subs, builders do it all the time.
Who is going to want to buy these mothballed behemoths down the line? Even if they keep up the outside, I thought that houses that sit unused for long periods of time have all sorts of problems. They’ll probably threaten to rent them out to section 8 renters if the city doesn’t either buy them or subsidize them.
“One alternative would be for builders to sell their land instead, but that market is even more dismal than the one for housing.”
“It all depends on how stupid they got with land prices.”
Builders got WAY stupid with their land purchases. That’s precisely where the bubble is. Raw land needs to come WAY down in price. The remarkable thing I’m still seeing, right now, is builders continuing to load up on land at what I believe to be unreal prices. We’re talking 10x what it was just a few years ago. In the face of all of this horrible news, they’re STILL going back to the well. It’s absolutely unconscionable.
I was out in the Central Valley today and got hit up 3 times for cash, by homeless types…
One of em’ was new to the homeless game, a quick adapter.
Was he wearing a tan blazer?
Was he wearing a tan blazer?
Snicker. I think you mean gold blazer.
Was his panhandling sign on the back of an open house sign?
Got popcorn?
Neil
He was of the 21st Century, as you or I.
But that’s as far as the similarity went, to him being one of “them”…
Ah yes, gold. My bad. Although sleeping under bridges may have tarnished the gold into a dingy tan.
I know this is an Evolution themed thread, but Bank of America just Raptured away $3 Billion, through less than intelligent design, it appears…
http://news.bbc.co.uk/2/hi/business/7093464.stm
I love the BBC.
and warned that its losses could grow.
Ouch. Don’t the banks know better than to self inflict a Joshua tree?
Got popcorn?
Neil
It’s all “manageable”, B of A said so…
Speaking of Joshua trees, I’m seriously considering buying myself three acres of absolutely gorgeous land just north of the national park. Asking price is in the high four figures, but I think I can get the owner down some more.
The basic idea is to self-build a rock-climbing base camp cabin, which I’ve always wanted to do, but I’d be happy to be the Official HBB Joshua Tree Supplier. Couple of really nice specimens on the premises.
How do you stop it from being occupied by meth producers when you aren’t around?
“Speaking of Joshua trees, I’m seriously considering buying myself three acres of absolutely gorgeous land just north of the national park. Asking price is in the high four figures, but I think I can get the owner down some more.”…
The basic idea is to self-build a rock-climbing base camp cabin, which I’ve always wanted to do, but I’d be happy to be the Official HBB Joshua Tree Supplier. Couple of really nice specimens on the premises”
I love Joshua tree NP. Did quite a bit of hiking, exploring and a couple rock climbing courses. This was back in the early 1990’s . Back then 1/2 acre or i acre lots with nice doublewides were advertised for $30,000 -$40,000 and these were right near the entrance to the park. Real nicely kept up properties, with rock outcrops and joshua trees around them, situated a few miles up the NP entrance road away from the skanky towns along the morongo valley hwy.
This was during the middle of the RE depression of 1990-1996, and that entire valley was depressed and some towns such as Joshua Tree were outright deserted windblown ghost towns or desert ghettos(29 palms). There were bargains abounding all over at prices of 10,000-15,000 for lower-end single or even doublewide trailers+lots in the wasted desert outbacks .
My experience seeing the rockclimbers out there is that they seem to camp out (forever it seems) near their favorite rock climbing spots within JT NP. I usually like to camp out at jumbo rocks campsite-gorgeous spot-well away from the favored campsites of the rock climbers which are closer to the park entrance. They hog these sites-maybe your idea of a rock climbing overflow campsite may have Merit.
How sneaky of BofA infesters to drive up the share price at the point when a $3bn writedown was in the pipeline!
Why BofA Didn’t Flag Its Hit
Fresh Write-Down
Points to Difficulty
In Gauging Troubles
By VALERIE BAUERLEIN
November 14, 2007
Bank of America Corp.’s write-down of $3 billion in collateralized debt obligations offered fresh evidence of how much financial giants are struggling to assess the value of investments long thought to be secure.
The expected write-down by the largest U.S. bank by stock-market value came just four days after Bank of America detailed its CDO exposure in a securities filing, but gave no hints it was about to announce a financial hit. Officials with the Charlotte, N.C., bank said yesterday that they weren’t confident enough in a valuation for the debt securities until teams worked through the weekend to reach an estimate that led to the write-down.
The write-down was in line with recent estimates by some analysts. But the move increased the overall damage to Bank of America to $4.6 billion in write-downs, with no end in sight. “Where valuations will be at the end of the year is anyone’s guess,” Chief Financial Officer Joe Price said.
In 4 p.m. New York Stock Exchange composite trading yesterday, Bank of America’s shares rose 5.2%, or $2.29, to $46.27.
http://online.wsj.com/article/SB119497081881491491.html?mod=hpp_us_whats_news
“…teams worked through the weekend to reach an estimate that led to the write-down.”
tee hee.
I wonder if they know how ridiculous that sounds?
On second thought, they’re probable laughing at the fact that a lot of people are buying it.
I was going to ask the location of that fugly falling-down house in the photo, but since it’s a BBC article, it’s obviously in Cleveland, which seems to be the only US city that they know about.
So, according to Lennar and some other builders, they are going to mothball several hundred properties until the market improves. (lol) (lol) (lol) (lol) Bluff, bluff bluff - unless they intend to sit on a diminishing asset for the next few years to say nothing of a physically decaying asset. A house starts going south condition wise very quickly if it isn’t maintained and lived in. Of course, they could employ a small work force to keep the properties up to scratch but that ain’t cheap. Somebody needs to remindf them that I.C.E is out there looking for illegals these days. Then of course, there’s a little matter of interest payments on a non-performing asset. Three years of handing the bank a fat check every month in interest payments should take a fair size bite out of the profits even if the property market eventually turned around in a few years.
Lenner and these others builders of full of b.s. Trying to sucker buyers in with the old, “Better get in quick. These are our bottom prices. Now is a good time to buy because these properties are not going to get any cheaper.”
On the other hand, if the CEO of Lenner is a dummie (and most of these big builder CEO’s are not looking too smart these days) he could be true to his word, mothball his big inventory……and go bankrupt waiting for buyers. Of course, some GF’s will fall for this b.s but for Lenner, a rush to buy their over-priced POS ain’t gonna happen.
“Lenner and these others builders of full of b.s. Trying to sucker buyers in with the old, “Better get in quick. These are our bottom prices. Now is a good time to buy because these properties are not going to get any cheaper.”
they will lose any sales that they think might come their way by doing this. all the fool has to do is go to hovanian or kb homes to get the deal they want. there is no way this will work for them.
You can’t play a bluff unless everyone else is in on it.
These guys are classic. Let them try to not discount - even if the other builders were cooperating, if there are no mortgages, there are no buyers, and they can sit there eating the carrying costs month after month… all that will happen is they’ll end up discounting vastly more later, and will deserve every extra lost dollar and more.
I have a question. I may have missed the answer in some other thread, but who or what is financing all these builders? We’re hearing about the entities that are getting burned by subprime and of course, there was the whole Coast Bank debacle in Florida, but that was small potatoes, really. I want to know who has the exposure to the developers, because if I was an exec at bank or lending entity for the HBs right now, I’d be wearing diapers.
I was thinking the same thing as I read the piece. I’m sure their lender/investor is going to be sooooo pleased with their prudent decision.
ex-nnv, I think that’s one of the next bombs that’s going to go off, the lenders to the HBs. I’m just waiting for a story about some financial institution or another getting stiffed by one of the majors.
palmetto, the thought of you in diapers has made me horny.
Does that make me a bad person?
Supposedly for this project in particular, it’s Barclays. I think it was towards the bottom of the article, but I can’t read the full article now. Also, Lennar says that Barclays is fully informed of these developments. Hmm.
What does he care. Next year he’ll be vacationing with the other golden parachute boys. Stan O’Neal, Chuck Prince, …
I heard that 2 projects that Lennar is involved with in Long Beach,Ca maybe in trouble. One is the Promenade project between Broadway and Third that is completed and the other is the proposed retail/condo’s at pch and second at the Marina hotel.
“I heard that 2 projects that Lennar is involved with in Long Beach,Ca maybe in trouble. One is the Promenade project between Broadway and Third that is completed and the other is the proposed retail/condo’s at pch and second at the Marina hotel”
From a fellow LB’er at the other end of town :
That Promenade is an extremely expensive ambitious development. I have been at that site and seen the digging and consruction phases up close. You have to put up 18 hi-end lofts, with their ground-level shops, squeezed between the LB 1st street metro transit stop and broadway streets next to the Lb promenade outdoor mall, which had to be reworked and partly demolished.
Now that it is finished and units are going as high as 1 million, who in hell is going to buy those hi-end lofts in dwtn LB? Dwtn is a recurring nightmare of revolving businesses going BK, closing , reopening, and city pet projects going into the dumps, all due to one inescapable fact; The population demographics is largely lower class,immigrant,impoverished in and around the central/dwtn LB region. Lennar and the city badly screwed up in putting up 18 super high- end lofts during a Re Meltdown period in a place such as LB dwtn which is a carbon copy of dtwn LA ; deserted and scary at night.
I remember during the RE bust of the early 80’s when LB dwtn develpments all went south- condos/malls all got gored. And they tore down a lot of old LB landmark historical bldgs TO PUT UP THEIR badly flawed visions .
So the new sales pitch down the road will be:
Homes have:
Mature trees in front yard.
Tile roofs with 34.5 year warranty
Grass is rooted and well developed
Wood fences have aged accent.
etc.
“Weece said that her company currently has 45 foreclosed homes in its inventory. ‘Sixty more are on the way,’ Weece said. ‘This is a good thing for prospective buyers.’”
- That’s it Sherrie, keep up the happy ‘good thing for buyer’ crap. Because soon enough, you will wish that the offers were ‘Only 60k’ under the banks asking price.
- Sherries happy talk can be used to encourage herself then.
munch munch munch
45 plus sixty is good for buyers ~100 in the foreclosed inventory.
When that inventory hits 200 even better.
Where will it stop? 500? A thousand?
After the foreclosed inventory has been persistently high then we’ll see some deals. When they’re ready to flush out the inventory then we’ll see some great deals.
Got popcorn?
Neil
the only English word I can think of that ends in “eece” is fleece
low-class RENTERS causing problems in Temecula… tragically entertaining.
“In recent years, the city’s population has exploded and has grown more culturally and economically diverse. Many older residents remember when Temecula had as many horses as people and there was only one traffic light.
“When I moved here 20 years ago, there were 4,000 people. Now it’s 90,000,” said Chuck Colburn, 72, who lives in a house overlooking Iron Circle. “The only thing that bothers me is there are so many houses for sale, and people can’t sell them so they are renting, and renters may not be the same class of people.”
That view was echoed by others here: Foreclosures have skyrocketed, and more and more homes are being turned into rentals.
“Everyone knew everyone in this neighborhood,” said Diana Chavez, 48. “When the lottery was $300 million, we all organized a pool. But there was never any violence, not even a can of beer on the street. But when renters come in, it’s not good.”
John Elzonga, 55, watched the parade of news trucks pulling into the cul-de-sac.
“The point is Temecula is a great place to live and a great place to raise kids,” he said. “I raised six kids here. That’s why people come here.”
david.kelly@latimes.com
sorry, forgot to mention the story was about a 4 or 5-person homicide there having to do with bankruptcies and divorce, etc…
OK, so owning a house in a town with one stoplight and “as many horses as people” automatically puts you in a different class than people who rent? Right. It puts you in the “redneck” class.
Bigger V,
Think the bad image of renters is from the day when buying and renter were about the same cost. You would look askew at someone who could not buy. Unless you knew that the renter was in town temporarly for a year or two or finishing school or something like that.
The problem with Trekula is like many formerly rural small towns in SoCal that have experienced recent explosive growth, such as Lakeside, Vista, Santee, Poway, Jamul. They just don’t have much cultural infrastructure, and you’re constantly stuck in traffic in the middle of no where. There’s no there there.
Once again, stories like this one really bring into question the validity of the concept that owning will always be better than renting. For a town to undergo such dramatic growth, along with all of that growth’s unpredictable consequences, should serve as a warning to those contemplating 40 and 50 year mortgages.
“renters may not be the same class of people” true, they actually have plenty of disposable income, freedom to chase new job opportunities at will, and savings accounts! I can imagine a world where everyone is a renter!
I’m going to go out on a limb here and guess that I am in a higher “class” economically than 99% of the owners in Temecula. And I’m a proud renter. Not in Temecula, though; I’m not that low-class.
P.S. WTF is “Iron Circle”?
P.P.S. Going even further out on a limb, I’m going to estimate that one can rent a decent apartment in Newport Beach for substantially cheaper than the monthly mortgage for a meth shack in Temecula. And by doing so, one lives among a better, albeit vapid and moneygrubbing, class of people. I won’t even address the relative quality of schools in the two locales.
“Lennar CEO Stuart Miller recently called some price cuts ‘unrealistic and maybe even ridiculous.’ ‘The market has just deteriorated more and more. We don’t want to go below a certain floor, and that is the floor of REASONABLENESS,’ Mr. Miller told analysts on a conference call in late September.”
“You keep using that word. I do not think it means what you think it means” Inigo Montoya; Princess Bride
Honestly, I’m so sick of the mysterious Fannie Mae. Is she or is she not “owned” by taxpayers? If she is, then I vote that she dump those properties at whatever price people will pay for them NOW, rather than wait for next years price.
And if she’s NOT owned by taxpayers, then get the government out of her completely.
And congratulations and best of luck to anybody (Cuomo or ANYBODY) who is willing to open the FNM can of worms.
The portion of FNMA stock that trades daily on the NYSE is owned by people who pay taxes, but the taxes they pay may or may not be paid to the US of A. And even if the taxes they pay are paid to the US of A, their ownership of FNMA is something they paid for separately. Yes, get the gov out of her…but you know the gov is bailing out all sorts of private entities, not just FNMA.
Not only that, but the purpose of Fannie Mae was to facilitate affordable housing for Americans. Yet they won’t sell their houses at affordable prices.
Time for a new Purpose Statement.
this was the whole idea of the now $417K cap on mortgages Before this bubble started you could get a 30 year old starter home in the rich towns Scarsdale ny or greenwich or westport CT for $400K
3/1 ranch (1200-1400sq ft) in Norwalk CT was tops$175-199K…now $450-500K……yes a 3 bedroom 1bath with a single car garage taking up 1/3 the cellar 50 years old is now a JUMBO loan……that is so off the scale of affordablity.
Fannie Mae .. is a privately-owned corporation authorized to make loans and loan guarantees. It is not backed or funded by the U.S. government, nor do the securities it issues benefit from any explicit government guarantee or protection.
..In 1968, to help balance the federal budget, Fannie Mae was converted into a private corporation.
Fannie Mae is now the ninth-largest business in the world according to Forbes’ Rich List of top 1,000 businesses.
Fannie Mae securities carry no government guarantee of being repaid. This is explicitly stated in the law that authorizes GSEs, on the securities themselves, and in many public communications issued by Fannie Mae. Despite this..
http://en.wikipedia.org/wiki/Fannie_mae
Although many believe that the US government will be forced to bail out Fannie Mae in case of a crisis, I disagree. I don’t see how the US government can bail out a company whose assets dwarf the entire government debt. Besides, let’s face it, if/when circumstances deteriorate to the point where Fannie Mae needs bailing out, taxpayers will be in no mood to do so.
the secondary market is currently stagnant.. Banks are not willing to sell off their bad mortgages at this time.. nobody wants to.
FNMA was originally created to provide liquidity to the mortgage market in a time similar to today.. Either nobody had or was willing to lend money, and the economy stagnated as a result.
As the biggest (?) player in the secondary market, and since it is ruled by the govt, FNM is capable of buying and absorbing a whole lot of mortgages in a controlled scenario. The banks might be willing to sell them mortgages. This would get things moving again.
So, the govt is offering incentives to both FNM (a private company with responsibilities to shareholder) and to the banks to buy and sell paper..
The problem is that selling anything sets a price, kinda like a sold house becomes a comp.. and everyone is afraid of low values being set and exposed.. It means admitting losses and has serious consequences.
But, it will happen eventually, either willingly or by force.. market force.
“secondary market currently stagnant”
Reminds me to say, I am so grateful that I’m no longer getting those weekly goddam postcards from people who want to buy (steal) my notes. “Dear [my name], Wouldn’t you like to convert that annoying mortgage note of yours into C*A*S*H?!?” — nope, not at the price they would offer, which would yield THEM about 14%.
Good points, Bigger V.
But the bigger picture is that the failure of Fannie Mae would bankrupt virtually every financial institution in America.
And that won’t/can’t happen.
And no matter what mood they’re in, taxpayers WILL get bent over whenever necessary.
“Visalia City Councilman Greg Collins has warned for years that development far from Visalia’s core areas might have downsides…in the event of an economic downturn.”
Rinse and repeat this, for every small to medium sized city in the Central Valley…
They were all banking on the income from those new houses, to keep their city going, until the money tree stopped bearing fruit, one day.
i like Visalia, it is a very nice town. but when i drove around there last month it made me sick to see that they let all that building occur. they were trying to turn a cow poke town into L.A.
OT, Santa Barbara update:
Some South Coasters who bought into the American Riviera dream as long ago as late 2004 may be about to experience the Joy of Six — the integer “six” referencing the percent decline in that dream’s value (as measured by commission-adjusted asking prices)since sleepy-bye time. One such dream has been captured in JPEG format and posted this week at the Santa Barbara Housing Bubble Blog.
By city ordinance, public displays of worry that the dream may in fact be a desiccant — and not the opposite — are stictly proscribed. However, the issue may soon be under referendum here.
Joyfully yours,
Saint Barbara
Hey, any chance I can score that really cool architect’s place in Montecito, the one with the metal and window garage doors on the front wall and the pool on the roof. Know which one I mean? The guy’ s an architecture prof at UCLA?
Damn, that place is awesome!
I have seen that place. You and I will have to arm-wrestle for it.
I can never remember the guy’s name.
Here it is
http://www.architectureweek.com/cgi-bin/awimage?dir=2000/1129&article=news_1-1.html&image=11200_image_3.jpg
no offense, but wthell is that.. i can find just the one photo of the room that looks like it there might be be a sign posted in front of it reading “Homo sapien. Bipedal Primate. Please do not feed”
“…they show that smart, cost-conscious South Coast pros depend on Avery Dennison labels to help them contain marketing costs while assisting home sellers in their downward chase. We reiterate our strong “buy” recommendation on AVY.”
Too cruel
Ha, “South Coast pros” - let’s have a little honesty in advertising. Anyone looking at real estate or apartment listings in Orange County knows that “South Coast Metro” is a euphemism for “Santa Ana.”
The article about disputes between struggling borrowing and mortgage brokers raises a good point. EVERYONE participated in the boom and finger-pointing is counter productive. In fact, I would go so far as to say that almost all the participants in the real-estate bubble are BLAMELESS. Mortgage brokers HAD to cut corners and push appraisers to get funding to close deals or their customers would go elsewhere. Appraisers HAD to meet the targets or they would be out of work. Buyers HAD to get exotic loans and lie about their income or else they simply couldn’t buy a house at all (i.e. since the prices were too high for them to really afford).
Even the investment banks were forced into participating. Only managers who were aggressive, and able to meet industry performance profit and revenue targets would ever be promoted. A lender who refused to issue exotic loans was basically saying they didn’t want to be in lending anymore.
This is what happens in manias: the maddness of crowds. Everyone was swept up in events that were beyond their control, and possibly against their will. Let’s not pass blame and just accept that we have a disaster and move on repricing all the real-estate assets accordingly, without rancour.
Yes! without rancour is the American way… (Bwahahahahaaaaaa!!)
This is hilarious if you are serious. Manias are the result of failures at every level. However, not a single soul was forced into to doing anything in the housing bubble.
Buyers could have rented. Lenders could have refused to write insane loans. Honest apprasiers found other lines of work (although I supect they will have more work than can handle soon.) Fund managers could have laid it on the line and accepted that the price of honesty was to be stuck (for a short time) in their current position.
I agree that the rancour is usless because they are so many parties to blame, but that does not make anyone blameless. Everyone selling out together makes it only more understandable, not less reprehensible.
“Angry disputes are erupting between struggling homeowners, who claim they didn’t understand the terms of their loan or the risk they were taking, and lenders and loan brokers, who say they fully informed all their clients and point with pride to the many homeowners they helped get a loan.”
“‘In so many ways, what we’re seeing today was caused by all this crazy borrowing and lending,’ said economist Christopher Thornberg, who has repeatedly warned of a looming real estate crisis. ‘I can’t emphasize this enough. This was imminently predictable.’”
Wow, there’s a bit of truth. Here on the HBB, it was beyond predictable. It was predicted.
And not by fluke either - the smart people here have been laying out the case for it and backing it up for years now.
These people should be kissing our ass. We should annoint ourselves and declare ourselves an ivy league blog. All who posted here prior to the bubble burst are now to be proclaimed experts in the field and given high paying and powerful positions.
That is all.
Our rewards are (1) the pleasure of being right and (2) the money we saved by not owning a lot of RE right now. BTW I bet the reporter misquoted Thornberg. He probably said “eminently” rather than “imminently.” It was eminently predictable that a housing bust was imminent.
I went back and searched my old blog. First bubble post was March ‘04. I’m almost tempted to somehow work it into my resume
Yes! Today I changed my name to “Bigger V”. I’ll have to see whether or not it sticks.
OK, I’ll bite.
How bigger ARE you?
Actually, looks like I just shrunk back. Must have been a bubble.
Hilarious!
I’m on my third year here, so I qualify. I want to be made the Chief Fitter of Costumes for the Chippendale’s clubs. Any way that can be arranged?
Tx: I’ll sew the costumes if you let me help with fitting every once in a while.
txchick, is “Chippendales’s Chief Fitter of Costumes” a real job, or just a new bumper sticker?
Angry disputes with loan officers?
http://tinyurl.com/2dnj53
Ben this is the PPT for those that don’t know about it. Executive Order 12631–Working Group on Financial Markets
Source: The provisions of Executive Order 12631 of Mar. 18, 1988, appear at 53 FR 9421, 3 CFR, 1988 Comp., p. 559, unless otherwise noted.
By virtue of the authority vested in me as President by the Constitution and laws of the United States of America, and in order to establish a Working Group on Financial Markets, it is hereby ordered as follows:
Section 1. Establishment. (a) There is hereby established a Working Group on Financial Markets (Working Group). The Working Group shall be composed of:
(1) the Secretary of the Treasury, or his designee;
(2) the Chairman of the Board of Governors of the Federal Reserve System, or his designee;
(3) the Chairman of the Securities and Exchange Commission, or his designee; and
(4) the Chairman of the Commodity Futures Trading Commission, or her designee.
(b) The Secretary of the Treasury, or his designee, shall be the Chairman of the Working Group.
Sec. 2. Purposes and Functions. (a) Recognizing the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation’s financial markets and maintaining investor confidence, the Working Group shall identify and consider:
(1) the major issues raised by the numerous studies on the events in the financial markets surrounding October 19, 1987, and any of those recommendations that have the potential to achieve the goals noted above; and
(2) the actions, including governmental actions under existing laws and regulations (such as policy coordination and contingency planning), that are appropriate to carry out these recommendations.
(b) The Working Group shall consult, as appropriate, with representatives of the various exchanges, clearinghouses, self-regulatory bodies, and with major market participants to determine private sector solutions wherever possible.
(c) The Working Group shall report to the President initially within 60 days (and periodically thereafter) on its progress and, if appropriate, its views on any recommended legislative changes.
Sec. 3. Administration. (a) The heads of Executive departments, agencies, and independent instrumentalities shall, to the extent permitted by law, provide the Working Group such information as it may require for the purpose of carrying out this Order.
(b) Members of the Working Group shall serve without additional compensation for their work on the Working Group.
(c) To the extent permitted by law and subject to the availability of funds therefore, the Department of the Treasury shall provide the Working Group with such administrative and support services as may be necessary for the performance of its functions.
——————————————————————————–
Umm… all PPT’ers really need to read this..
http://market-ticker.denninger.net/2007/11/idiocy-on-display-ppt.html
“The reason? The offers came in at an average of $60,000 less than the ‘market price’ set by Fannie Mae, not enough for the mammoth privately owned mortgage conglomerate, even in a sluggish market where prices are declining, Weece said.”
I may be way off here but isn’t market price generally what one is willing to pay for something?
The offers came in at an average of $60,000 less than the ‘market price’ set by Fannie Mae
Oh, NOW I get it. Fannie Mae sets the market price. And I always thought the market set the market price. How foolish of me.
“..isn’t market price generally what one is willing to pay for something? ”
no.. it’s not what “one” is willing to pay..
Market price is what a market is willing to pay.. a well informed market.
The market looks at some asset, examines everything that could affect it’s price, and reaches a concensus on it’s current value.
This is another argument against the stupid idea of raising the f-word GSE limits to $1 million (or even $625k). How can one justify RAISING the limits during a time when prices are going DOWN? Makes no sense.
LOL !! http://biz.yahoo.com/ap/071113/vacant_homes_crime.html?.v=1
Empty Houses Home to Crime As Loans Fail
Regarding San Diego: “The latest figure represented an 11.1 percent decline from the peak of $517,500, reached in November 2005…The last time the median was this low was in April 2004. October”
Wow! In April 2004 gold was around $400 per ounce. Seems a real estate flipper in 2001 could have bought a San Diego place, then sold by the end of April 2004, pocket up to $250,000 tax free capital gains and use the tax free gains (perhaps $60,000) to buy gold and have $120,000 by now.
or he could have put the money in the bank until October 2007, and then bet on Stanford to beat USC.
The rise in commercial bank loans has peaked, the asset backed is dead. Where do we go from here?
http://biz.yahoo.com/ibd/071113/feature.html?.v=1
http://research.stlouisfed.org/publications/usfd/page16.pdf
http://research.stlouisfed.org/publications/usfd/page17.pdf
It costs a builder about 10K every month for an unsold house. So 259 units could cost Lennar about 2.5 millions each month for holding. We will seee how long could they hold on to it. Talk about dumb and dumber.
‘This normally happens during a recession when you just don’t have a base of demand. But it’s like that now. In some of these locations, you just can’t give a house away.’”
Couldn’t pass this up… the seller’s cliche has been “I’m not going to give it away”. My new response, “Because you can’t.”
“The overall median for October stood at $460,000, down $10,000 from September and 6.1 percent lower than October 2006’s $490,000. The latest figure represented an 11.1 percent decline from the peak of $517,500, reached in November 2005.”
That median-priced house at $517,500 could have been our falling knife, had we jumped at the opportunity. The drop in the median to $460,000 represents $57,500 in evaporated equity. Compared to that, throwing away $51,000 on rent (and none on interest, maintenance, homeowner’s insurance, HOA dues, property taxes, gardener’s fees, club membership, etc) over the period since Nov 2005 does not seem all that terrible.
Not to mention the $40K+ you collected from the muni bond interest on your unspent half-mil during the two years since then.
Unfortunately I am too poor to invest in munis.
“The reason? The offers came in at an average of $60,000 less than the ‘market price’ set by Fannie Mae, not enough for the mammoth privately owned mortgage conglomerate, even in a sluggish market where prices are declining, Weece said.”
brilliant!
WTF? When prices go up it is a supply and demand thing, when it comes down it is not a ‘fair price’?
“Visalia City Councilman Greg Collins has warned for years that development far from Visalia’s core areas might have downsides…in the event of an economic downturn.”
Oh please, give me a break. Visalia has no industry besides lemon and orange groves. Sequoia National Park doesn’t attract that much tourism, and you sure wouldn’t stay in Visalia if you were to visit there. Where would you commute to? Fresno?
My reply to Senator Frankenstein:
Hi Dianne:
Now that house prices are dropping precipitously in California and across the nation, how do you continue to justify an increase in GSE lending limits up to an amount more than 10x median CA income?
Also, I would like to know if you are aware of the efforts to allow the GSEs to buy loans with subprime characteristics. Do you think it’s risky to allow the GSEs to take on mortgages collaterlized by depreciating assets borrowed by people who can’t really afford to pay?
My third questions is whether or not you’re aware of the attempts to get Congress to explicitly back GSE loans? Do you think all of these efforts combined would allow companies such as Countrywide Financial Corp. to sell their bad loans to GSEs so that the GSEs can then demand payment on the inevitable defaults from the US taxpayer?
Thanks for considering all these tough questions,
Bigger V
Answer from Dianne Frankenstein ,
Dear concerned Citizen . In answer to your tough questions : No ,the friends I know wouldn’t do anything that your suggessting .
“‘It’s the next natural step in the evolution’ of the housing downturn, says Nishu Sood, a home-builder analyst at Deutsche Bank. ‘This normally happens during a recession when you just don’t have a base of demand. But it’s like that now. In some of these locations, you just can’t give a house away.’”
Nishu, Nishu, Nishu; you POS. Analyze THIS:
1) Dropping stupidly overvalued prices by 10% or whatever does NOT constitute “giving it away” and 2) Have you ever REALLY tried to literally give away a house?. Yeah, I didn’t think so.
“San Diego County home prices fell to a 3 1/2-year low in October, while sales activity rose from September in spite of last month’s wildfires, DataQuick reported Tuesday…..The latest figure represented an 11.1 percent decline from the peak of $517,500, reached in November 2005.”
It’s been said here that increasing medians might hide the fact that less lower end homes are closing escrow and/or buyers might be getting more house for the same money.
I have maintained to friends that those scenarios are most likely playing out in Portland right now and our peak median price will probably be October, 2007. (Of course, they disagree) I would say peak price before discounts started was Sept.-October, 2006.
For anyone in SD County, how long before November 2005 did you start to see price declines on individual properties? I’m curious to see if there’s any correlation, timewise.
You know what scares me more than anything? We are having all these problems and we are not in a “true” recession, I mean, my company is doing ok and the country is doing ok, not great, but ok. What the he11 is going to happen when we get in a recession? One more thing, I read, and don`t know where, that alot of the sub. and alt-a loans where behind even before the resets. This is crazy. But this is a great web site. Thank you Ben!
Regards,
Lane
“People don’t ask enough questions, he said .’Simply because a lender tells you that you qualify for a certain amount doesn’t mean you can afford it ,he said .’”
Well lets see now … Lenders were offering loans that the borrowers could qualify for but they couldn’t afford them .Does that just simply mean that lenders would qualify borrowers that couldn’t afford the loans ?
By the time the borrower got to the mortgage broker or loan agent ,they had already been sold the pitch of real estate always goes up and get in now and just refinance later ,so I guess they didn’t have to many questions . And why would a borrower know what questions to ask? It’s up to the mortgage rep.,(who is a agent of the lender ),to detail the loan features . This is total BS that borrower were put on loans they could not afford long term . Sure the borrower might of been able to afford the teaser rate ,but lenders qualifying borrowers based on a teaser rate is just a excuse to cram unaffordable loans down peoples throat .
I’m sure alot of these stupid borrowers were told alot of BS so they wouldn’t ask any questions .Yes, a borrower should read their loan documents ,and the fact that they weren’t doesn’t excuse the lenders agents for putting people on loans that they couldn’t afford . People don’t know what they can afford and it’s up to the lender to make prudent loans for the protection of the deposits that fund that loan . I mean this is so stupid that the lenders are trying to peddle the concept that borrowers were faulty in what they thought they could afford . Since when does a borrower call the shot on what he can afford or be required to ask the right questions .
Just suffice to say that whoever designed these low down ,teaser rate adjustable loans and qualified borrowers based on a short term teaser rate was a evil inventor of a BS loan ,that was designed for some ponzi scheme . I don’t care what your credit scores are ,that sort of loan would be so high risk for a lender that it’s a joke .
Borrowers don’t know how to gage a loan risk ,even if it’s their own ,and it’s the lenders duty to qualify and to prevent fraud . Why were these loan agent clowns getting paid these big loan commissions ,to let the borrowers decide what they could afford and pass on fraudulent loan applications to the secondary market ?
I don’t condone the greedy borrowers not doing their homework ,but at the same time there is no excuse for what the lenders did . Borrowers who knew they were inflating their income for loan purpose were in collusion with the loan agent with both seeing dollar signs . And darn it ,why did the realtors take people to houses they couldn’t afford just because some creep lender would cram a borrower into the time-bomb loan ? I guess strange things happen when everybody believes real estate always going up will hide all sins .
OT, but for Palmetto,
Spitzer, ny governor who wanted to give illegals driver’s licenses, has now officially backed off. Also, killed his second proposal to give them a ’special’ license. Reason, a firestorm of opposition in the state…7 out of 10 against. Elected overwhelmingly a year ago, he is now reviled.
City clerks across the state independently announced they would refuse to issue licenses to illegals even if it became law. So, the citizenry finally wins one.
http://www.nytimes.com/2007/11/13/nyregion/14cnd-spitzer.html?hp
Saint Joseph.
What are peoples thoughts on Goldman saying no write downs despite having huge Level three holdings.
i think they are staking their reputation on it.. it’s evident that people do trust their word and their competence so far..
I kinda feel like they went “all in”. Either they (a) hold winning cards or (b) it’s a bluff. They have been called. If (a), everything’s fine. If (b) they will be on the rail.
It seems to me they made a lot of money shorting the very things they hold. I suspect they’ve made so much money this way that they can just hold this garbage for as long as it takes. What is it that forces a company to declare writedowns?
i think it’s pretty simple..
We both paid $100 for the same bond issue. Sometime later I need to sell mine but for various reasons the most the market offers me is $80.. and i sell for $80 cause i desperately need cash..
Your bonds, being the same, are then worth the same.. $80. So, if you had a fiduciary responsibility to anyone, and you must disclose your true, current worth, you’d have to reduce their book value.. a write-down.
Maybe the bond market price will rise sometime later.. then you’d do a write-up..