Not Just Looking For Good Deals; Looking For Payback
Some housing bubble news from Wall Street and Washington. CNN Money, “Jerry Howard, CEO of the National Association of Home Builders, told CNNMoney.com that numerous problems caused the sharp slump in the housing and mortgage markets, but he added that overbuilding during the boom years was a contributing factor. ‘There were some builders [who] were probably overly aggressive. There’s no question about that,’ Howard said.”
“‘Economists were starting to say this is a cyclical business and we are going to get into a downturn. But some guys were chasing the gold and pursing the brass ring, and they didn’t heed the market warnings as quickly as they should have,’ he said.”
“Government figures show that 6.2 million new single-family homes were completed between 2003 and 2006 - hitting record levels year after year during the boom. Howard also said builders underestimated how much speculative investors were pumping up the market.”
“‘We now find out in hindsight it played an important role and a very dangerous role,’ he said. ‘For the first time that I can remember, you saw investors coming into the housing markets and trying to play it into almost like a day stock.’”
“Dean Baker, co-director of the Center for Economic and Policy Research, said a boom in building was bound to happen due to the bubble in home values; builders were responding to the market conditions, not creating them.”
“‘I put them low on the list as villains for the story,’ Baker said. ‘If there’s a high price for houses, people build them.’”
From Realty Check. “I’m hearing some disconcerting rumblings from some builders, anecdotally speaking of course. One mid-sized private builder told a friend of mine that potential customers coming through their model-home doors are openly hostile. They’re not just looking for good deals; they’re looking for payback.”
“Apparently some of today’s new homebuyers blame the builders outright for the current housing predicament. They are telling unwitting sales reps that they are to blame for running up prices and foisting untenable loans on clients during the latest housing boom. Buyers are telling the sales people stories of how rudely they were treated during the boom.”
“Another builder told someone else I know that buyers today aren’t just low-balling, they are making truly ridiculous offers, like half the asking price.”
From CE Pro Magazine. “Some industry prognosticators are predicting that the housing market will not turn around until 2009. Why are some integrators not sad, but downright happy, to hear that news? For some integrators, it’s a matter of having been burned by the shady practices of a large builder in the past.”
“‘They’re all scumbags!’ is how the owner of one large Florida-based security company bluntly characterized large production builders recently when we spoke. He proceeded to tell me several details regarding his dealings with several national builders.”
“For instance, long after contracts had been signed, one builder insisted the dealer provide an extra free alarm keypad for every home in the development. When the dealer resisted, he was thrown off the job. ‘And the company they ended up using did everything wrong and many of the systems failed, hurting that builder’s reputation,’ he recalls.”
From Reuters. “The top lobbyist for the U.S. mortgage banking industry said on Wednesday that he is stepping down after five years to head a trade group representing mortgage title insurers.”
“Kurt Pfotenhauer, who will leave the Mortgage Bankers Association at the end of January, said the recent housing finance crisis has made the last eighteen months some of the most challenging in his professional life. Pfotenhauer has often had to defend an industry that sold troubled subprime mortgages with built-in cost spike that are helping drive up foreclosures.”
“‘We had some members that pushed the envelope too far to the cost of families and financial institutions,’ he said.”
The New York Times. “The Illinois attorney general is investigating the home loan unit of Countrywide Financial as part of the state’s expanding inquiry into dubious lending practices that have trapped borrowers in high-cost mortgages they can no longer afford.”
“Lisa Madigan, the attorney general, has subpoenaed documents from Countrywide relating to its loan origination practices, a person briefed on the matter said.”
“Countrywide Financial Corp, the No. 1 U.S. mortgage lender, said on Thursday mortgage loan funding tumbled 40 percent to $23 billion in November, sending its shares down as late payments continue to escalate.”
“The bulk of the origination decline came from a near-evaporation of Countrywide’s subprime lending business and a sharp fall-off in adjustable-rate mortgages.”
“Credit Suisse analyst Moshe Orenbuch said Countrywide’s delinquency rate was 6.34 percent in November, up from 5.89 percent in October. Subprime mortgage funding fell to $17 million in November from $3.06 billion a year earlier, when lending standards were lax. Adjustable-rate fundings fell to $3.33 billion from $14.3 billion.”
The Associated Press. “Lehman Brothers Holdings Inc. had $3.5 billion worth of writedowns during the fourth quarter, with a majority of it coming from investments in mortgage-backed securities, the investment bank’s global head of risk said Thursday.”
From MarketWatch. “Security Capital Assurance may lose its crucial AAA rating because it insured complex securities that are being hit hard by the subprime-mortgage meltdown, Fitch Ratings warned.”
“Fitch said that, after reviewing the CDOs and mortgage-backed securities guaranteed by Security Capital, the insurer’s capital adequacy falls $2 billion short of what’s needed to keep an AAA rating.”
“The main problem centers on Security Capital’s $16.1 billion exposure to structured finance CDOs, according to Fitch. A number of those securities, which were originally rated AAA, should now be rated BBB or junk because the underlying subprime mortgages and other assets have deteriorated and are expected to keep getting worse, the agency said.”
“Residential mortgage-backed securities that Security Capital guaranteed also have deteriorated, particular those backed by prime, second-lien home loans, Fitch added.”
From Spiegel Online. “The much anticipated sale of Landesbank Sachsen went through on Thursday morning. But the state of Saxony is on the hook for €2.75 billion despite promises by the government that tax money was safe.”
“The deal was initially agreed to back in August. After Landesbank Sachsen (Sachsen LB) ran into massive difficulties stemming from the subprime collapse in the United States and resulting credit shortages, Landesbank Baden-Württemberg (LBBW) expressed interest in buying it. But the deeper LBBW plunged into the books of Sachsen LB, the less it liked what it saw.”
“The eastern German state of Saxony agreed to put up a guarantee of €2.75 billion ($4 billion) to help cover some €43 billion worth of risky investments at Sachsen LB and an affiliate, according to Saxony government spokesman Peter Zimmermann. According to press reports, LBBW had been demanding €4.3 billion, which would have amounted to almost a quarter of Saxony’s entire state budget.”
“The bank itself, Zimmermann confirmed, changed hands for €328 million in cash.”
From Bloomberg. “The Bank of Japan said Thursday that it would act as needed to relieve strains…after several top central banks - the Fed, the European Central Bank, Bank of England, Bank of Canada and Swiss National Bank - announced a new short-term lending facility and other measures Wednesday.”
“It was the first such joint action by major central banks since they took steps to help financial markets recover after the attacks on the United States on Sept. 11, 2001.”
“Investor delight at a concerted central bank effort to relieve jammed money markets fizzled out on Thursday with experts saying the credit crisis would only end when commercial banks trusted each other again.”
“Even the Swiss National Bank said central banks alone could not solve the crisis, as it kept interest rates on hold. ‘As long as uncertainty with respect to the scope of the credit problems exists the disruptions on the money market are likely to persist,’ the SNB’s Thomas Jordan said.”
“‘Central banks cannot compensate for this lack of confidence simply by injecting additional liquidity,’ he said.”
From The Age. “‘Investors (were) initially buoyed by the action of the central banks then, once the colourful present was opened, they spat the dummy like a petulant child,’ said Joseph Palmer & Sons director Alex Moffatt in a note to clients.”
“Financial institutions became reluctant to lend to one another during August, when defaults in the US subprime mortgage market hit some banks and set off a period of extreme volatility on equity markets.”
“The interest rates banks charge each other for short-term loans in Europe failed to decline from the highest levels in seven years a day after central banks joined forces to break a logjam in money markets.”
“The highest short-term rates since December 2000 suggest that the first coordinated central bank action since the Sept. 11, 2001, terrorist attacks may not be enough to revive interbank lending. The cost of borrowing dollars fell 7 basis points to 4.99 percent, about half what was anticipated, based on prices of Libor futures contracts.”
“‘It’s not going to help us find an exit to this crisis,’ said Cyril Beuzit, head of interest-rate strategy at BNP Paribas SA in London. ‘These measures aren’t going to address the root cause of the crisis. Banks are still reluctant to lend money to each other because there are serious concerns about potential further bad news.’”
From Fin Facts. “ECB says the 21 largest Eurozone banks have €244bn in off-balance sheet assets that they may have to take onto their balance sheets which would impact their lending capacity.”
“‘All in all, it cannot be excluded that the market re-pricing process could become more disorderly, possibly revealing further and, so far hidden, risk exposures. In addition, those LCBGs that rely on funding from non-deposit sources, and those that are particularly active in the securitisation businesses, could see their revenues decline significantly. Forward-looking financial market indicators, such as banks’ CDS spreads and share prices, currently suggest that challenges pertaining to the banking sector are likely to remain in the near future,’ concluded Lucas Papademos, Vice-President of the ECB.”
“Interest rates on loans in euros stayed at a seven-year high, a day after global central banks teamed up in an attempt to thaw a freeze in money markets.”
“The three-month borrowing cost was at 4.95 percent, its highest level since December 2000, according to prices from the European Banking Federation today. That’s 95 basis points more than the European Central Bank’s benchmark interest rate and up from 4.18 percent at the start of July, before losses related to subprime mortgages contaminated money markets.”
“U.K. Prime Minister Gordon Brown said the surge in credit costs should spur increased transparency in the banking industry and change the way credit-rating companies work.”
“‘It’s a wake-up call for the global economy,’ Brown told lawmakers in Parliament in London today. ‘The existing institutions aren’t good enough. I’m going to make it my business to reform those institutions.’”
“Former Federal Reserve Chairman Alan Greenspan ignored warnings about the Fed’s low interest rates that fueled real estate speculation and the current housing recession, said Allan Meltzer, professor of political economy at Carnegie Mellon University in Pittsburgh.”
“‘I think he lets himself off much too easy,’ said Meltzer, author of a 2002 book on the early history of the central bank, in an interview. ‘He acknowledged maybe his policy had a little bit to do with it. But he found all kinds of other reasons’ to blame for the housing and mortgage problems…in a Wall Street Journal commentary.”
“Greenspan…said the Fed was worried about deflation. Meltzer said he met then with Greenspan at the former chairman’s invitation and disagreed with the concern over deflation.”
“‘I said, ‘Alan, we have had six or seven deflations in the United States in the history of the Federal Reserve, and only one of them ever had terrible consequences, and that was 1929 to 1933,’ he said. ‘In all the other six, nothing happened.’”
“Greenspan ‘continued to believe that deflation was the problem. He was wrong about that, simply out and out wrong,’ Meltzer said.”
once the colourful present was opened, they spat the dummy like a petulant child,’
I love that visual. That’s what I wanted to do yesterday a.m. Looks like nobody is happy!
I love that line “looking for payback…I guess because I am LOL. I was the paranoid fool at many a party for not buying my Mcmansion and I guess I want to see the real fools suffer. When I called the local market over priced I got many a condescending sneer from realtowhores that I was just uniformed. Yes. Payback. Definitely.
Here’s the bit I added after the first post:
‘ECB says the 21 largest Eurozone banks have €244bn in off-balance sheet assets that they may have to take onto their balance sheets which would impact their lending capacity.’
‘‘All in all, it cannot be excluded that the market re-pricing process could become more disorderly, possibly revealing further and, so far hidden, risk exposures. In addition, those LCBGs that rely on funding from non-deposit sources, and those that are particularly active in the securitisation businesses, could see their revenues decline significantly. Forward-looking financial market indicators, such as banks’ CDS spreads and share prices, currently suggest that challenges pertaining to the banking sector are likely to remain in the near future,’ concluded Lucas Papademos, Vice-President of the ECB’
244B, with blow-ups happening every day, and they wonder why nobody wants to lend money?
Here’s what our own little monster is doing today:
‘Fannie Mae, the largest U.S. home funding company, on Thursday said it sold $5 billion in one-month discount notes in its first Dutch auction of these securities in over four years.’
244 euros is a lot in dollars.
Once again, how long before main street starts asking about who is running the asylum and puts the economy on a gridlock with discretionary purchase withdrawal? I read these news snippets and wonder if banks will survive like cockroaches or just get eaten by bigger fish willing to ride out a market of scared money.
When banks make unsound loans, banks become unsound.
“Some housing bubble news from Wall Street and Washington.”
Just what we need…lower the down payment requirements for FHA loans from 3% to 1.5%. Yes, that will make for much less defaults in the future. At least it will make it easier for people to buy houses that they can not afford, which is a good thing, right?
Has anyone in Congress stopped to think that, if you can’t afford even a 3% down payment, you probably shouldn’t be buying?
Aide: FHA Bill Moving Toward Senate Vote
Thursday December 13, 11:35 am ET
Senate Aide: Legislation on Modernization of Federal Housing Administration Nears Vote
http://tinyurl.com/yuwlru
“The Senate legislation would allow the FHA to insure loans equaling the amount that government-sponsored mortgage companies Fannie Mae and Freddie Mac are allowed to purchase, a level set at $417,000. Additionally, the bill would require homeowners to make a cash investment of at least 1.5 percent in the value of a home, half what the FHA now requires.”
IMO, there is nothing the government can do to change things. Many are underwater. Can rent for half. You get the idea.
Washington sat up there the entire time this bubble grew, and played games about Fannie and Freddie. How can they show up 6 years too late and change the course of this monster.
BTW, the SIV thing that people got so worked up about is on the ropes - SURPRISE! Fannie is reduced to doing dutch auctions for it’s short term paper, and the biggest central bank move since Sept. 11th dies in the cradle.
IMO, there is nothing the government can do to change things.
Yeah, but I haven’t lost faith that they can impact the speed of change. For instance, the pseudo-bailout would raise mortgage rates / downpayments, which would likely cause the prices to crash faster. (Hooray for the bailout! Join me, a cash buyer, in supporting it!)
For instance, the pseudo-bailout would raise mortgage rates / downpayments, which would likely cause the prices to crash faster.
Seems pretty reasonable to me - the quicker the pain is allowed to pass, the sooner the recovery. (and hopefully it will have been a learning experience for all)
“SURPRISE!”
Your crystal ball is far better than mine.
I am an SIV worrier (maybe because I understand how they are structured) and I have a copy of the revised proposal on my desk for the MLEC. I really do not care if it goes through, I worry about eating the losses. So does this new proposal, which hopefully kills the MLEC for good. The new proposal requires the banks (BAC, C and JPM) to eat losses in the event of default of the CDO.
A brief note on current loans.
“According to Deutsche Bank, issuance since September in Europe is just 70 billion euros, down from 219 billion euros in the same period of 2006. Of that, the bank estimates only 20 percent has been sold into the market; the rest retained on balance sheet to be used as collateral for central bank borrowing.”
The only buyers of 80% of Asset backed debt have been the central banks. The current default rate is 1%. Moody’s expects 2008 defaults to be 4.2%, Key Asset Management is projecting defaults of 8.2%.
No, the government can lose a LOT of taxpayer money guaranteeing 1.5% down loans in a badly declining markets. Tens of billions, easily. The existing FHASecure program is planning to guarantee 240,000 loans. If they’re all 200,000 loans at 3% down, a 17% drop will put the portfolio underwater to the tune of 10 billion dollars, after 6% for selling the houses.
The psychology has changed…”free money” to lose your shirt on a depreciating asset is not so attractive. Everyone is learning…real estate is a terrible investment. Now, it is just a matter of time for the sellers to break, one by one at first, then a torrent of panic or walk aways…
Problem in CA is that getting a SFH below $417,000 in a decent neighborhood anywhere south of the Tehachapis would still require another 20% drop in prices.
That said, I’m a lot happier with this item (which might actually help me buy a house after a year or so) than I am with the more numerous and more publicized efforts to bail out people who’ve already been stupid.
The thing about the FHA changes that pisses me off the most is that once the standards are lowered, there’s no going back. It’s easy to get the pols to do something that will increase housing prices (or, in this case, cause them to decrease a little bit less). Lower lending standards = higher asset prices, and that benefits the majority of voters. It screws renters and future generations. It will never be politically acceptable to tighten FHA standards because, all else equal, that would decrease housing prices. This is not about affordability. It’s about the opposite of affordability. I lament once again: Debt bubbles suck.
But…they can’t MAKE people buy, and they can’t MAKE banks loan. We are slowly sliding toward the worst case of the Japanese experience. The heidous possibility is a high infaltion rate coupled with rising interest rates. Those that could spend won’t - they’ll park their money and wait…and wait…
Japan experience marked deflation, and we will, too.
“Inflation is a decline in the purchasing power of money that results when the money supply rises faster than money demand.”
The money supply rose at least 4% over GDP/yr for the last 6 years without money demand (some sites calculate at 14% over GDP). Inflation is rearing its ugly head.
Which is another way of saying that prices react with a notable lag. We are seeing a reaction to the economic environment of the last few years. But that is the past. Going forward, we are looking at deflation.
Fortunately, americans learning to save and manage a budget again would be a wonderful change.
“The heidous possibility.” That’s like a combination of heinous and hideous, both of which are appropriate words to describe that situation.
I realize this sounds like a hairbrained scheme but these guys (the Feds) will try ANYTHING to stop what is happening, no matter how irrational it seems.
Someone in government has to stand up and say, “You are dooming these homeowners to YEARS of over-payments with little or no appreciation in the future”.
It shows you how corrupt everyone is when these politicians stand up and say they are for the “little guy” but they are so quick to sell them out to the banks/hedge funds/investment banks with these crazy “plans”.
JohnF, I have to jump in here and take your excellent pith analysis to the extreme.
Let’s assume your idea plays out. Jump ahead 30 years. Does anyone really think wages will inflate fast enough to buy homes that go for 700k now for 1.5-2 million in 2038? And even if they do, you would be nutso enough to lay out that kind of cash or finance for 30 years.
“Sure, I took out a 2 mil mortgage and by the time I finish paying it off in 2068, I will have paid 6 million.”
I mean come on, the lumpenproles really need to figure out that this kind of trees grow to infinity and beyond thinking needs to be reigned in!
“Interest rates on loans in euros stayed at a seven-year high, a day after global central banks teamed up in an attempt to thaw a freeze in money markets.”
In the end, the invisible hand overwhelms our very best interventions.
Isn’t it funny that all these supposedly educated people think they are smarter than the invisible hand ?
When the invisible hand gropes you, you can’t sue for sexual harassment.
Attention all worried lenders, hedge funds, FBs, investors: That snapping sound you’re hearing is the sound of the invisible hand putting on a rubber glove.
Cough, please.
invisible hand? not yet, mortgage rates and rates on savings accounts in Northern Europe are still close to alltime lows … somehow these higher interbank rates are NOT passed on to the customer. In Netherlands you can still get a 1- or 5-year fixed mortgage for below this 4.95% interbank rate …
There’s a semantic difference. In the U.S., a 1 or 5-year loan is not in the lexicon except as an ARM. IMO, no one here, particularly now, would consider a 1- or 5-year loan of any description to be anything but a form of variable rate loan — not a fixed-rate home mortgage.
IOW, it’s a short-term balloon note, relative to the collateral.
“‘Central banks cannot compensate for this lack of confidence simply by injecting additional liquidity,’ he said.”
Lets just say it… there is no band aid fix for this problem. It has to run its course. People and companies have to accept losses and move on. You can’t fix the situation with more debt because debt is what got us here ! Do you feed a person with a fever hot soup ?
Soup, fever? A better analogy is “you don’t cure a heroin addict by handing him a syringe of heroin.
As cliche as this might sound, the issue has been, and will remain to be the fact that this problem is in fact what everyone on Wall Street has been mis-diagnosing for months now, which in fact hyperinflation. Be it the cost of Milk, Gas, Food, Cars, or in this case- housing, inflation is indeed the problem here.
The problems will not be able to resolve until the US consumer has more spending power. At this point in time, most financial spending is going towards mortgages, which in effect is creating a great deal of instability.
The problem is price. The problem IS inflation. Infuse all the cash you want. Point blame to all the industry leaders you want. Lower the rate to zero and try to make feeble attempts to bail out a few suckers. But the problem remains: Price, inflation, and consumer spending power.
The solution: A correction. Nothing more, nothing less. Simply put, If Wall Street and the Fed as well as all the shrieking Democrats and the President sit tight and stop trying to make attempts to halt the inevitable, we will in reality be in way better shape long term.
Why this is so difficult for those in charge to comprehend is beyond me. My only guess is that their interest is with investors and “making the numbers look good” overrides common sense.
Shrieking Democrats?! All of this happened during the reign of a bumbling, incompetent REPUBLICAN administration. Our national budget went from relatively balanced to complete and total destruction in two presidential terms. The robber barons aren’t even done with us yet. China OWNS us. We’ve lost our sovereinty — not to terrorists, but through our own stupid economic policies. Democrats, my ass.
All of this happened during the reign of a bumbling, incompetent REPUBLICAN administration.
Who is DOING the loudest shrieking?
Hint: starts with a “D”…
Are you sure it wouldn’t just be easier to print more money? It seems a lot less complicated, and Bernanke wouldn’t have to take a refresher course to understand how to do it.
The problem is….
Econ 101: how money is created through fractional banking.
I deposit $1000. The bank loans $700. Now, I have $1000 money and someone else has $700 money, so total money is now $1700. We count money as cash on hand and depositis in a bank, but we don’t subtract the debt ($700) from the “money”.
Now blow it out to macro!
We buy $500 billion worth of stuff more from foreign countries than they buy from us. They don’t want to take the dollars to the ForEx markets and swap it for other currencies or hard assets as that will kill the value of the dollar, SO, they just put the money back into the U.S. economy buy buying bonds or making money market deposits, OR depositing the money into U.S. banks. We cycle the money through the economy again, and it ends back up in their foreigners hands again. So, they loan it back to us again. Repeat. $500 billion in assets becomes $1 trillion in assets becomes $1.5 trillion in assets… eventually it becomes like $14 trillion in assets. Of course, those “assets” are loans made (money), and we don’t seem to count the matching liabilities (debts owed = negative money).
But, really, it is the same $500 billion cash cycled repeatedly through the U.S. economy. Take the $5 gazillion money in our economy and subtract the debts… and you’re left with practically nothing left.
Now, the stack of debt on top of debt is unwinding. The first layer, the MBS holders, are realizing they aren’t going to get paid back. Than means they won’t be able to repay thier loans. When those laons fail, the next layer won’t be able to pay back.
In the end, the Chinese and oil states are the ultimate bag holders. Either we let the stack of debt come tumbling down, and they don’t get paid back the $14 trillion we owe them…. Or we just keep printing cash to keep the system moving, and we ignight inflaiton, and their $14 trillion becomes “worth” much less stuff.
We loaned money to a sub-prime borrowers that can’t pay it back, and that means the Chinese and oil-state have loaned money to a sub-prime nation that can’t pay it back.
You forget we have also made it difficult for these ultimate bagholders to buy any real assets that might be left. If China or the Arab oils tried to buy a US company, our beloved Congress would once again step in and scream “National Security”.
“Greenspan…said the Fed was worried about deflation.”
Aren’t you tired of being lied to by these pricks? It’s an illusion, Mr. 6Pack.
The Fed was worried about deflation at this time. That’s why they keep rates down so long. You have to remember, in the fall of 2003 credit actually started to contract. The Fed freaked out. Soon after Bernanke gave his helicopter speech. He was talking about how to stop deflation. I know because it was one of the most unusual periods in the Feds history and I was paying close attention.
But Meltzer is right. We should have just let the deflation happen and move on. But instead, the Fed did what they did and here comes the biggest asset bubble in the history of man.
BTW, all you folks out there saying the Fed had nothing to do with this need to study up…a lot!
Is anybody saying the Federal Reserve had nothing to do with this?
There is 27 years of documented Federal Reserve formation of asset bubbles. The entire economy is based on asset bubble formation.
Yes, just yesterday, we had more than one poster say the Fed was innocent and this was all because of flippers.
Right - bonehead flippers can run the US economy and probably the world economy while they are at it. What next, TV shows “Flip the Fed?”
Ooops, thought it was sarcasm.
Innocent and Fed bank in the same sentence… I keep getting “does not compute”.
I cant speak for others but what I said (or meant to say) was that peoples individual housing situation was not the fault of the Fed or any other bank. Nobody, not even BB, made the sheeple buy a POS overpriced mcmansion.
I think everybody agrees that the fed created diffuse asset inflation. In addition the extremes in housing demand were from realtorwhore marketing. Buy now before all the land is gone!!!!!!God I hate realtors…most here are divorced ex trophy wives that cant do much else besides throw dinner parties. Vomit.
The FBs would not have borrowed beyond their means if those shady types of loans hadn’t been the only option offered by the sleazy brokers. The breakdown of sane lending practices are the fault of the lenders. There should be a “day of reckoning” when those handsome fees they collected (from all the buyers, not just the FBs) have to be returned. The whole charade has ruined the WORLD’s economy, so how should they start to pay their debt to society - NOT by the same connivers still operating in the same capacity. I see Realtors acting as an enabler, since they often steered the FBs toward the mortgage brokers.
Ben, there is far more denial about the economy than just the cause and effect of housing. As Hoz indicates in the above post, 27 years is exactly how long we’ve been led down the flawed and failed ideology of supply side. Laffer is flat out wrong and is an established con man as is Larry Kudlow. These two criminals are leading the cheer, making the excuses for this insane borrow and spend-taxcuts for the wealthy mantra, all the while robbing wage earners blind.
The denial isn’t only about housing.
Don’t even get me started on CUDlow. Supply sider, voodoo economics, trickle down. Guys like him keep recycling these terms that have only increased our debt at every conceivable level, but also creating a huge trade imbalance, astronomical outsourcing, tons of worthless jobs, dead end/soul-killing jobs, too much greed at the top. Shall I continue?
It’s so easy for a dolt like KUNTlow and Krapmer. These guys are on TV and make a couple a mil a year probably spewing their froth all over a camera lens. Make them go out and work for $20-$30 an hour and see what their attitude is.
Testify Dan…. It’s these same to criminals who piss all over the mere suggestion of REAL consumer protection laws for **gasp** consumers. Had there been strong laws requiring full documentation and disclosure of loan docs, this bubble would have never happened.
Had there been strong laws requiring full documentation and disclosure of loan docs, this bubble would have never happened.
—————
Exactly.
I’m actually rather surprised that some people are still blaming buyers/realtors. As much as they went along with the bubble, none of it could have happened without EZ money.
As prices went spiraling up, the FBs and realtors did exactly what was natural for humans (and all animals) to do: hoard while they could (we call it greed).
The buyer decided the amount of the loan. The lender pushed the lousy terms. If the buyer borrowed less even with lousey terms he would probably been ok. Had the buyer not overpaid for the pos mcmansion he could sell it instead of forclosure. Yes the banks/lender were coconspirators but where is the individual responsibility? Or should we just plug into the matrix and let others worry about our situation?
Bottom line, Lender gave buyer the option but buyers exercised the option–they had the final veto, that why they sign the loan docs. If buyers said “no way” to high priced houses this would not have happened, but they didnt they thought the realtorwhore marketing would come true. They overreached with the help of lenders but the buyer sought the lender. So is it my banks fault that I have a 60k credit card debt that I could not afford? Did they make me spend the money? don’t kid yourself, buyers drove their financial boat over the waterfall the lenders, banks just crewed the boat for them.
- In other words they created more inflation and subsequent damage then if the deflation they were concerned about had been allowed to run it’s course. All too ironic that as we speak, the Fed is pretty much trying to keep inflation at it’s unsustainable high level from falling. A contradiction of purpose.
Got Gold?
Yep yep. Having experienced a bit of it in Japan, deflation is not so bad if you manage to stay employed and out of debt. Your wage money will be worth more and more as prices plummet, and even big items keep getting cheaper. Imagine your dollars suddenly buying more goods! Paying loans on a big depreciating asset like a house in deflationary times is killer, although everyone here probably knows that. The deflationary spiral and liquidity trap are scary macroeconomic phenomena and probably frightens the heck out of the bankers, but I sure didn’t feel its effects like I’m feeling the effect of the falling dollar now. The hard part is staying employed, I guess.
For anyone who believes the Fed had nothing to do with this:
Low Fed Funds rates =>
Attractive carry trade =>
High demand for long-term bonds =>
Underwriting standards are loosened to satisfy this demand (In an equity bubble, price gets bid higher and higher; in a bond bubble, risk taken gets higher and higher, a la junk bond appetite in ’80s.) =>
Asset prices go up because it’s easier to borrow funds to purchase assets =>
Lenders willing to lend more because “real estate always goes up” (or “corporate defaults are at all-time low” [CLOs], and “tax revenues are at all-time high” [munis], etc.) =>
Asset prices go up because it’s easier to borrow funds to purchase assets =>
[Repeat above two steps about a hundred more times]
Increase in asset prices causes people to feel wealthier =>
People spend more.
And increased spending was the ultimate goal, no doubt about it. There is a name in economics for this process. It’s called the “wealth effect.” Greenspan engineered asset price inflation, then he milked it, and he did it on purpose. Deflation was in fact a possibility in 2003, and it should have been a reality. Instead, Greenspan did everything he could to keep aggregate demand from shifting inward. He did it by stuffing our economy with more debt. This was a transfer of wealth to property owners. They received a windfall in the hope that they would do their patriotic duty and go out and spend it. They did so dutifully.
How could anyone think such a marked increase in property prices could be good for our economy in the long run? A windfall in one period inevitably has to be paid back from future periods’ income, because over time people pay those higher asset prices from what would have been their disposable income.
What Greenspan did is no different from the revenue recognition shenanigans of an unscrupulous CEO. He borrowed from future prosperity. That sort of game can’t go on forever.
Incidentally, this is similar to the way tax cuts not matched by spending cuts (debt-financed tax cuts) is a transfer of wealth from future generations to current owners of US Treasuries.
“Greenspan engineered asset price inflation, then he milked it, and he did it on purpose.”
I recall a screech monkey making disparging comments about me when I said the housing nonsense is/was contrived.
Will said screech monkey step forward now?
Doubt it.
Bubble Boy Greenspan will for always be known as the worst Fed Chairman ever. Just get rid of the fed already!
Excellent post, Anon C.
I think it would be useful if we asked ourselves, rhetorically, what would happen now if there were not government interference of any kind? Does anyone think we could have gotten here without government interference? I count the Fed, Fannie, Freddie and the like as government, for the purposes of my point.
someone up there said “IMO, there is nothing the government can do to change things.”
If that’s true, what the Fed and GSEs do or don’t do won’t matter much. I happen to agree.
Sometimes they do something and it has the desired effect. Sometimes it has the opposite effect, or no effect.
However, they can always be blamed for whatever happens..
someone up there said “IMO, there is nothing the government can do to change things.”
There is nothing the fed can do to prevent an overinflated balloon from popping. They indeed can do things, lots of things. But they can’t change gravity and they can’t alter simple principles of economics.
Chip,
I’ll place myself on the “regulation” side here.
Could this credit bubble have happened if we had appropriate regulation of the banking industry?
Personally, I think not. But that’s just MHO.
U.K. Prime Minister Gordon Brown said the surge in credit costs should spur increased transparency in the banking industry and change the way credit-rating companies work.
‘It’s a wake-up call for the global economy,’ Brown told lawmakers in Parliament in London today. ‘The existing institutions aren’t good enough. I’m going to make it my business to reform those institutions.’
Even if this is little more than political posturing (difficult to tell), it’s good to hear a major head-of-state using some common sense instead of lying and dissembling — about financial or other matters.
I’m curious what reforms Brown would take, however.
labor party- so big bigger gov
dental care in UK= crazy glue
IT”S FREEer
Orthodontics must cost as much as a house, in the UK.
You honestly think that oversight of financial institutions should remain as-is?
(Who said anything about Krazy Glue?)
UK free dental care results in the highest endeture rate in the civilized world. Meaning the most people without any teeth. Reason, government only covers certain proceedures and I suspect pulling and not saving is paid.
Law of unintended consequenses.
“‘It’s not going to help us find an exit to this crisis,’ said Cyril Beuzit, head of interest-rate strategy at BNP Paribas SA in London.
‘These measures aren’t going to address the root cause of the crisis.
- The real exit is in the hands of Joe / Juan Sixpack.
The unqualified have to give back ‘All of the American Dream’ that they felt that they deserved (with no money of their own invested).
After a few years of the ‘Great Give Back’ all will be well.
“Apparently some of today’s new homebuyers blame the builders outright for the current housing predicament. They are telling unwitting sales reps that they are to blame for running up prices and foisting untenable loans on clients during the latest housing boom.”
All right, who here is being a meanie?
The best word there is “unwitting.” yeah sure.
And as a corollary:
Builders were responding to the market conditions, not creating them.
‘I put them low on the list as villains for the story,’ Baker said. ‘If there’s a high price for houses, people build them.’
Maybe, if ALL they did was build. But my recollection is that builders were setting up their own mortgage units to finance these homes too.
Yup, and hoarding land, playing up a shortage every chance they got, selling stock options like mad and telling the press we were all gonna live with our parents till we were 40 just to save up a downpayment to give to THEM!
I remember the days of new house prices increasing $10k a week or more and the builders requiring “tickets” to get into new developments to have first choice on the lots, just two short years ago.
Maybe I’ll find one of the 2005 mania articles about the weekly increases, and take it to a sales office and say “Is the opposite happing now? Call me when it does.”
wonder what they talk about at those monday morning meetings now?
You could always sell lottery tickets to the hordes of sellers and realtors and have them line up outside your house. Whoever offers you the low bid on your property of choice wins the game…
WHEEEEEEEeeee!!!!!
wonder what they talk about at those monday morning meetings now?
So true. I couldn’t get a parking space in the lot on Monday mornings due to the overabundance of Bimmers and Lex-eye.
I think the fact that most, if not all, of the public builders and a significant amount of large private builders operated their own mortgage units is underappreciated. These builders, who are getting killed by a land price collapse and large operating costs, will also suffer enormous losses from their mortgage units. Ultimately, this could force many into BK.
unwitting — that means without wit, right?
well, Ms. Olick, apparently it was not demand pent up all those years on the sideline, it was anger.
DAMN RIGHT it’s payback time for all these arrogant homebuilders. My spouse ‘n I toured some new models back in 2002 in North Sacramento(Natomas)and were given the bums rush by the snotty cheerleader sales “agents” just because we refused to sign in with a lot of extra personal contact info. But at least we still had the class to hold our comments & displayed a courteous but annoyed look when rudely pressed for financial info.
I distinctly remember saying that all this so-called new Natomas area was doomed because it is just an easy overpass from Del Paso Heights area, which is major gangland, and you KNOW the dealers will move to their new lucrative customer base as soon ASAP. Bringing, of course, all the problems with em. ( for those who think I’m an elitist snob I reply with the fact that I LIVED IN THE HEIGHTS IN ‘92 with my ex-wife for about 14 months … in fact,my old area is called Strawberry Manor… I lived just down the street from Fairbanks Elementary. The area is calm during the day but heats up at dusk when the criminals wake up & get going)
So back on-topic; all these builders, every single one of em, deserve every ounce of payback spittle flung back in their arrogant faces! They sure as hell had no problem gouging us, the public when it was in THEIR best interest, so I find it fitting & highly amusing how the table has turned to have em eating their cold dish of crow.
Better make that dish last because I aint ” giving it away” (my purchase money) to let you make yer Range Rover payment & Ramen is cheap.
In summary: Hey Real Estate Industry/Builders: EFF YOU, EFF YOU, and just to be clear: EFF YOU !!!
ok -rant off, for now
I can’t say as we were given the bum’s rush but during the boom it certainly made for uncomfortable moments if you so much as questioned the HOA fees or the taxes or whatever. The response was like, “What do you care, you can afford it! Besides it’s not like you’re going to be here long. After 2 or 3 years you’ll be moving to an even MORE expensive place, yada yada”
Oh and thanks for noting the “smugness” started as early as 2002! ( A lot of people think things were “normal” until ‘05-’06 depending on where they lived)
So Aqius, just for the record are you for or against the builders?
Now THAT was fun to read. You go!
Testify!
That article about people wanting payback might have been written about me but they forgot to mention the verbal can -o-whoopa$$ I hand out to listing agents when they try to justify their client’s egregous prices on existing homes .
These captains of industry have stood in the way of my ability to nest. They should be bloody thankful they are only feeling the rough side of my tongue >; )
we were told over and over again that the builders had learned from the last bust and they would not overbuild again. what happened to that line of thinking?
Absolutely, John! They repeated that over & over.
Whatever happened to the land shortages?
“Unwitting”, no. “Witless,” yes.
“One mid-sized private builder told a friend of mine that potential customers coming ”
This whole article is based on hearsay. Its complete bs. The writer is too damn lazy to call up the builder and find out the real story first hand and instead writes up the entire article based on her imagination and a lead provided by a “friend”.
What a joke.
Good point, Popper. No room for third-party hearsay in a media article when it’s so easy to get a first-hand quote or affirmation.
Perhaps the author meant “witless”.
Ok, everybody knows how I feel about the builders . The builders knew they were marketing to investors, yet they processed them as owner occupied purchases . Would not be surprised if builders financed a lot of those seminars that were pushing new tract investment .
When the market started to turn in late 2005 the builders lured the dumb dumbs in by incentives and no doubt cash back deals that exceeded lending guidelines . Besides overbuilding and lying about the intent to create communities to the planning commissions (because the gig was to sell to frenzied speculators ),builders used labor that didn’t know what they were doing ,but they were cheap .The builders slapped up these boxes with no regard to long term ownership . The builders engaged in one -sided bad faith contracts during the frenzy because the dumb borrowers were to stupid to protect themselves and builders also encouraged double-escrowing .
In addition to all that ,the builders agents lied to customers about material facts about the projects in a lot of cases and fully took advantage of people in a frenzy mania .The borrowers were just as greedy as the builders . I could go on and on .
RE: builders used labor that didn’t know what they were doing ,but they were cheap .The builders slapped up these boxes with no regard to long term ownership.
That’s why the FHA/HUD bail-out is so dangerous.
Most of these sub-standard quality POS new construction’s are gonna start falling apart in 5/10 years.
Any self-repecting appraiser should give these crap-boxes a 10/15 year remaining economic life-now that’ll stop HUD.
The financial tsunami is about to sweep away King Canute and his whole court. (read the Fed and the central bankers)
http://www.marketwatch.com/news/story/schultz-sees-apocalypse-now/story.aspx?guid=%7BB4657333%2DB68C%2D4A34%2DA493%2D266821FC09AB%7D
Ben needs money for the blog. Here is an idea. Every person who uses the word “tsunami” or the phrase “perfect storm” (except when quoting from an article, has to pay him $10. Second time $20. Third time $30. Etc etc etc
5 years ago few people could SPELL tsunami - now everything is described using what has become an extremely hacknyed cliche.
My thesarus and 6 inch thick dictionary are available for temporary loan.
Ann,
We’ll leave the dog-ear’d schlock for the MSM. During the formation of the bubble, if I heard ONE MORE reporter define median price I was going to pop!
I happen to like the word “tsunami”.
It makes me hot.
Tsunami, tsunami, tsunami, tsunami, tsunami, tsunami.
Oh wait, I’m married. Nevermind.
if you keep repeating it like that (quickly) it does sort of sound like you’re breathing heavy
“Snapped up” is at least an automatic $100 for a first time offense.
$100 for “Armageddon”…….unless it is in the same sentence with “Gerbil”
I think Ben will “snap up” that idea.
That is one scary article, thanks for the link.
Looks like the copper based hedge funds are taking losses as the housing market tanks.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a4751VbAkMeU&refer=home
Who would have ever thought that copper demand would fall as house construction numbers go to zero ? Oh, wait…
I read copper demand growth, yes growth, in asia dwarfs what’s used for the housing market in the US. I’ll look that up.
700 street lights in LA out because thieves stripped the copper. Billboards all over out here in the desert reminding people that it’s a crime to steal copper. Story is that the meth heads steal the cooper and sell it for $. If demand is down, then this crime should disappear. They’ll just move on to something else - how about stainless steel appliances from abandoned homes.
When I first heard of stealing copper, it was in reference to rust belt communities as the manufacturing job loss began to be felt 20 yrs ago. That were seeing this reoccuring in CA is interesting.
ot-sorry
just went into best buy on 23rd and 6th in nyc and the place was packed!!!
well i went to pay for a couple of cd’s and no line to pay.
go figure
Oh my GOD !!! Are you kidding ??? This is tremendous news. Why is this not being reported by the MSM ??? It just goes to show that the MSM is worthless. Every reporter worth his salt should be at that BestBuy.
well, at least then they wouldn’t be wasting our time by generating their foolish tripe.
No line to pay because all the dolts were in the credit card application lines.
Got cash?
You sure they weren’t filling out job apps?
You mean all the soon to be ex-compusa employees?
RE: Got cash?
Not in the Big Easy for NFL ‘Ain’ts gear.
Maybe everyone in Best Buy was just trying to get out of the terrible weather we are having. Two weekends in a row I have gone Christmas shopping downtown…and it’s strangely quiet. UniQlo was empty…I did see lots of French, Germans etc. spending their Euros at Bloomingdale’s though.
I’ve gone to Best Buy in one part of Phoenix last weekend and bought $650 worth of gifts. This is a big spending holiday for me. Probably $1500. Oh and today I paid all my credit cards off (so the gifts are covered). $0 balance is cool!
“I’m hearing some disconcerting rumblings from some builders, anecdotally speaking of course. One mid-sized private builder told a friend of mine that potential customers coming through their model-home doors are openly hostile. They’re not just looking for good deals; they’re looking for payback.”
“Apparently some of today’s new homebuyers blame the builders outright for the current housing predicament. They are telling unwitting sales reps that they are to blame for running up prices and foisting untenable loans on clients during the latest housing boom. Buyers are telling the sales people stories of how rudely they were treated during the boom.”
Ok, who is going into builders and letting them have it? Which one of you is it? Come on, fess up
On another note, we should all go out this weekend and visit builders and give them ridiculous offers we know they won’t accept. Oh, and let them have it. I bet Olympigal just might do it.
Haha I laughed when I saw it to.
me, me, me
Actually, I’ve been having a long email conversation with one guy quoted in one of the articles two days ago - he’s CEO of a Truss building company in Virginia. He gave me his reasons why he told the report now is a great time to build. For each one I gave him 15 reasons why it wasn’t.
Actually I feel a bit sorry for him. He is the CEO of a small company, an architect, and his company expanded in line with the bubble, opening an extra factdory in 2005 to feed into NOVA. Now, it’s not doing much business, of course.
He still was optimistic. Sort of whistling past the graveyard, though. He really had no answers except old home price increae numbers and the fact that there were a lot of builders available… you can beat the rush by signing up now.
He knows his business is decreasing, but his builders association symposiums don’t tell him what is really going on.
It’s guys like these who will continue to build until the grim reaper appears using the assumption the Fed will save their bacon.
I found out one of my suppliers is heloced and living in a rental- what choice is there- I’m going out of biz now, fortunately w/o a loss
Well, I have’t been doing this but thanks for the suggestion for weekend amusement.
I was going to offer $200,000 on a new Buckhead in Atlanta condo on Peachtree being advertised for $2 million (well actually $1m to $11m!). What do you get for $2 million in a condo?!? All-you-can-use illegal services and products along with the dwelling?
I think Sammy Schadenfraude was the king of this type of stuff. He had a lot of good reports as an HBB “undercover” buyer for a while there.
Speaking of HBBers we haven’t heard from in a while, anyone know what Paladin is up too? Last I remember he was starting to work with some FBI task force uncovering mortgage fraud.
Dang, wish I could do that. I’m terrible at it. I did call a guy renting out a brand new 3/2 for 1850, and he said he just closed on it 2 weeks ago, and by the way rent is now 1650! You can rent other 3/2’s in the same neighborhood for 1300. But I didn’t have the nerve to push and see WTF he thinks he’s doing.
I’m too nice. My partner and I like to look at new homes - no interest in buying, but we like to see what the prices, layouts, and decor are like. I’m starting to feel very guilty over the last few months because they’re SO happy to see us and SO eager to help but I just can’t bring myself to say “don’t waste your time, you’d have to halve your prices to get us interested”.
Agreed. I have been so inclined to go, esp. when they offer the free Outback Steak luch or the warm Italian lunch. I know it would be small payback, but it just isn’t in me. I know all along that they would have to drop that 750K junk to $250-$300 before I would even make the attempt to seriously buy.
buy when you get the housing equivalent of this.
“James K. Galbraith, an economist and public policy professor at the University of Texas, however, cautioned that investors who are considering a gold purchase now, either to hold or trade, should “be prepared to take a bath.” They should know, he said, what happened to those who waited in long lines outside shops on Jan. 21, 1980, eager to pay more than $900 apiece for coins containing an ounce of gold.”
my edited statement.
“James K. Galbraith, an economist and public policy professor at the University of Texas, however, cautioned that homebuyers who are considering a home purchase now, either to live-in or rent out, should “be prepared to take a bath.” They should know, he said, what happened to those who waited in long lines outside new subdivisions on June. 21, 2005, eager to pay more than asking price for a new home.”
His dad wrote a book on financial manias (”A Short History of Financial Euphoria”)…
Who do you know of who took out an OPTION ARM to buy gold, though? It’s one thing to lose money you had, it’s quite another to lose money you’ll never be able to get.
Subprime mortgage funding fell to $17 million in November from $3.06 billion a year earlier, when lending standards were lax. Adjustable-rate fundings fell to $3.33 billion from $14.3 billion.”
Ouch! That’s what you call a Ivory Soap decline… exactly 99 44/100%. ARM loans were down 76.7%.
It’s very comforting to know when I decide to go buy a house — and the day will come when I will — there won’t be any financial morons competing against me.
Who’d have thunk that if you reintroduced lending standards, subprime lending would drop to near zero?
Me too. But no mortgage for me, I’ll pay cash. And if I don’t have enough to build the house I want I’ll pour the foundation, put up the frame and roof, finish the kitchen, one bath and one bedroom and live with that until I can afford to finish the rest.
I’ve had it with institutional crooks, and I include bankers in that catagory. I chose not to play (and pay) their game any more.
DevilDog
I like & agree with yer do-it-yerself strategy to avoid all the azzholes in the pig trough skimming & gouging for a house. Only problem with that scenario (which again I really like) is when you have an impatient spouse chomping at yer backside to take out a loan to finish up the house to impress the relatives in from town.
I just want to yelll ARGHHHH at her for the lack of discipline on seeing thru the plan but she has been very patient enduring my HBB verbal replays every evening, so I guess I owe her .. hehe.
Besides, we were frugal & avoided 99% of the worst errors re real estate, so I guess a SMALL managable loan is ok. BUT it will be a non-recourse, no refi, one-time fixed rate loan so if things somehow go sour we can walk away without a huge financial millstone forthe rest of our lives. sidenote; I’ve notice most offers for a mortgage are written as a ” Refinance “. Uh yeah,right, I dont THINK SO. Nice try , mr banker, but kiss my azz, it aint no refi without an existing mortgage in place. Geez, slimy bastards I tell ya . .. .
Yes, I agree. Spouse plays a big part in what you can do. I’m VERY lucky to have someone who agrees with me on the big stuff. Sometimes when I get in a snit over something small and stupid I need to remember how blessed I am that she puts up with me…
BTW, $17 million works out to about one house per state. So who got the Countrywide subprime loan for California?
That’s what I was thinking! Did they get that right? $17 mil? At that point, it’s barely a rounding error. I… think we can say that was effectively shutdown?
Either it was one house per state or one office somewhere in West Virginia or somesuch that didn’t get the message until the fourth or fifth of the month.
This is the line I like:
“Another builder told someone else I know that buyers today aren’t just low-balling, they are making truly ridiculous offers, like half the asking price.”
…Ahhhhh….”like half the asking price”. Beautiful.
Now who was it on this blog that said if your offer didn’t upset the seller, you haven’t low-balled enough? (paraphrasing, of course)
BayQT~
This is the line I like:
“Another builder told someone else I know that buyers today aren’t just low-balling, they are making truly ridiculous offers, like half the asking price.”
…Ahhhhh….”like half the asking price”. Beautiful.
Now who was it on this blog that said if your offer didn’t upset the seller, you haven’t low-balled enough? (paraphrasing, of course)
BayQT~
___________________________________________________________
Exactly. Because unless you’re willing to pay what the seller asks (or more), your offer is “ridiculous,” and your not looking for a deal but “payback.”
This is me playing the world’s smallest violin . . .
If they think 50% off is “ridiculous”, what will they call my 70%-off lowball? (prices here in CA roughly tripled from 2000-2006) Absurd? Preposterous? harebrained? Moronic?
How about “accepted” ?
Must really suck to be a builder right now, holding all that non-moving inventory, holding costs and payroll eating you alive, but few qualified buyers.
“If they think 50% off is “ridiculous”, what will they call my 70%-off lowball?”
I’ve gone even lower…100% off…I’m no longer even making “ridiculous” offers. No one wanted to play ball, so I’m taking my hard earned marbles and going home for a bit. When the sellers get tired of trying to get squirrels to make offers on their houses, I’ll be back…but I (like a lot of us) am in no rush.
“…what will they call my 70%-off lowball?”
Catastrophic? (See my arithmetic below…)
Comment by HARM
2007-12-13 12:20:03
If they think 50% off is “ridiculous”, what will they call my 70%-off lowball? (prices here in CA roughly tripled from 2000-2006) Absurd? Preposterous? harebrained? Moronic?
_________________________________________________________
“Insulting.” Because they’re not just going to give it away, you know.
I recently bid $670K on a spec home listed for $1040, a home that is scheduled to go to public auction in early January. The property is in a nice area in Douglas County, CO, south of Denver. My bid was about 85% of the first lien. Here is the response I got:
Seller/Builder says, “Absolutely ludicrous and insulting - warrants no response.”
I’ve found that the builders here are still in total denial
LOL I’d frame that email >; )
Your reply should be:
Next year when you groveling pissant greedy sacks of camel crap are still looking for a buyer
Bubblefucious say:
Today’s ‘ridiculous’ lowball offer look much better
tomorrow, when seller on his knees.
If it really warranted no response, they would have said No and left it at that. Methinks thou dost protest too much……
HARM:
LOL
If they think 50% off is “ridiculous”, what will they call my 70%-off lowball?
Way to go.
I think 1997 was a reasonable year for house prices in my area, after the early 90s plunge, but before they went stupid. They were very high on the national scale even then, but that’s how my area always is.
Find the estimated market value from 1997, add a generous 30% for inflation, that’s my bid. While you’re rejecting it as insulting, bear in mind that my bid drops 5% after 30 days.
Totally agree that 1997 prices are entirely within the realm of possibility. Good for you!
LOL BQ - I read that outloud to hubby and he asked me if my picture was in the article! I almost fell out of my chair!
Leigh
“Banks are still reluctant to lend money to each other because there are serious concerns about potential further bad news.’”
If banks don’t trust each other, why should the general public trust them?
Add bond funds to your list. I’ve lost total confidence in funds’ ability or willingness to accurately price their holdings.
Even Suze Orman, a mutual-fund shill for years and years, is now telling people to buy individual bond issues rather than bond funds.
wow.
Speaking of builders: ‘They’re all scumbags!’
I can attest to this, and will do so in the near future in some detail…
“Credit Suisse analyst Moshe Orenbuch said Countrywide’s delinquency rate was 6.34 percent in November, up from 5.89 percent in October. Subprime mortgage funding fell to $17 million in November from $3.06 billion a year earlier, when lending standards were lax.
Wow.
Countrywide’s 3 month CD is offering a rate of 5.30%.
Eek.
Borrow 3-mo at 5.3%, lend 30 year at 5.9%. Hmm. Mozilo choose an interesting path to profitability, that’s for sure.
Maybe he’ll cover the 2% in overhead through volume?
BTW, this is pretty much what numersous, failing, S&Ls were doing 1-2 years before their demise in the 1980s. The wholesale lenders realize they’re not credit worthy, uninsured money flees, and once they reach their FHLB advance limit, the S&L has to replace the wholesale funds with above-market retail, insured money.
FDIC crosses its fingers, sticks its head into the sand, and hopes for the best. It only makes the receivership more costly.
5.5% for that in my area. Why Countrywide varies its CD yields based on where the prospective depositor might live is an interesting question.
Pfotenhauer - chuckle; literal meaning: I whack you on your paw. Don’t think I could deal with him, the name is too graphic.
FYI- Pfotenhauers wife is a rightwing propagandist/apologist with a key to the Whitehouse. The name should be familiar to anyone not in denial.
The Teutonic bitch with fire in her eyes???
“Government figures show that 6.2 million new single-family homes were completed between 2003 and 2006 - hitting record levels year after year during the boom. Howard also said builders underestimated how much speculative investors were pumping up the market.”
1) Is there any information on the average price of these 6.2 m new homes? I am guessing at the bubble peak it would have been north of $300,000, which implies a bubble peak value of recent construction north of $1.86 X 10^12 = $1,860,000,000,000? (Please correct this calculation if it seems off…I am trying to be conservative here.)
2) How many of these 6.2 m homes now sit vacant?
3) How many of them are occupied by owners who cannot afford to ever pay off their mortgage loan?
Those who refuse to do arithmetic are doomed to speak nonsense.
– John McCarthy –
BTW, 10 percent of $1.86 Trillion = $186 Billion. (Just throwing out a hypothetical figure here for the potential drop in value of new construction in case the predicted 10 percent national housing price correction comes to pass…)
The more disturbing number is the increase in owed mortgages. I recall $10 trillion being the increase during the bubble. If only $2 trillion of that is new construction (rounding up), then where did the other $8 T come from?
I have a hard time believing it all came from HELOCs; if so we are toast and the collapse will make the great depression look like a picnic. It’s sick that the majority of home is this country have been bought and paid for numerous times over, and yet most people are still paying the bank for their house. Talk about one of the biggest scams there is.
So any idea what the balance of the mortgage increase the last several years is from?
Increasingly high mortgages for existing homes.
“…they are making truly ridiculous offers, like half the asking price.”
———————————————–
Ahhhh, you mean just like the the ridiculous selling prices last year, when they were double the actual value?
Try triple the incomes-and-rent-supported market value for most metro areas of Clownifornia.
How dare you BuyerWillEPB–the selling prices last year wearn’t ridiculous! Sellers had installed granite countertops and stainless appliances in the kitchens, double sinks and travertine “marble” in the master bath, and painted an “accent” wall in the dining room red! That kind of “investment” merits a 50% per year return!
Exactly, along with AnnScott’s *sunami I’d like to have “upgrade” forever stricken from the language. Use it and you will turn to stone! (Yeah that goes for you too Beyonce’!)
LOLOLOL exactly! They just need to remove the old wallpaper for a 175% ROI.
/sarc off
“…they are making truly ridiculous offers, like half the asking price.”
Funny, I don’t recall the realtwhores saying in 2005, “We are asking truly ridiculous prices, like double the asking price four years ago”.
i have a “theory” type question for those better acquainted with academic economic theory than I…
There si a theory that inflation is caused by the supply of money (in this case, dollars) outstripping the demand for it (measured in what, GDP? Economic output? ???) Supply outstrips demand, more $$$ chasing less demand for them, each $ becomes worth less and less.
OK, assuming that is true, suppose we have an economic contraction (such as a recession where consumer output and demand for goods and services tends to go down). And also assume that the money supply stays the same. With less demand for $$, but the same supply of $$, is that inflationary? Even with the economy “down”, and people “unable to bid up prices on things due to job losses”, isn’t this an inflationary scenario?
I’m asking because I’m trying to get my head around possible causes of stagflation, and I keep coming back to the current situation of a possible consumer pullback and a government trying to goose the economy, when everyone is *already* maxed out on credit.
Money supply is not exogenous to (outside of) demand for goods and services. Even if monetary base is constant, demand for credit would go down, decreasing loan demand, and therefore decreasing money supply. (The simple, dirty way to think about money supply is to think of Fed liabilities or monetary base as “money concentrate” but to think of “money supply” as checking account balances plus cash in circulation.)
Your CD rates would drop like a rock.
STAGflation is on deck
recessions are illegal now
Tropicana is denied renewal of license
The Atlantic City casino and hotel will stay open. A trustee will run it until a buyer takes over.- is it possible my state finally woke up. google the story. mass layoffs right after this guy took over trying to squeeze as much as he could. very very interesting. the people fight back mentality.
“Greenspan ‘continued to believe that deflation was the problem. He was wrong about that, simply out and out wrong,’ Meltzer said.”
But nonetheless, the ideology survives him.
To be fair to Bernanke, he didn’t inherit this ideology from Greenspan. He came to the Fed with it firmly intact, implanted by the work of Irving Fisher, a venerable economist of the Depression Era. “Venerable?” you say. “Why, yes,” I say. This was the same man who so boldly stated in 1929 that stocks had reached a “permanently high plateau.” And he was from Harvard or Yale or some such, so we must take what he said seriously. I can only conclude that Mr. Fisher must have been correct and that the decrease in stock prices over the next few years was caused by “market psychology” and too much negativity in the MSM. I would call my psychic to get Mr. Fisher’s take on our current situation, as I’m sure his advice would be valuable, but my psychic tells me Mr. Fisher is very busy these days, seeing as how he is constantly being channeled by Mr. Yun.
Yale
Also developed the “Fisher equation”:
i = r + p
i = nominal interest rate
r = real interest rate
p = inflation risk premium (currently MIA)
It seems a contradiction that the Congress considers measures which will bring the GSEs in to “save the day”. Out of the other side of their mouth they say they are not guaranteed by the gov’t. I wonder if the gov’t will let them default on their bonds or not. My 401K money is in the most ultra conservative fund offered by Fidelity, some Treasury, more of the GSE short term bonds.
Fidelity has “Fidelity Cash Reserves” (FDRXX, I believe)
and they have “Fidelity Govt Reserves” (FGRXX, if I remember correctly).
I’ve transferred the vast majority of our money into the govt fund, though it still holds some GSE paper, I think most of it is in Treasuries. Please correct me if I’m wrong.
The next subprime: Reverse mortgages (http://www.salon.com/tech/htww/?last_story=/tech/htww/2007/12/13/reverse_mortgages)
This could be the next wave of foreclosure coming. Of course congress will totally ignore this problem until it’s too late.
A very dear friend recently got a reverse mortgage, and she thinks it’s just peachy. I’m not so sure it is, but I haven’t been able to put my doubts into words.
Thanks for sharing this link!
How about: “why would you commit to a major financial instrument that is advertised in infomercials featuring Robert Wagner?”
Ask her if she had any independent trusted financial consultant, lawyer or even sharp relative/family member look at this before she leapt into it. I’ll bet the answer is “nyet”
there was a story on morning news today - Bloomberg or CBS or ??? Said the scammers got 37,000 in fees out of it. Unbelievable.
Reverse mortgages are actually a good deal — provided the people understand they are getting about $200K tax-free, in exchange for collateral, namely their house. They can’t be forced to move or sell their house until they die.
I was going to put this in a bits bucket, but the scams I see coming from reverse include, brokers figuring out a way to add fees [currently capped at 2% or $2,000, whichever is higher] and the truly evil scam, which will run along the lines of “Mrs. McGuillicuddy, sign the check over to us and we can get you 10% on your money — better than a bank!”
In these cases, the dupe will be signing away her house and not get the money. I bet it’s already happening.
Hey, social darwinism in action. If the lady was too damed dumb to read the fine print or too stubborn to ask a lawyer or her kids for help figuring it out, she deserves what she gets. I’ve rather live in a world full of lean, mean, gene-pool enhancing WINNERS than whiny, social engineering bleeding hearts piddling away their existence on behalf of stubborn, stupid-A$$ little old ladies, any day.
Hey, we say it for the F’d buyers. Stupid, lying greedy illegal aliens claiming 6 primary residences, the lot of them… Oh, and I do hope to benefit from some FBer RE loss someday; I’m not bleeding all over the sidewalk here. Just can’t believe how many lump the gullible, unsophisticated, easily conned/scared, etc. in with knowledgeable manipulators — fast track to sociopaths inheriting the earth.
You are going to be 75 years old someday (maybe….) and the bigger, meaner sharks will look at you and salivate and quiver with anticipation. You make your little old mother proud!
Umm, Txchick, this guy needs a trout-whacking. He just insulted day-traders:
“‘We now find out in hindsight it played an important role and a very dangerous role,’ he said. ‘For the first time that I can remember, you saw investors coming into the housing markets and trying to play it into almost like a day stock.’”
“Another builder told someone else I know that buyers today aren’t just low-balling, they are making truly ridiculous offers, like half the asking price.”
—
Half the asking price isn’t unreasonable. For example, townhouses in one development in Loudoun county sold new for ~180k in 2000 (3br, 1cg, ~2000 sw/ft).
The developer is now selling equivalent models for ~$400k (and has been since 2004). Actually, these aren’t equivalent, as these are condos, and you have to pay condo fees, where as the 5-year-old models only have HOA dues (~$70/month).
The only other difference is that the newer ones have slightly nicer interiors. But, that couldn’t have cost Toll more than $10k for the upgrades. And, the land was bought back in the 1990s, so the only difference is the extra 5 years of carrying costs, plus any increases in material or labor. Even being generous, if they could be profitable selling the townhomes for $180k in 2000, they can surely be profitable at $225k, perhaps even $200k, or half off of the $400k asking price.
“Another builder told someone else I know that buyers today aren’t just low-balling, they are making truly ridiculous offers, like half the asking price.”
It’s not ridiculous if they accept it.
Has anyone ever come up with a housing bubble drinking game? (hey, it’s almost 5pm.) Like if a realtor or reporter said “The American Dream of Home Ownership” or “Perfect Storm” or “The Pride of Ownership” or the already mentioned “tsunami” everyone would have to take 2 sips…
“Until we get a legislative fix, it is hard for us to help families in states like California,” he said.
As envisioned, the FHA reform legislation would raise the current loan limit from $362,000 to at least $417,000, which is the same cap that binds mortgage finance companies Fannie Mae
and Freddie Mac.
Thats it. Legitimize the runup in housing pricing. Pathetic.
“Credit Suisse analyst Moshe Orenbuch said Countrywide’s delinquency rate was 6.34 percent in November, up from 5.89 percent in October. Subprime mortgage funding fell to $17 million in November from $3.06 billion a year earlier, when lending standards were lax. Adjustable-rate fundings fell to $3.33 billion from $14.3 billion.”
Okay, can any sane person outside of this bubble explain to us why Doublefried is still making these risky loans. If their delinquency rate is increasing why in the world are they still taking these chances?
LOL at “Doublefried .
My guess is that the tan man is expecting to pawn these loans off to GSE’s and Countrywide needs to make fee income .
Well, $3.06 billion to $17 million represents a 99.5% drop. Not exactly 100%, but darned close. You can pretty much say their subprime door is closed.