Prices Have Been Coming Down And Still Nothing Selling
The Daily Democrat reports from New Hampshire. “Strafford County has seen a significant increase in the amount of property foreclosures in the last three years, and there may be more to come. Numbers released by the Registrar of Deeds show 167 foreclosures through Nov. 1. At the same time in 2005 and 2006 there were a total of 33 and 92, respectively.”
“State officials say this problem isn’t limited to the county but is widespread across the state and country. ‘The numbers aside, there’s no secret there’s some sort of mortgage and foreclosure crisis going on,’ said New Hampshire Banking Commissioner Peter Hildreth.”
From WCVB TV in Massachusetts. “NewsCenter 5’s Janet Wu said that experts on Beacon Hill are predicting a $1.3 billion deficit next year, as local cities and towns are getting worse news from the other end of their revenue base: The sales of homes.”
“Numbers are so bad, that many town officials said that they don’t see any relief in the near future.”
“Lynn Silva, who’s been selling real estate for over a decade, said she’s selling about half the number of houses she sold last year. ‘Home sales have been sitting a year for some people, more than a year for other people. Prices have been coming down. Slower and still nothing selling,’ Silva said.”
“Compounding the problem for homeowners trying to sell is predictions from economists that housing prices in Massachusetts will drop another 5 percent through the middle of next year. ‘Because it will make people wait a little longer. There are a lot of people out there looking. They’re just not buying,’ Silva said.”
“Last week, owners of some homes dropped their asking price yet again, but Silva fears there is no more room for compromise for some sellers. ‘Because then she’s not going to get what she paid for it,’ Silva said.”
From Newsday in New York. “There’s a 15.2-month supply of properties for sale on Long Island and in Queens, up from 11.6 a year ago, according to the October data released Tuesday by the MLS of Long Island.”
“October’s median price for closed deals was $429,500, a 2.4 percent drop from the $439,900 median of October 2006.”
“‘There’s about a three-month delay between the time that you make a contract to sell a house and the time it actually results in a closing,’ said Robert Campbell, professor of real estate finance at Hofstra University. He said the gap between the current market and the closing prices exists because the subprime collapse only occurred in August.”
“Overall, the median price that sellers wanted for their homes went down 3 percent from $510,000 in October 2006 to $495,000 last month. In Suffolk, it went from $449,000 last year to $424,900 in October. In Nassau, it dropped from $550,000 to $516,000. In Queens, the desired median was $575,000 a year ago and $570,000 last month.”
“Some agents say that’s not enough of a decrease. But their homeowner clients insist on getting their money back on renovations. ‘I don’t care if you lined your walls with 20-karat gold. You’re not going to get your money back,’ said Renie Vloutely, an agent in Lake Ronkonkoma.”
The New York Sun. “With international buyers helping to buoy the New York market and isolate it from the nationwide drop in prices, the city’s real estate brokerage firms are joining international broker networks, exhibiting properties at property shows abroad, and advertising in publications in other countries to lure even more foreign money.”
“‘America is on sale for now,’ the CEO of Coldwell Banker Hunt Kennedy, David Michonski, said. ‘It doesn’t look like that’s changing for at least another year.’”
“‘There is a lot of hysteria about real estate right now, but the foreigners come at this with a better perspective,’ Mr. Michonski said. ‘They know that the time to buy a straw hat is in January, not June.’”
The Philadelphia Daily News from Pennsylvania. “Housing prices dropped citywide in Philadelphia for the first time in five years in this year’s third quarter, according to a study. The study also said home foreclosures in Philadelphia rose to more than 900 in July, August and September, about 50 percent higher than in 2005, while nearly 3 percent of households were delinquent in mortgage payments.”
“Philly still has a big inventory to sell down, said Kevin Gillen, author of the study and a professor at the University of Pennsylvania. Fewer than 6,000 homes were sold in the third quarter, the fewest since the same period in 2003, leaving nearly 12,000 units still for sale.”
“‘Until we work out all that inventory, house-price appreciation doesn’t look to resume anytime soon,’ Gillen said.”
“‘The national trends have finally caught up with us,’ Gillen said. ‘If history is any guide, then just as the recent boom market lasted several years, then so too should the bust.’”
“Heather Petrone, president of the Greater Philadelphia Association of Realtors, said that homes in the $250,000 range in the northwest part of the city, where she is based, have been moving steadily, but that buyers have been insisting on concessions, and sellers have been more willing to sit down and talk.”
“‘This is a normalizing market, where you have give and take,’ she said.”
“In the third quarter, mortgage foreclosures in Philadelphia rose to more than 900 homes, about 50 percent higher than in 2005, Gillen said. He said the steepness of the decline in University City was in part explained by the fact that the price appreciation there over the last five years was the highest in the city.”
“‘We were late to the boom, and now we are late to the bust,’ Gillen said. ‘I consider this more symbolically important. Housing prices [in Philadelphia] have doubled over the past five years.’”
From Metro Philadelphia. “The bubble isn’t exploding in Philadelphia’s real estate market like it has elsewhere, but it’s starting to deflate. Home prices in the city are on the decline for the first time in five years, according to a quarterly report released this week by Wharton economist Kevin Gillen.”
“Q: Why is Philly’s market finally starting to catch up to the national slowdown? A: As far as housing cycles go, prices are usually the last thing to change. As I say, ‘trying to figure out where the housing market is going by looking at price trends is kind of like driving your car by only looking in the rearview mirror.’”
“‘You have to look at sales volume. … The thing that really started to indicate things were slowing down is the number of homes waiting to be sold started to bloom.’”
“Q: What about people that bought their homes during the boom expecting to be able to sell them at a profit a few years later? A: ‘I don’t like to give anyone bad news. I can tell you the next few years don’t look like they’ll be anything like the last few years. I would not expect the market to rescue you. People have to realize that the past few years were a real anomaly in terms of market conditions. We’ve now reverted to reality.’”
The Cape Gazette from Delaware. “Prime, luxury-housing developments along the Atlantic Ocean seem little affected so far by the housing market downturn, but state officials say home foreclosures are slowly creeping toward the beach.”
“‘It’s starting to move toward the beach. People are suffering all over with the same problems. The assets are not as liquid as they once were,’ said state Banking Commissioner for Consumer Affairs Gerry Kelly. ‘Overall prices are still high, but the inventory is also high unless you’re in a prime market. Whether it’s investor-driven foreclosures or homeowner-driven, we’re looking into that.’”
“‘Some investors may be overextended, but that may become clear over the next year or so. They’re not seeing the profits,’ he said.”
“Association President Rob Harman said the growth in the Cape Region is a double-edged sword. ‘Sussex County growth is like it’s never been, but we’re suffering from our own success. Income has not kept pace with real estate prices,’ said Harman.”
“The median-priced home is about $260,000, but local residents with dual incomes only make about $50,000 a year, he said. ‘We need to put resources together to bring those two ends together,’ said Harman.”
The News Post from Maryland. “The promise of stilling the hammers and preserving open space swept this slow-growth board into office, but some residents question why they keep hearing the steady bang, bang, bang of residential building. Especially when the housing market has dipped to a 12-year low.”
“‘Why are they still building more new homes in Frederick County at the same time there is a high of 20+ foreclosures in the FNP?’ asked one reader this week.”
“About 2,400 homes are for re-sale in the county, while another 26,319 are in the wings at various stages of the development process. Of those, 11,534 must still pass the APFO test.”
“Areas facing the largest influx of new homes include Frederick (8,392), New Market (7,735) and Urbana (5,545,) while Middletown, Thurmont and Walkersville have the fewest units planned in the county.”
“Left up to Commissioner Lennie Thompson, dozers would be rusting in their tracks. ‘Give me three solid votes and we can place a moratorium on all major residential subdivisions in the entire county, including within municipalities,’ he says.”
“A more cautious Commissioner Jan Gardner tempers Thompson’s pronouncement by pointing out the legal challenges inherent in stopping projects in progress, and the fact that the county has limited ability to intervene in municipal decisions.”
“Moratoriums, she says, which are temporary, can only be enacted when there is a justifiable risk to the public health, safety and welfare. Some might argue that there is justification, but the debate hasn’t really picked up any steam.”
“‘The last board did leave us with a big mess and a lot of zoned land that we cannot support with infrastructure or services,’ she says.”
The Baltimore Sun from Maryland. “A controversial proposed 23-story condominium tower at the heart of redevelopment planned for downtown Columbia may be in jeopardy as its developer struggles in a challenging condo-building market.”
“Florida-based WCI Communities Inc. insists that the project is solid despite financial problems that caused it last week to announce 575 job cuts — about a quarter of its work force. ‘We’re going to move ahead and are moving ahead with the project,’ said James P. Dietz, WCI’s chief financial officer.”
“But fresh questions about the feasibility of the Plaza Residences project near the downtown lakefront have come as WCI said more people are backing out of commitments to move into its existing condo towers and the company reported third-quarter losses.”
“‘I would be shocked if WCI could actually go forward with that tower in Columbia, Md.,’ said Susan Berliner, an analyst at Bear Stearns Co. who follows the company and the homebuilding sector. ‘To me, there’s no way it’s going to get built.’”
“Berliner said that WCI did not mention the Columbia Plaza Residences project as one of the towers it has in the works during recent conference calls with stock analysts to discuss the company’s performance.”
“‘Everyone is just waiting to see what’s going to happen with them,’ she said. ‘WCI can’t continue to exist in their current form.’”
“‘America is on sale for now,’ the CEO of Coldwell Banker Hunt Kennedy, David Michonski, said. ‘It doesn’t look like that’s changing for at least another year.’”
_________________________________________________
There you have it folks. Foriegners are “snapping up homes”. It’s the new mantra. A fresh batch of blustering bullshit brought by babbling buttholes. Any headline to keep the raft of shit afloat.
“blustering bullshit brought by babbling buttholes.”
Exeter, nice wordsmithing there. Reminds me also of the ” bubble headed booby ” insults by Dr. Smith.
Always a good time to give a shout out to Jonathan Harris!
I’m just frustrated with the lying asswipes. The whole system stinks like a shithouse door on a tuna boat.
“bubble-headed bleach blonde comes on at five, she can tell you ’bout the plane crash with a gleam in her eye”
“is the head dead yet, the boys in the newsroom got a runnin’ bet”
substitute FB-RE Shill terminology where appropriate
Already Done, see here:
http://therandominium.blogspot.com/2007/04/ode-to-shady-loan-borkers.html
Yes, because buying a depreciating asset in another country - one on the skids and not that friendly to outsiders - makes a lot of sense.
Whatever. Anything to avoid stating the obvious - PRICES ARE TOO HIGH!!!!
We are fast approaching the point where the sheeple will be so shell shocked with real estate, and with all the sob stories about the foreclosed on, only adds to the idea that people that bought houses, were idiots.
The light bulb moment, for many.
I’d expect every month’s sales numbers to dwindle by double the previous month’s decline, for months to come, if not years.
Once the vast majority considers owning a home to be a bad idea, that’s the time to buy. As with stocks, buy when everyone else is selling, and sell when everyone else is buying.
But you still have to wait for the capitulation phase, which we’re nowhere near yet.
Absolutely. You have to understand the slow motion nature of real estate.
But will the “vast majority” ever actually think that way?? I just don’t see that happening, though a big decline in percentage home ownership for a while wouldn’t surprise me.
I don’t think people will ever get it. And if house prices drop, they’ll whine and cry to their legislators to “DO SOMETHING ABOUT IT”, making the problem even worse.
This has a ways to go.
“I don’t think people will ever get it.”
So true Reuven. I was talking with someone today that seemed to be of like mind. Then she said if we could just get GWB out of the White House things would improve. Long time posters know I’m no fan of him but of course, he’s only a yes man to the PTB. I started to explain that wasn’t necessarily true because the dollar was in the shitcan but then decided the attempt wasn’t worth it. If people don’t understand money they go for any easy scapegoat.
How can we expect to get a “fixer” elected when the voters don’t even understand the problem? W/O some education this will all come down to who spins the problem their way.
I do. I never thought that masses of clueless morons would bet their left nut and first born on real estate because its “an investment” but it happened.
there must be some reason television is saturated with get rich quick scheme infomercials.. trump often has his running on 3 or 4 channels simultaneously, and i use an antenna.
You should buy Joy…. trust me… it’s a great investment.
I don’t think it’s a question of the “vast majority” of the population being against home ownership, per se; it’s a question of the vast majority of people thinking that buying a house is not a good idea because the market is bad. I think that the vast majority of people in this country will always think that owning a home is a good thing; it’s the idea of when it’s a good time to become an owner that fluctuates.
i agree.. renting a home is like renting a car. I’m responsible for it although it doesn’t belong to me.. gotta worry about spilling a milk shake or burning a hole in the upholstery.. can’t drill holes in the dashboard for my cell phone holster..
i agree.. renting a home is like renting a car. I’m responsible for it although it doesn’t belong to me.. gotta worry about spilling a milk shake or burning a hole in the upholstery.. can’t drill holes in the dashboard for my cell phone holster..
Nope. I have had no problem repainting rooms and drilling holes to hang pictures etc, as long as I put the house back the way it was, at moveout time. Landlords are not opposed to such negotiation - both apts and SFRs.
well sure, minor stuff is ok.. how about widening space for the stove and retiling the countertop so you can put a nice one in? Replace a bearing wall with a steel beam and open things up?
the degree to which a rented home is one’s castle depends on the whims of the landlord..
But then again, as a renter, you can just move to better digs.
Guess “we” will have to wait for
divorce, death, movings, and what else for prices to come down sooner. That seems to be the only thing that will motivate people to lessen their high expections.
” As with stocks, buy when everyone else is selling, and sell when everyone else is buying.”
Sounds good on the surface but won’t quite work that well unless you know the city and neighborhood very, very well. As an example here in Salinas some people paid $650K for 1300 sq.ft. of space as late as 2005. The neighborhood lawns were always mowed, etc. (I rent one of the above for $1500K). Today the lawns are getting weeds and browning. My neighbors (to the right and left) whom I always saw daily now I’m lucky so see once a week. They are working overtime to make ends meet. A house across the street originally was up for sale and then was rented out. At first there appeared to be one family in the property now at least two hispanic families with about six kids are living there and have six or more cars parked around the property. Moral of the story, don’t buy until you know what the neighborhood will be like at least five years down the road. When the bottom of the market is at hand, pay a small premium for the better neighborhood so you can sleep at night.
pay a small premium for the better neighborhood so you can sleep at night.
And this brings us to traditional real estate rule #2:
Buy the cheapest house in the best neighborhood you can afford.
That is the key rule. Corollary: If you ain’t got good neighbors you ain’t got s$hit.
…foreigners come at this with a better perspective,’ Mr. Michonski said.’
He is looking for a fresh batch of suckers…er, investors.
You may sell a few luxury penthouses to foreigners (who would have bought them anyway) but they will hardly prop up a citywide market. Also, buying real estate in a depreciating currency is risky; if prices drop and the currency drops it is a double whammy. Good luck New York.
The news today seems pretty sobering compared to normal for FB that read the local “news”. Looks like the RE gang is starting the “we knew this wasn’t normal” mantra.
“State officials say this problem isn’t limited to the county but is widespread across the state and country. ‘The numbers aside, there’s no secret there’s some sort of mortgage and foreclosure crisis going on,’ said New Hampshire Banking Commissioner Peter Hildreth.”
“there’s some sort of mortgage and foreclosure crisis going on”…
Ya think, New Hampshire Banking Commissioner?
“some sort of” crisis? What sort of crisis? Aren’t you supposed to know?
Boy, the folks on New Hamshire can sleep soundly knowing that the wise and mighty Hildreth, their estemed Banking Commissioner has got hem covered.
Aren’t these guys supposed to be on top of these types of situations. I mean, exactly what qualifications do you have to have to be Banking Commissioner in New Hampshire?
I used to tvs and sterios while in college and when a customer asked if I knew where the problem was, my standard answer was “Somehwere in this room”.
I am not busting on New Hampshire. We’ve go the same sort of “no nonsense, large and in charge, where’s the bar?” type of public servants here in Florida and I’m sure as in most states.
“Some sort of….” You don’t know by now, you pathetic moron.
“I used to tvs and sterios while in college and when a customer asked if I knew where the problem was, my standard answer was “Somehwere in this room”.”
Like when psgrs on airplanes ask… how is the food prepared…
” In the oven” is standard answer…cooked.. Sort of like the housing mkt. 4 star restaurant? Nah.. and the “CHEFS” like the NH banking comm should be telling the truth, not doing the shell game.
I see about 5-10% listing price reduction from August here in NJ but thats about it. Nothing moving.
The FrederickCcounty story is interesting. It’s about a 1.25 hour drive from DC (ignoring traffic) and the county was all rednecks 15 years ago. My friend’s co-worker (who is white) always joke around and call it Fredernecks county. But time has changed and due to construction boom, more and more…uummm undocumented guest workers
have moved there to live and work. There are more traffic (I-70 is bad)and new houses are mid $500s and $600s which is insane. Anyone on this post live there?
I live in MOntgomery and have checked it out because you get more bang for buck, but commute is a bad deal and not worth the savings. Traffic is just as bad in Fredneck as it is in Montgomery.
The commute from Fredernecks County to DC is pretty brutal because I cansee heavy traffic on I270(the major way) almost everyday. I guess it would be at 2 hours one way. The money saved for living in Fredernecks County is all eaten up by high fuel cost.
4 hours commute a day? Who can live like that?
I live in Maryland, and yes, the place is insane. A starting townhouse or condo will run well over $300K. The only reason the median housing price in Maryland is “only” about 5 to 6 times the median income of about $60K is because all the houses either in the pits of Baltimore (where no sane person would live) and the ones in far-flung western and eastern regions with no jobs drag down the average. If you actually want a job - one beyond Wal-mart greeter - be prepared to not be able to afford to live in the state.
Frederick is an example of this, and the blight spreads even out to Hagerstown, up north of Baltimore into Pa, and even onto the Eastern Shore. People have been brain-washed into believing that spending 6 times one’s yearly salary on a shoddy McMansion in a cookie-cutter neighborhood 1+ hour(s) away from work is “normal.” Well, it’s not, and that reality is going to assert itself in the next few years. Oh, and the higher gas prices and higher taxes should go along nicely with the reseting toxic loans.
I’ve lived in Frederick county for 26 years. It definately has changed a lot, for the worse, especially in the last 6 years. First of all, an equivalent house used to cost about 60% when comparing between Mt. Airy and Gaithersburg. Now, the same house in Mt. Airy vs. Gaithersburg is something like 85 to 90 percent the cost, making the extra distance less attractive. The worst thing that has changed, though, is the huge increase in population and traffic. 26 years ago, it was a quiet, nice place to live, especially when you consider the lower cost of living vs. Montgomery county. But now, there’s no point in moving to Frederick county (at least the southern half of the county) because the cost of living is nearly as outrageous and it is not quiet at all anymore. It is ruined!
“‘There is a lot of hysteria about real estate right now, but the foreigners come at this with a better perspective,’ Mr. Michonski said. ‘They know that the time to buy a straw hat is in January, not June.’”
Comparing $10 (Made in China) straw hats purchases, to real estate timing, is a bit over the top.
Poor foreigners…once again playing the role of the GF of last resort. Is there anything we can do help make this thing just a little bit more global?
Straw Hats Buyers—Umm
Straw (Home) Buyers-US Real Estate
Buy more straw!
Considering the Straw buyers’ (used by Krispy and Kool-Aid etal in Ca) role in inflating the Housing Bubble around the nation, it seems only appropriate that foreign straw hat buyers will continue to prop up the illusion of high home prices prices, until we all run out of straws.
More power to straw hat buyers, bring on the straws!
‘I don’t care if you lined your walls with 20-karat gold. You’re not going to get your money back,’ said Renie Vloutely, an agent in Lake Ronkonkoma.”
Word. Most sellers think stainless steel sink stoppers and a coat of paint is remodelling and “worth” an extra 50K.
$3,000 in new granite countertops is worth $10,000 and pulling up the rugs and refinishing the hardwards (cost $2,500) is worth $15,000. $100 in paint = $50,000. Don’t you watch HGTV.
Those shows make me sick, and were targeted at stay at home wives and husbands to get them to make a trip to Lowe’s or Home Depot and to introduce new products to an uneducated public trying to keep up with the neighbors, and invest in home remodeling or real property. The 2008 fall will be fun to watch as these investors and “designers” all go belly up. They deserve it sooooooo much. I hope HGTV gets sued for its disgusting programming. Flip This House, What’s My House Worth, etc., informericals for the weak minded.
It horrifies me how many otherwise intelligent people have bought into this nonsense; I am talking about college-educated types (engineers, business people, scientists, etc.) who would not normally do stupid things…
How can anyone believe that doing an upgrade that costs $1,000 will net $5,000+ in profit? Why couldn’t the new buyer just spend the $1,000 themselves instead of paying you $5,000+?! And, half the time, the new buyer’s tastes are going to differ from the old buyer, so they have to redo the work anyway! It is nuts!
I agree. When I buy, I would never buy a flipped house. Who wants to pay a premium for someone else’s taste, or shoddy workmanship. PPL are greedy sheep and follow the herd. Unfortunately (for them not me), the herd is walking straight into the slaughter house.
Exactly. I always want a semi-distressed house. Hell, if nothing else, I can always use the extra employment.
Actually there is a small issue here - as usual related to the stupid lending. The person who is buying wants the house to be perfect when they move in - just because it is nice, and, more importantly, because they don’t have any money. They didn’t have a downpayment. Any “space” on their credit cards is going to finance furniture and other house junk. They don’t have the cash to write a check to a contractor.
The person selling the house, on the other hand, can use a HELOC to finance the work. So one can do it and the other can’t for at least a few months (when they will have magically acquired enough equity to get a HELOC) and would rather not live with the inconvinience.
The spread is beyond stupid, but some small spread - assuming you find buyers who want exactly the upgrades you have done (not too hard with sheeple) - would be expected.
I just saw a 3000 sf realtor-owned rehabbed house listed around the corner from me: $699K. Purchased in April this year for $250K. I would bet that the profit if it sold at asking would be at least, what, $250K, and likely a lot more. The rehab didn’t even include a central air install, but it is painted with a “lovely pastelle pallette,” according to the listing notes. Seems there’s a seller-perceived $200/sf market value in my neck of the woods.
Isnt easy money fun. Im just waiting for the $1,000,000 mobile home REO advertised with new paint, granite countertops and hardwood floors. Great to see this moron party ending. Please ppl never offer more than 50 cents on the dollar for flipper upgrades and maybe they will get the point.
Well actually minor cosmetic improvements often DO pay for themselves. Now they won’t generally pay for the 6% realtor bite and make flipping worthwhile, but when selling, you SHOULD spend a few hundred for fresh paint. It’s not so much that buyers value your taste in paint, but the assumption by many is that if the seller didn’t keep up with minor aestetic maintenance, they probably didn’t keep up with the important stuff either.
Dont get me wrong, I am not opposed sprucing a house up to sell. I am insulted though, however, by ppl that buy with the intent to put in 30k of work and then sell to me for 100k more. HELLS NO!!!!!!!!!
Dude, you’re so out of touch.
Flip this House is on A&E. Flip that House is on TLC. Or is it the other way around… I get those two confused. TLC also has Property Ladder, Trading Spaces and Moving Up. Who had “Real Deal”/”Real Estate Pros” (they had to change the name after a couple episodes becasue people didn’t realize Real Deal was about Real Estate).
Let’s not forget Flipping Out, which when I first saw commercials for it, I was sure was a spoof of all the other flipping shows since it was SOOOOO over the top. But no, it was serious… They are now showing reruns of that on CNBC. I can only guess so that they can educate the investment type people of how insane this flipping crud got so they’ll wake up to how bad the crash wil be.
Are you serious? How is that NOT a spoof? I watched one episode and was either laughing or vomiting the entire time. I thought somebody had finally satirized the bubble!
Only thing I watched flipping out for was the rehabs he did. I thought he had high quality stuff done and did infrastructure repairs. We all had this discussion about the flipping shows yesterday. We we rehabbed (not for flipping), 1st thing we did was infrastructure - new electrical, insta-hot water heater, forced air heat and AC. Then I did the cosmetic - paint, floors, light fixtures and plumbing fixtures. I cried when we first saw the house because it was so awful I couldn’t imagine living there. Then I cried when we left because I loved it, but so happy we got out when we did.
Flipping Out is either a spoof or a clever man making fun of himself and the business he is in, as he makes a little money on the side. He plays for the camera. No one is really that ATD are they?
They are all watching “My House is Worth What?” on HGTV.
Bleh.
Fannie Mae stock is dropping like a stone! Down 12% today…what’s going on?
Because executives on the defensive hardly inspire confidence.
they’ll get bail
is raines in jail yet ?
http://money.cnn.com/2007/11/15/magazines/fortune/fannie_losses.fortune/index.htm?postversion=2007111509
Fannie Mae’s fuzzy math
The mortgage lender has quietly changed the way it calculates its bad loans — and it could be camouflaging steep credit losses, writes Fortune’s Peter Eavis.
Can someone help me out here. What does lifting the minimum conforming loans do in real terms. I am newbie and I really don’t know how that makes a difference. Thanks.
This could be the Fortune “Enron” moment for investors in this ticking time bomb of a stock - just rememeber we (US taxpayers) “guarantee” all of this debt.
‘we (US taxpayers) ‘guarantee” all of this debt’
Actually, it is quite clear that legally we don’t. And didn’t you see the recent report that their debt (GSE’s combined) is much larger than the USG debt? We couldn’t pay that if we all wanted to.
I am just joking with you, I know this gets you going.
When I read Talbots book in 2004 this was his biggest fear that we would be forced to try and cover this mess and we would be unable to…
That should be a weekend topic - Why do investors think we (US taxpayers) guarantee FNM debt?
Sorry for going OT…
I welcome every chance to debunk that myth. And the biggest reason the financial community bats that around is the ratings agencies put it out over and over in their most top level reports, and congress doesn’t refute it. Everyone should let their representatives know if they feel like paying for the bubble.
Although there is no explicit guarantee by the U.S. government of GSE debt, these entities will no doubt be considered “too big to fail” when (not if) the time comes to bail them out. Therefore, while there obviously (well, I should say “hopefully”) won’t be an transfer of funds from the U.S. Treasury directly to the GSEs, U.S. taxpayers likely will fund the bailout in some untransparent form or fashion.
Who says they will fail? The bond holders have the risk, not the GSE’s. And they have extensively insured and hedged against losses as well. Let AIG, etc, take it in the shorts. They got paid to do so.
I think we’re arguing semantics, Ben… I recognize the GSE’s bondholders have the risk. However, the likely political reality is that they will not be required to absorb all the losses if the financial levy breaks loose, else the possibility exists of a full loss of confidence in the system and its collapse.
I agree with your prior statements that the Fed ultimately cannot save the markets here, but that doesn’t mean they won’t try. I’ve seen it before during nearly 25 years of investing, and I have no doubt I’ll see it again many times in my lifetime.
That all said, we’ll probably have to agree to disagree here.
The bondholders will be bailed out. The stockholders will get nothing but a wedgie.
I wouldn’t shed a tear watching big international insurers collapse under the weight of their own BS.
it’s generally assumed around here that raising the limits to 1 mill will result in a bunch of new, bad loans.
There is zero economic evidence to support it. There’s a lot of speculative opinion, unrelated to market conditions that do.
Personally i believe it’s just another attempt to get the secondary market moving in a semi-controlled environment.
Well legally, the gov doesn’t back F&F with the full faith and credit. Politicaly however…. I remember the state chartered S&L crisis. The state of Maryland ended up issuing special bonds to bail out the depositors, DESPITE the fact we were under no oblication to support the (private) deposit insurance fund. I just don’t think that Fannie and Freddie can be allowed to default and be liquidated. Although I could imagine one being forced to buy out the other.
Frankly, if you can’t afford to borrow money at market rates, you shouldn’t be paying 750k for a house.
So what could a soaring loss ratio mean for Fannie Mae? Consider these numbers: At Sept. 30, Fannie Mae had exposure to $74 billion of loans with a FICO credit score below 620. Loans scored below 620 are generally classified as subprime. In addition, Fannie Mae has exposure to $196 billion of Alt-A mortgages, home loans for which the borrower doesn’t have to submit complete documentation for basic criteria like income.
At the same time, Fannie Mae has only $40 billion of capital.
So exposure to $260 billion of bad mortgage debt, with $40 billion capital. So am I correct in estimating that a 15% loss on those loans (very possible) would make Fannie insolvent?
I guess it all depends upon what is meant by “exposure” ?
Sussex County, Del has to be ground zero for the mid-atlantic bust. I spent 2 years there during the absolute peak of the boom and I can imagine what FL and CA were like because of it. Morons were coming out of the woodwork and buying the monstrosities of a house. My construction contact there who has a real-turd for a brother in law said new residential work (craning trusses) is non-existent.
At least Sussex has the beaches. What I can’t fathom are the number of people who were willing to pay $400K to live in Middletown. They spend 45 minutes commuting to Wilmington (to say nothing of the ones who work in Phila.), all for a beige vinyl-clad box in a sea of identical subdivisions.
I posted about Middletown not too long ago. I called it something like “Phoenix with a few trees”. Got some Phoenix-ite all up in arms. Ranted about how he can ride his bike in February. Go figure. Anyway, Middletown is depressing. When the price of oil starts to shoot up, watch out. Middletown will be a Ghost-Town.
Today’s Officer Of Loan (TOOL)
“Florida-based WCI Communities Inc. insists that the project is solid despite financial problems that caused it last week to announce 575 job cuts — about a quarter of its work force. ‘We’re going to move ahead and are moving ahead with the project,’ said James P. Dietz, WCI’s chief financial officer.”
…Because Florida condo developers have shown themselves to be excellent judges of the market.
“There’s a 15.2-month supply of properties for sale on Long Island and in Queens, up from 11.6 a year ago, according to the October data released Tuesday by the MLS of Long Island. October’s median price for closed deals was $429,500, a 2.4 percent drop from the $439,900 median of October 2006.”
Like I said in Weekend Topics — no capitulation. You can fail to sell your house for as much money as you want.
I just want to say how happy I am to see Philadelphia finally make its way into Ben’s news post as another HB casualty. It’s not different here, it’s not different here! Or, to put it another way: Real estate is all local…and it’s a very small world.
Welcome to the bubble and grab some popcorn…
Are you glad now that you resisted all pressure and held out?
Happy pappy and now prepared to hold out even longer.
Me too. I look around and see houses sitting and flips sitting (two right on my street in Gloucester Twp, several more in my town, flips and new construction flips) but not too many articles on the Philly real estate bubble, even in Philly newspapers. It’s happening here too, I’ve seen my house double in ‘value’ in 6 years, yet everyone thinks Philly was untouched and normal. Oh contraire.
Until I see a moving van nearby, I am going to guess the house they are working on is going to be a flip, again, cause it was already rehabbed last yr, trash trailer outside now.
That particular owner had bought from foreclosure, and rehabbed, older guy/wife in RE, first thing out of his mouth 1 yr ago for OPEN HOUSE …” I just lowered the price at noon today to $435, 60k less..” he said he had 14 more homes.
1 yr later it is “sold” and now trash trailer out front?
“Fewer than 6,000 homes were sold in the third quarter, the fewest since the same period in 2003, leaving nearly 12,000 units still for sale.”
Am I interpreting this correctly that Philly turned over (more or less) 1/3 of its inventory in the quarter? That seems high. I don’t follow the Philly market closely, but that seems quick for just about anywhere in the country right now.
One of the frustrating aspects of the RE boom is the absence of accurate data. I just looked up Phila. inventory on housingtracker.net, and it’s around 12k. (that doesn’t count FSBO). Gillen is out of U of P, so maybe his numbers are trustworthy.
My eyeball view of the situation is this: houses are selling at a much slower pace than last year; a lot of sellers holding out for wishing price; and Real Estate Seminars in this area are still packing them in.
(This a.m. I heard a radio ad in which a dumbass bimbo encourages her dumber bimbo little sister to buy a house, because “now is the time to take advantage of the foreclosure situation!” Whoopee!!!) So there certainly is a fair number of knife-catchers around here.
I never understood the “real estate is local” comment NAR likes to make. How could low interest rates, national subprime lending and collapse thereof, and the credit and liquidity crisis be local. The concept befuddles me. This was not a run up in one area due to changes in that area, but due to low interest rates combining with lax lending standards, and a move toward mortgage backs securizations. Local? WTF are those ppl talking about.
Well the RE market IS local. But the Mortgage market ISN’T.
Mikey(2), i have to disagree with you… It is different here. Where else can you find a $799,000 plywood townhomes right next to a crackhouse?
OH BOY!
LONDON (Reuters) - The impact of the U.S. mortgage market crisis on the underlying economy could be “dramatic” as leveraged investors may need to scale back lending by up to $2 trillion, according to investment bank Goldman Sachs (GS.N).
And leveraged investors react to losses by actively cutting back lending to keep capital ratios from falling — A bank targeting a constant capital ratio of 10 percent, for example, would need to shrink its balance by $10 for every $1 in losses.
“The macroeconomic consequences could be quite dramatic,” Hatzius said in the note to clients. “If leveraged investors see $200 billion of the $400 billion aggregate credit loss, they might need to scale back their lending by $2 trillion.”
http://tinyurl.com/yvzge9
Just to put that in perspective, banks may have to INCREASE lending to keep the economy going. The reason? “Reintermediation.” Businesses that had dumped banks and their loans to float their own bonds may have to go back to the banks if no one trusts bonds anymore.
The regular corporate bonds are ok because you know what you are buying and can price the risk accordingly. It’s the mixed bag of snit CDO, CLO, CMO and other creative garbage that caused the problem. Ultimately, it’s the buyers’ fault for paying a premium for something they didn’t understand. The ratings agencies are also at fault for giving AAA ratings to junk.
“The median-priced home is about $260,000, but local residents with dual incomes only make about $50,000 a year, he said. ‘We need to put resources together to bring those two ends together,’ said Harman.”
They’ve already done this over the past 5 years. This bust is the end result. What a dumb-ass.
Pricing down but still not selling? Prices need to fall 30%, not 5%. Why are ppl so arrogant that they think they are entitled to a huge windfall (if they bought before peak) or to be made whole if they bought at peak? Back to simple rent v. mortgage payment ratios ppl.
And that’s just to buy with a 30 year fixed at 7.5%, and still stretching it. How about rates at 10%, 12%, 14%…?
True. This collapse is occuring during the lowest rates in history (dont get me started on the feds ignorant lowering of rates, I could write novels on the subject). If housing cant be sustained at these levels, and foreclosures are skyrocketing, what will be the situation when rates go back up to the 8% norm. There will be massive bank auctions, and banks will have to dump. It will be a spiral to the bottom.
Who are these banks that are still offering 6.125% loans for 20, 25, 30 years. Someone I work with is cashout-refinancing (yes, as of this week) and was spewing out some quoted interest rates in that range. When is lending really going to tighten if someone can still get a 6.125% loan? That makes no sense. I’m thinking that may be it’s a bait and switch or something.
With respect to conforming loans, the tightening is due to stricter lending standards rather than increased rates. Jumbos however are taking a diverging path and the spread is increasing.
“Prices need to fall 30%, not 5%”
Now, now, 30% is not a fair number. (I am going with 40%, I did not use to think this was reasonable, but now think it may be a bit conservative)
Found this a yr ago and did the math..renting is the way to go for the time being. And probably some good rent deals to come, nicer homes, nicer neighborhoods etc.. maybe
http://patrick.net/housing/crash.html
If they’re still not selling, then they still haven’t fallen enough! What’s enough? When it sells, nimrod.
Don’t believe these agenst who say i’m doing 50% less sales no way they are doing 90% less sales, one problem for the industry has been the poorly trained and lets say less then truthful people most agents are. The pro’s are few and far between .I have had agents tell me right to my face what problem houses are selling very well and then you drive down the street with them and point out all the empty houses and they tell you they just havn’t moved in yet, these people are a piece of work for sure?
‘They know that the time to buy a straw hat is in January, not June.’
—————————————————————-
AND They know that the time to buy a house is in January 2010, not June 2007.
this one deserves a repeat…..
‘They know that the time to buy a straw hat is in January, not June.’
—————————————————————-
AND They know that the time to buy a house is in January 2010, not June 2007.
“‘It’s starting to move toward the beach. People are suffering all over with the same problems. The assets are not as liquid as they once were,’ said state Banking Commissioner for Consumer Affairs Gerry Kelly. ‘Overall prices are still high, but the inventory is also high unless you’re in a prime market. Whether it’s investor-driven foreclosures or homeowner-driven, we’re looking into that.’”
Very soon the only thing liquid near the beach, will be the salt water.
Just a little Phoenix area local observation…
Was driving a friend’s kid home and got off on I-17 and Indian School (downtown-ish phoenix). Sign on the side of the exit ramp: 4br\3bth 60k below comps call xxx.
Pretty bad when your advertising 60k below comps on the freeway exits. I’d say we’re getting back to the levels and desperation of the 89-91 crash here.
Ben Jones wrote:
“Actually, it is quite clear that legally we[u.s. government] don’t[own the GSE debt]. And didn’t you see the recent report that their debt (GSE’s combined) is much larger than the USG debt? We couldn’t pay that if we all wanted to.”
What sucks about this most, to me personally, is that my wife’s 401K doesn’t ahve a “U.S. Treasuries fund” option. Only a “Govt. Securities” option. Her “Govt. Securities” includes GSE bonds.
Where the HECK are we supposed to put her 401K money?
Hey Darrell:
This is what we did: Poor choices for husband’s 401k. So, he just did not participate. At all. He would have lost everything had he opted for any of the poor choices offered by his former company. Idea!: Had his own 401″j” (”J” = Ist initial of his name - took 15% of salary and had it automatically deposited in a fund of his choice at Vanguard. If your income levels allows it - do the IRA thing so at least you can get a tax credit. You can also write a letter to your HR listing fund choices that you’d like to see. At this point in time, I think they may be more willing to listen to you as opposed to last year.
All the best to you.
~Misstrial
Here’s the Fund (which is repost #4):
Vanguard Treasury Money Market Fund, Fund #50
liquid, $1.00 for $1.00
only $3k to get in
ultra short term loans to the U.S. Treasury only
No CDOs, No MBS, No CP, No SIVs, No MBOs
**************************************************************
New Stock Market option:
Hudson City Bancorp
One of the safest banks in the U.S. (Its in NY)
Only 4 foreclosures since 1911.
Stock has been going up, now at just over $15.00 per share
Ticker: HCBK
~Misstrial