December 26, 2007

It Was A Plausible Market Until The Lenders Went Berserk

The St Petersburg Times reports from Florida. “The sales tactics were like nothing Tampa had ever seen. ‘A lot of food, a lot of dessert, a lot of liquor,’ said Fred Caldwell, who attended a party at Saddlebrook Resort. ‘They had a band. They had dancing.’ Four years later, the scenario sounds insane. But it marked an era when Florida’s housing industry wound itself into a speculative feeding frenzy, then deflated. Live Oak, cursed by timing, could be the poster child. Transeastern was destined for infamy.”

“Few would dispute that low mortgage-interest rates were the roots of the housing boom. Then came 2002.”

“‘All of a sudden, you almost have to fight off the lenders,’ said Wayne Archer, director of the University of Florida’s Bergstrom Center for Real Estate Studies. ‘It was a plausible market until the lenders went berserk.’”

“People were buying houses as investments, not dwellings, said analyst Marvin Rose, who has tracked home building since 1979. ‘We should have leveled off in ‘02, and we would have been okay,’ Rose said.”

“But as Transeastern flamboyantly showed, buying was not leveling off. It was speeding up.”

“Joe Berry moved from California to northwest Hillsborough County in 2004 for a job. Berry wanted to buy investment houses. A Realtor steered him to Live Oak, and Berry focused on a model home. He could buy it, full of upgrades and furniture, and immediately get a tenant, Transeastern. In summer 2004, Berry bought four models.”

“His first lenders balked because the prices were higher than Live Oak’s other houses. Transeastern suggested new lenders and new appraisers. Their numbers matched the deals perfectly.”

“‘That should have been a big red flag,’ Berry said.”

“Overstretched builders “were hiring people off the street,” said David Seidenberg, owner of Bayfair Properties, which did not build in Live Oak ‘You didn’t have your most qualified people doing the work.’”

“Skilled roofers, plumbers and dry-wallers traded their tools for cell phones, supervising inexperienced crews.”

“In 2004, four hurricanes tore through Florida. New money lured workers and materials from the home-building industry to the renovation industry. Prices spiked for steel, fill dirt and PVC. Suppliers rationed lime rock. So home prices surged again. Houses took longer to build. Investors could sign a contract to buy a new house and sell it at a fat profit when it was finished.”

“On Aug. 1, 2005, a joint venture controlled by TOUSA Inc. of Hollywood, Fla., bought Transeastern in a debt-heavy deal valued at $857-million. Almost simultaneously, the housing bubble sprang a leak.”

“Soon after the TOUSA sale, a Realtors’ report showed the supply of existing homes for sale in the Tampa area was increasing for the first time in years. The market slowdown left Live Oak, like many new developments, with investor-owned homes begging for buyers or renters.”

“Weeds are rampant at Joe Berry’s model homes, which he abandoned. Torn swimming pool screens flap in the breeze. Lenders are foreclosing. Of 10 former models, eight are empty and six are in default, said Realtor Karyn Glubis, who sold dozens of houses in Live Oak.”

“‘I see a lot of people hurt here,’ she said. ‘I see a lot of loss.’”

The Associated Press on Florida. “Jim Clark and Tom Jermoluk cut a swath through Silicon Valley in the 1990s with companies like Silicon Graphics, Netscape and WebMD. Five years after they decided to put their entrepreneurial talents and technology fortunes to work building Miami condominiums, the first two projects by their company, Hyperion Development, are plagued with delays and unhappy buyers.”

“Some residents at the first tower, named Blue, are threatening to sue the company for not delivering on amenities, while other owners at the 330-unit complex are trying to sell their condos for less than they paid.”

“Consultants say some buyers who put down deposits at the company’s second tower, the 516-unit Marina Blue, may decide not to close. Other Marina Blue buyers have sued to get their deposits back.”

“Mr. Clark and Mr. Jermoluk are not the only successful entrepreneurs who are struggling in Miami real estate. Another developer, Joe Cayre, who amassed a fortune distributing videotapes to Wal-Mart, faces lawsuits and delays on his 54-acre midtown Miami project.”

“Even Jorge M. Pérez, head of the Related Group, who is on the Forbes list of billionaires with Mr. Clark, has retreated in the face of lawsuits and losses.”

“‘It doesn’t matter who the developer is, where the project is located, what price range the units are,’ said Jack McCabe, a real estate consultant in Deerfield Beach, Fla. ‘Every project is going to take hits, some more than others. None are insulated, and it doesn’t matter whose name is associated with it.’”

“The slowdown, Mr. McCabe said, has developers in Miami trying to sell 52 multifamily sites that they once marketed as condos. Three other sites, he said, have fallen into foreclosure.”

“Mitesh Gandhi, an information technology consultant in North Brunswick, N.J., remembers spotting Mr. Clark’s photograph and mention of his link to Netscape when he walked into the Blue sales office in early 2005. He and his wife paid a deposit for a $555,000 condo.”

“But they were disappointed when the apartment was finished — they did not like the lobby and did not feel safe in the neighborhood. They also said they thought the building needed more amenities.”

“‘When we closed on the unit and walked through the lobby, we were like ‘O.K., this looks kind of bland,’ he said. ‘There’s nothing for me to do but try and sell it.’”

“The couple has priced the condo at $56,000 less than they paid. They have competition. Their broker, Samir Patel, said 88 condos are for sale in the 330-unit building at prices ranging from $300,000 to $1.25 million.”

“Bernd Schmitt, director of the center for global brand leadership at Columbia University Business School, said Mr. Clark’s problems in real estate should not be surprising.”

“‘You could ask the question whether it was a wise thing for him to use his name, which is very much associated with Netscape and the tech industry, to a real estate venture,’ Mr. Schmitt said. ‘That was stretching the brand quite far.’”

“Other wealthy entrepreneurs seem to have found themselves in unfamiliar territory as well. In 2002, Mr. Cayre, the videotape distributor, and fellow investors bought the 56-acre former Buena Vista Rail Yard to build offices, shops, a hotel and condos.”

“Today, his company faces roughly three dozen state and federal lawsuits over the project. Mr. Cayre told a reporter for a regional business magazine, that he did not expect to make money on his first condo tower, Midtown Two.”

“Stuart Weiss, a consultant representing private equity firms buying troubled projects, said that Mr. Cayre was at risk of losing even more money because of the neighborhood. ‘This is a real secondary location any way you cut it,’ he said.”

“The market changes have forced a third developer, Mr. Pérez, who has built 50,000 condos in Miami over the last decade with Related Group, into a defensive position. Now he is battling a lawsuit from buyers of 38 apartments at Harbour House and 26 condos at Biscayne Bay.”

“His company is operating in emergency mode. He has set up a team to raise capital to buy back apartments that he expects buyers will not close on. There are some things, he said, that even billionaires cannot control.”

“‘We are just in the down part of the cycle,’ Mr. Pérez said. ‘You can’t exclude yourself from the market.’”

The Montgomery Advertiser from Alabama. “Many cities and communities yearningly talk about it, but it appears the Huntsville area is doing it — attracting highly sought, younger professionals, and they’re coming in style. They’re blipping red hot on the local housing market radar.”

“In the past, said Betty Hughes, outgoing president of the Huntsville Area Association of Realtors, said younger buyers were typically in their late 20s and shopping for smaller houses, but that is changing.”

“‘Now, it appears from my experience, they are buying a larger home anticipating personal growth,’ said Hughes.”

“There is a growing number of younger home buyers and the trend has been emerging for the last 10 years, said Cindy Allen, broker in Huntsville. Another interesting factor about these young buyers, Hughes said, is they’re not just buying to reside but also to invest.”

“More women are buying houses instead of renting, and even buying ‘fixer-uppers’ for investment, Hughes said. Overall, Hughes said, these are pretty savvy buyers who are looking for properties as long-term investments, including to aid their retirement.”

“‘Most make really good salaries, but have not saved a lot of money,’ Allen said. ‘They can make a substantial monthly payment because they don’t have a lot of debt at such a young age. Most of their debt is student loans, if any.’”

“Another appealing facet of the area is its abundant housing. ‘There is enough housing inventory to assist their needs in any direction of price range and more on the horizon,’ Hughes said.”

“Young professional couples who are typically in their 30s are buying higher-end houses in subdivisions. ‘A few years ago, younger first-time buyers were buying $85,000 to $125,000,’ Hughes said. ‘Now, it really has increased.’”

“‘They are much more aware of the importance to own versus rent,’ Allen said. ‘A monthly payment to own a home is right in proportion with renting, so why not buy? Home ownership is still the ‘American Dream,’ and still one of the greatest ways to feel a sense of accomplishment. It is also one of the best tax deductions, and for someone with a high-paying new job, the ability to claim interest on a mortgage will come in handy at the end of the year.’”

The Winston Salem Journal from North Carolina. “A glut of condominium projects in downtown Winston-Salem and the slowing national economy are causing some developers to change, withdraw or re-examine their projects.”

“Landex Development LLC, the company that is redeveloping the Brown & Williamson building into the Gallery Lofts condominiums, announced that it might change its focus from condominiums to apartment rentals.”

“‘Winston-Salem is a solid, good market, said Judy Siegel, the chairwoman of Landex. ‘It’s just that it’s shallow. With a project this big, that makes the difference.’”

“Half of the planned 77 condominiums had sold in the past two years, Siegel said. The company was close to its goal of selling the 60 percent of the condominiums required for financing on the project, but sales were taking too long.”

“The project had attracted a mix of 30- to 60-year-old empty nesters, professionals and downtown business people, Siegel said. Letters were sent to the Gallery’s buyers about the possible change, and about 10 people so far have asked for their deposits back.”

“Elsewhere around downtown, other developers are looking at delays and changes to their projects.” “Catherine Mitchell, the VP of the Charlotte company that is developing West End Village at the corner of Fourth and Broad streets, said that a planned third building, Fourth and Green, is on hold.”

“Agent Tammy Watson said that her company is selling the land where Pisco Holdings in Las Vegas had announced plans for 36 condominiums at 575 Liberty St. She said that the developer has decided not to do the project here.”

“Some downtown observers also have questioned the fate of the District, a group of three to five condominium buildings proposed for Trade Street, Martin Luther King Drive and Liberty Street. The project was announced earlier this year.”

“Jason Thiel, the president of the Downtown Winston-Salem Partnership, said that changes to development projects are not unusual, particularly in downtown development. Many of the 500 or so housing units that were built in the past five years sold fast because they were based on pent-up demand, he said.”

“Joyce Snelgrove, a listing agent with Prudential Carolinas Realty, which has two of its six live/work condominiums at Holly Village for sale, said that selling homes has been a problem for some of the buyers she has worked with.”

“Some of the sales have been to executives from out of state, she said. One of her prospects right now is waiting to sell a home out of state.”

“Thiel said that with all of the activity downtown, he expects more retail development to occur, and that will add another layer of diversification to the market. ‘I think we’ve established that housing works,’ he said, ‘and I think it’s a matter of absorption.’”

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Comment by Ben Jones
2007-12-26 06:48:47

The details in the SPT piece about construction quality are pretty much what we have been guessing here. And it’s nice to see a bunch of greedy billionaires get their head handed to them in Miami.

Comment by palmetto
2007-12-26 07:21:05

Construction quality has been a big issue for me. Anecdotally, I contacted my old insurer, State Farm, to find out under what circumstances they would insure in the future. Their parameters are very, very narrow. In Hillsborough, you have to be east of 1-75 and your home has to have been built after 1980. State Farm has drunk the kool-aid about the almighty changes in the Florida building codes. They are firmly convinced that building quality is so much better after 1980 because of the changes in the code and “they” point to the houses that stood up to the four hurricanes that passed through Florida in one season.

However, it is interesting to get a different perspective from an appraiser who relocated to Florida from New Jersey. He cannot understand why builders who built recently in Florida use materials more appropriate for New England or California. His comment was that yes, your house may still be standing after a storm, but you may wish it wasn’t, due to the seepage and mold and rot problems that will then plague the home forever after.

Comment by Cobradriver
2007-12-26 09:06:16


Reapeat after me…

CBT only !!!!! At least you can take it down to bare walls easily if needed…


Comment by Kirisdad
2007-12-26 12:08:55

My 1977 florida house was built with cement block walls, tile roof and terrazza floors. I’ve seen many homes built after 1995 with 2×4’s and fiberglass roofs. I’m aware of roof tie downs, but am I missing something else here?

Comment by pinch-a-penny
2007-12-26 07:23:51

I just have to laugh at the netscape billionaires… What exactly was Netscapes business model again? Giving away browsers is not exactly a profitable endeavour, unless it is sold to a Greater Fool (AOL)…
Maybe he leared his lesson building crappy mccondos…

Comment by in Colorado
2007-12-26 10:32:07

Giving away browsers is not exactly a profitable endeavour

It does make one wonder. I am typing this on Firefox (which I downloaded for free) on a Mac. It must take a pretty substantial team to develop an browser like Firefox. I have no idea if these people are paid to do this or not. I know people who work (for free) on open source software after working a long day at their paycheck job. This always struck me as strange and signaled to me that perhaps my chosen profession would not be as lucrative as I had once hoped. While some folks in other professions do pro-bono work, it is rare and they charge top dollar for their regular work. I am frequently asked to help friends with computer problems, which I have learned to politely decline because not only do they seldom thank me for the help, they get pissed if the outcome isn’t to their liking (at which point I suggest they call the Geek Squad. Try asking a lawyer or plumber friend for an hour of free help.

Comment by jerry from richardson
2007-12-26 15:05:46

They were giving away the browser but selling the Netscape proxy server software. They were thinking that if the people used the Netscape browser, they would use the Netscape proxy server. Other companies give away free software and charge a service fee for support, like Redhat.

Comment by SGA
2007-12-26 16:11:20

Netscape’s model was to give away the browsers people needed to use the web server software they sold to companies.

Comment by polly
2007-12-26 07:33:46

I met Jim Clark when he was doing the book tour for “Netscape Time.” I was a volunteer at New York’s public radio station at the time, and I wrote the prep materials for his on-air interview. My recollection is that he was far too impressed with his own importance and seemed extremely unfamiliar with the contents of his own book. It had a “co-author” listed on the cover, so we knew he hadn’t written it, but you would think he would have taken the time to read it before doing the interviews.

I can’t think of a more deserving person to take a bath on real estate. I hope he has put a large part of his personal fortune at risk as well as his formerly good name, but that is probably too much to hope for.

Comment by I am Sam
2007-12-26 08:26:08

A MUST read on Clark: “The New New Thing”

Comment by cayo_ron
2007-12-26 11:00:39

I can think of a more deserving person — how about bombastic, full-of-himself Donald Chump?

Comment by crispy&cole
2007-12-26 09:52:50

I wonder how A-Rod is doing with his Miami development company…

Comment by charliebrown
2007-12-26 07:01:21

“Few would dispute that low mortgage-interest rates were the roots of the housing boom. Then came 2002.”

“‘All of a sudden, you almost have to fight off the lenders,’ said Wayne Archer, director of the University of Florida’s Bergstrom Center for Real Estate Studies. ‘It was a plausible market until the lenders went berserk.’”

You pour lighter fluid on a fire, and pretty soon you have a bigger fire. You spread that lighter fluid all over the world, pretty soon the world is on fire.

Comment by Tim
2007-12-26 07:54:50

Finally someone that gets it. I have been saying all along that because Greenspan was playing with fire by lowering interests to such low levels, he had a responsibility to keep the flames under control. I am still amazed at the number of ppl that support this monster. Not only did he not live up to his responsibilities. When people personally warned him of the situation which would inevitably lead a very serious collapse of the economy and begged the feds to intervene, he told arrogantly them to shut up and made a personal decision not to respond in an effort to boost the wealth of those around him and cater to a crooked administration.

Comment by SpacecoastFLrenter
2007-12-26 12:24:56

You are right an a Macro level but what about the micro level? Is there no investor responsibility? Nobody made the fools sign for the loans. Greed stimulated by realtowhores motivated the sheeple. I have very low credit card interest rate but I decide to sign on the dotted line. I can afford a McMansion but Know what a financial blunder that is. If nobody bought at inflated price this woud no have been so bad. CDO would have worked. The feds job is to maintain liqudity and they over did ther job without regard to the long term consequences. Yes, Greenspan was a fool for not realizing the financial stupidity of my fellow Americans. He enabled the fool buy a gun but the fools put it to their financial heads but make no mistake, the fool pulled the trigger.
I also place blame with appraisers who caved like toilet paper and whored themselves and their profession to the lenders. In the hyped 03-07 real estate market the appraisals were a joke with no credibility. I had an appraiser as a customer and asked how do they make allowance for a declining market….there is none…they just make it up.

Comment by Tim
2007-12-26 13:13:31

I am not saying anyone else should be relieved from their responsibility, I just saying that there was collusion at the top from those that were supposed to protect our economy. Unfortunately, if you open the door for scams and games, scams and games will emerge. I’m not saying dont blame all the scamers and gamers, I’m just mad that no one shut the door despite the fact that the open door was plainly visable.

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Comment by SanFranciscoBayAreaGal
2007-12-26 12:30:23

I would have more respect for those people if they had gone public at the time. I’m always suspicious of people who claim they were worried or upset after the disaster has occurred. Reminds me of rats jumping off a sinking ship.

Comment by Dan
2007-12-26 16:13:46

Roger Garrison (an Austrian Schooler) wrote a smart piece for FEE a while back. In it, he stated that Greenspan was facing the dilemma of whether to target the monetary expansion or the inflation rate. The M3, he felt, was unreliable and so he chose the CPI.

The problem with the official CPI was - and still is - that the real inflation was massaged out of it by the various adjustments. (This started during the Nixon era but went truly overboard during the first Clinton term .. check out the Shadow Government Statistics site).

Anyhow, Googling for some Miami listings (and skipping Hyperion) —

Here’s Ocean IV, 264 units, 104 of them are available.

I walked by the building today. It’s gorgeous and the asking pices have fallen by 30-40% off their pre-construction levels.

Which means, it’s another 50% to go.

Comment by SpacecoastFLrenter
2007-12-26 12:32:06

‘All of a sudden, you almost have to fight off the lenders,’ said Wayne Archer, director of the University of Florida’s Bergstrom Center for Real Estate Studies. ‘It was a plausible market until the lenders went berserk.’”

This guy is a complete A$$. Plausible market??? 5x debt to income??? I am not a professor I am not even in the financial biz and I know that is not plausible. Just a year ago the local FL headlines were quoting Archer saying that now is the time to buy, there will be no more price drops. Everytime I read his crap I am embarrassed to be a UF grad but thankfully not from the college of BS, I mean business. Just because lenders market to fools it is the fool who signs on the dotted line and assumes the RESPONSIBILTY. Not a big word these days.

Comment by Lostcontrol
2007-12-26 07:01:28

This is approximately a one hour video on the “Naked Capitalism” blog-site that is very interesting. It discusses the conversion of Americans/humans from rational humans into consumers. It also discusses the 20th century as the century of self. Particular interesting is the use mass psychology in controlling the public.

Its worth a look!

Comment by SaladSD
2007-12-26 14:58:15

Thanks, this was fantastic!

Comment by packman
2007-12-26 07:08:20

“‘All of a sudden, you almost have to fight off the lenders,’ said Wayne Archer, director of the University of Florida’s Bergstrom Center for Real Estate Studies. ‘It was a plausible market until the lenders went berserk.’”

Yet another gem from UF. Were I a real estate professional that hired, I’d put all resumes of UF graduates in the circular file (i.e. trash can). It’s ironic that the salaries of those “professors” are paid for in large part by Florida real estate taxes.

Comment by packman
2007-12-26 07:12:31

Ignore that comment. I took that quote in the wrong context - I thought by “lenders going berserk” he was talking about the recent tightening, and thus “plausible market” referring to the boom itself. After looking again I see that’s not the case.

Comment by phillygal
2007-12-26 07:09:07

Another interesting factor about these young buyers, Hughes said, is they’re not just buying to reside but also to invest.”

Boeing is in Huntsville, and what other major employers…anybody?

I read the entire article. It sounds like the local NAR’s press release, directed at the usual mixed bag of FB suspects.

Comment by Tim
2007-12-26 07:33:53

Huntsville is the new San Fran. Get in while its real estate is still being sold at a discount when compared to its counterpart.

Comment by spike66
2007-12-26 07:44:32

Huntsville is a hotbed of aerospace/engineering. Has been since the German Scientists who built the V2 rockets were gathered by the US army and sent to Huntsville to develop ICBMs after WW2. Think NASA and Werner von Braun, and the early space program. Heavy military development, lots of serious government money. From Forbes, the employment list (short version)…
U.S. Army/Redstone Arsenal Government Huntsville Hospital System Health Care
The Boeing Company Aerospace and Defense
NASA/Marshall Space Flight Center Government CINRAM Audio/Video Replication
Sanmina-SCI Corporation Electronic Components Intergraph Corporation Computer Services
SAIC Aerospace and Defense
ADTRAN Telecommunications
Siemens VDO Automotive Electronic Equipment University of Alabama in Huntsville Education Teledyne Brown Engineering Aerospace and Defense Madison County Government
Benchmark Electronics, Inc. Electronic Components
Northrop Grumman Aerospace and Defense Alabama A&M University Education
Direct TV Customer Services
Toyota Motor Manufacturing Alabama Automotive Engines

Comment by tuxedo_junction
2007-12-26 08:21:38

NASA has a major facility in Huntsville (Marshall Space Center) and so does the Army (Redstone Arsenal). The core economy for the area is based on the $70k-$120k per year engineers and scientists employed by the government and government contractors. Becasue of these employees Huntsville has the highest-priced, mid-level housing in the state. For example, a $250k house in Birmingham would be $300k in Huntsville.

The area is not growing much and won’t unless the US embarks on a major new space program or military missile program. Whatever growth that there is comes from retirees who buy mid-priced homes, in and out of retirement communities.

Any developer who starts spec-building $400k+ houses will run into trouble. There aren’t a lot of young people coming to Huntsville who can afford such properties and Huntsville isn’t a target destination for big money people the way western NC is.

Comment by BP
2007-12-26 08:59:09

There is new space program which includes going back to the moon (Orion Rocket) and then on to mars several decades from now. Anyway Huntsville will have a major contract(s) for the new rocket.

Comment by vardaman
2007-12-26 12:00:20

Yeah, there is a program to go back to the moon, but no budget. They are disassembling the Saturn rockets in museums to figure out what they did in the sixties. It’s half-hearted at best. NASA’s budget went to the Pentagon, along with a lot of other agencies bugets.

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Comment by Isabel
2007-12-26 08:49:28

Huntsville is gaining some growth courtesy of relocation of some major DOD agencies down from the Northern VA area. The BRAC (Base realignment and closure act) has forced some agencies out of Alexandria and down to Huntsville over the next five years. I have been following Huntsville real estate for about the last two years as I was seriously considering moving down there. the employment options for my husband and I in our career fields were pretty much unlimited. Even Hunstville has had a downturn. There are a lot of developments that have either been postponed or are stagnating even with lower prices. One that I think should be in particular trouble is called “Villege of Providence” where the prices per square foot seem to be about three times the going rate in Huntsville. I guess their theory was that federal workers moving down from DC would not know that real estate is generally two thirds (or more) less in Alabama and they would be willing to pay DC prices. Isabel.

Comment by Airwoofer
2007-12-26 14:11:37

Huntsville has a huge number of lots which developers have built from the farmland that surrounds it. There are many of these developments with NO buildings coming up. I predict there will be a huge glut of real estate and unbuilt lots for many years to come. The roads already cannot support the commuter traffic. They have overbuilt the retail market and many retail malls have vacancies. More will be vacant soon.

And the BRAC which is supposed to bring in lots of more workers is still not funded. This could end badly for “Huntspatch”.

Comment by awaiting wipeout
2007-12-26 07:12:12

You’re a Sly One, Mr. Greenspan
By Susan C. Walker

“The crisis was thus an accident waiting to happen. If it had not been triggered by the mispricing of securitized subprime mortgages, it would have been produced by eruptions in some other market. As I have noted elsewhere, history has not dealt kindly with protracted periods of low risk premiums.” (Wall Street Journal, Dec. 12, 2007)

The Grinchspan Song
(with apologies to Dr. Seuss)

You’re a sly one, Mr. G.
You really are a heel
You told us all to get a great mortgage deal
And then laughed as we slipped on that banana peel.
You’re really quite a meanie, Mr. Greenie.

You’re a rotter, Mr. G.
Without a spotter of kindness.
First you say you couldn’t have guessed
That freer credit would create such a mess.
Now today you say
It was an “accident waiting to happen.”
You can’t have it both ways, Mr. ‘Span.

You’re as charming as an attack dog, Mr. G.
You’re full of rotten egg nog
That you are.
Do you see a long hard slog
For the economy to get back in shape
Now that you’ve lost the Superman cape?
You’re really quite a Grinch, Mr. G.

No, we’re not happy that the Grinch stole our economy. It used to be such a bright and healthy thing. Now, it looks swollen and bloated. And we can’t imagine that the current Fed president, Ben Bernanke, is any happier. He keeps seeing ghosts of the Grinchspan who stole the economy - words spoken and written from afar, like these which the former Fed head also wrote in the same commentary piece:

“After more than a half-century observing numerous price bubbles evolve and deflate, I have reluctantly concluded that bubbles cannot be safely defused by monetary policy or other policy initiatives before the speculative fever breaks on its own. There was clearly little the world’s central banks could do to temper this most recent surge in human euphoria, in some ways reminiscent of the Dutch Tulip Craze of the 17th century, and the South Sea Bubble of the 18th century.”

We here at Elliott Wave International couldn’t agree more - it looks like Mr. Greenspan has finally got something right. But if you are hoping along with much of Wall Street that the Fed can save the day and find the U.S. economy again, we’ve got news: the Fed can’t change what’s already playing out in the credit markets, because it doesn’t have the right tools. And the banks that have stopped lending know it best of all. They keep trying to tell the Fed that they don’t want any more of the credit that it’s selling.

Happy Holidays,

Susan C. Walker
for The Daily Reckoning

P.S. To stay clear of Grinchlike behavior, you would do best not to get caught up in Fed-watching. It can affect the way you invest, which isn’t healthy. If you want some Fed-free information to help you get the most out of your future, try a healthy dose of EWI’s Financial Forecasting Service. Our analysts depend on prices alone to tell the story of the markets - and we always know a Grinch when we see one.

Editor’s Note: Susan C. Walker writes for Elliott Wave International, a market forecasting and technical analysis company. A graduate of Stanford University, she has been an associate editor with Inc. magazine, a newspaper writer and editor, an investor relations executive and a speechwriter at the Federal Reserve Bank of Atlanta.

Comment by palmetto
2007-12-26 07:27:26

“His first lenders balked because the prices were higher than Live Oak’s other houses. Transeastern suggested new lenders and new appraisers. Their numbers matched the deals perfectly.”

“‘That should have been a big red flag,’ Berry said.”

And why wasn’t it a red flag? I’m sorry, but I don’t have much sympathy for Mr. Berry. This is a prime example of someone who knows darned well he shouldn’t have proceeded with his “investments”, but went ahead anyway.

Comment by Blacque Jacques Shellacque
2007-12-26 14:48:07

This is a prime example of someone who knows darned well he shouldn’t have proceeded with his “investments”, but went ahead anyway.

At the end of the article:

Weeds are rampant at Joe Berry’s model homes, which he abandoned.

If there were any justice, he’d be eating his meals in a local soup kitchen and spending his nights in a culvert someplace.

Comment by Jas Jain
2007-12-26 07:39:41

“Landex Development LLC, the company that is redeveloping the Brown & Williamson building into the Gallery Lofts condominiums, announced that it might change its focus from condominiums to apartment rentals.”

There will be a glut of rentals in 2008-09 when all the condos that don’t sell get converted into apartments and most of the recently purchased condos will also be rentals. Rents will decline and that would put a big downside pressure on the CPI.


Comment by Neil
2007-12-26 08:48:51


I 100% agree with you. Import inflation and domestic deflation. Time to bring that food inflation back into the core. ;)

This is everywhere! Florida, DC, LA, San Diego, Phoenix, Las Vegas, etc.

Now the reports are on foreign investors… I just laughed at the news this morning.

Got popcorn?

Comment by Jas Jain
2007-12-26 09:51:24


I am all for the head-line inflation rate. My thesis is that decline is rents will offset sickness-care and some other areas of rising inflation.

Got no popcorn!


Comment by Mormon_Tea
2007-12-26 07:53:40

“In the past, said Betty Hughes, outgoing president of the Huntsville Area Association of Realtors, said younger buyers were typically in their late 20s and shopping for smaller houses, but that is changing.”

“‘Now, it appears from my experience, they are buying a larger home anticipating personal growth,’ said Hughes.”
From my experience, it apears to me that the NAR has done more damage to young people than cigarettes and chewing tobacco combined.
There ought to be a ban on NAR advertizing similar to what is done with tobacco products. The NAR should be sued by every state in the union and its members forced to disgorge the monopolistic, unfair and highly damaging commissions imposed over the years. Then, they should be forced to pay for educational and public service air time describing the perils of home ownership and the advantages of renting.

Comment by Neil
2007-12-26 09:12:27

I see a lot of debt people walking away from their McMansions.

Recessions help as they teach people good money habits. Classes are starting daily! ;)

Got popcorn?

Comment by dennis
2007-12-26 11:01:36

Neil, I agree with about the education of our young people. I would like to know how many of our educators in this country made the big plunge into subprime and are now the uneducated victims ? It seems to me it ought to be manditory to pass 10th grade fundamentals on how to manage simple financial transactions such as crdit cards,automobile contracts, and home mortgage contracts. If we did I think wall street and the bankers would have a hemorage as their dirty little secrets would be exposed big time.

Comment by jbunniii
2007-12-26 10:39:30

From my experience, it apears to me that the NAR has done more damage to young people than cigarettes and chewing tobacco combined.

Let’s see, suffering soiled credit and maybe financial loss, versus dying of lung cancer? And the former, in your eyes, is more damaging?

Comment by reuven
2007-12-26 11:52:13

Please don’t lose sight of the fact that the VICTIMS of this mess aren’t the FBs–it’s the 5% of Americans who have ZERO DEBT, money saved/invested, and PAY TAXES.

Comment by Kirisdad
2007-12-26 12:35:22

It might be when you consider jumping off a bldg.( circa 1929) kills you a lot quicker.

Comment by safe_as_apartments
2007-12-26 07:56:20

Here’s a goofball on MSN Money who dispenses financial advice (hint: she just bought a house she can’t afford):

Comment by polly
2007-12-26 08:20:19

How exactly does this chick think she is getting rid of the “costs” of fixing the problems in her previous house when she is going to rent it out? Will the tennants not require her to fix things that break? And the magical fix of getting extra money from her husband taking on an additional part time job…so, the two of them have already decided that it isn’t important for her husband to spend time with the new baby? And her freelance writing income isn’t going to slow down when she is taking care of a baby while her spouse is working both a full time and a part time job?

What an idiot.

Comment by Jas Jain
2007-12-26 08:29:09

People become good at fooling themselves. Another form of denial and rationalization.


Comment by Not_In_Montana
2007-12-26 11:04:56

It reminds me of that insufferable “Love and Money” column in the WSJ sunday thing the locals carry, written by this idiotic yup who talks about all the stupid financial decisions his family has made. I think his name is Opdyke…I’d be embarrassed to admit that kind of thing.

Comment by Mike in Miami
2007-12-26 07:56:59

” He and his wife paid a deposit for a $555,000 condo (in Miami). …
The couple has priced the condo at $56,000 less than they paid. They have competition.”
Try pricing it at 50% off and you might find a buyer/sucker if you’re really lucky. The condo glut in Miami is just unbelievable, 20+K new units are coming on the market in the next 12 month on top of the existing 36 month supply that’s already out there. That’s gonna get interesting…

Comment by Mormon_Tea
2007-12-26 08:09:25

“S&P: U.S. Home Prices Fall Record 6.7 Percent in October; 23rd Straight Month of Deceleration

NEW YORK (AP) — U.S. home prices fell in October for the 10th consecutive month, posting their biggest monthly decline since early 1991, according to the Standard & Poor’s/Case-Shiller home price index.

The record 6.7 percent drop marked the 23rd consecutive month of price deceleration.”

This is also what the NAR has been advising young people to “buy into” every month, without fail. Obviously the NAR should have a “gag rule” imposed on giving investment advice, until all the lawsuits for the trillions of $$$ in damages it has contributed to have run their course.

Comment by Tim
2007-12-26 08:25:55

The interesting part is that when prices go down, their defense is its not our job to give investment price we are just a group of ppl that can search the mls and open the doors to the homes you want to see (skills any of us could pick up in 2 minutes or less). Yet, their slogan is it’s a great time to buy.

My personal opinion is that if NAR encourages ppl to buy by giving investment advice such as its the bottom and it’s a great time to buy, they should be open to lawsuits for negligent advice. If, however, they take the position that they are not in the business of giving investment advice, they should have and enforce a policy that no ads that they or any of their members produce contain investment advice, and their members should not give such advice either in writing or orally. Its simple. If they make such statements they should be liable if they are negligently false or misleading. Period. If they dont want the liability, they shouldnt make such statements.

Comment by Earl 288
2007-12-26 08:42:42

What about the propaganda put out by CNBC??

Comment by Tim
2007-12-26 08:54:54

I think with NAR and realtors it is more serious issue since they represent buyers, directly profit from them, and are or should be held to have a fiduciary duty to them. I’m not saying that realtors should necessarily have a duty to understand economics and explain it to home purchasers, I’m just saying if they do so anyway they should do so at their own risk and should be open to liability if they have not done their due diligence or be subject to having their license pulled by some regulatory authority. I agree that “news” services have certain responsibilities, but to a lesser extent than one who is deemed to be one’s agent. There have been several posts about what an real estate agent’s duty is or should be to the buyer. Many say they are not in the business of investment advice so they dont have a responsibilty to understand the investment side. Realtors should not be allowed to use that shield, however, if they give investment advice anway. IMO there should be regulation of the industry and investment advice should be banned from their ads unless they are willing to take on fiduciary responsibility to dispense this information only after educating themselves and conducting due diligence before making such statements.

(Comments wont nest below this level)
Comment by SteveH
2007-12-26 10:19:06

My understanding is that it’s quite clear that an agent in fact does not represent the buyer at all. The agent, unless specifically hired by the buyerm is representing ONLY the financial interests of their client, the seller. Lots of people forget this when they contact an agent about a property. The agent is there to sell the house and works for the seller, who is paying his/her commission, and has NO responsibility toward the buyer. If you want the agent to work for you, you have to hire them and pay them; and even then, they are sort of working for the seller in the sense that, if they are splitting part of the commission, they have every reason to push for a sale. Buyer beware.

Comment by SpacecoastFLrenter
2007-12-26 19:14:11

Right on. Accountability.

Comment by Not_In_Montana
2007-12-26 09:12:26

I heard that story on Fox radio news this morning, and the bottom line was “there’s no silver lining!” What’s wrong with lower house prices? Oh never mind..

Comment by somewhereinCal
2007-12-26 10:49:36

Repeated many time over, but the local news here in Nothern Ca. (Press-Dem)did several pieces on the increasing foreclosures and dropping prices and the 2 largest advertisers pulled all their ads…( this from a sales person there). Need;ess to say there has been and will not be any further negative stories on the current market…say for the NAR press releases that there are “real bargains” out there now ,and now would be a great time to jump in as this correction has turned around….Don’t be late !

Comment by shadow7
2007-12-26 08:23:15

You are going to always have the people who want to get rick quick, like the pyramid schemes of the past by the time most jump on board it was to late same with housing, people bought new homes and in many cases it took well a year to complete them the market was going bust the investors couldn’t sell a non completed home the whole thing was very easy to see and predict.
Don’t feel sorry for the flippers,lenders, RE agents they are all grown people who have to pay a price now and so will the many people who had nothing to do with this ponsi scheme, this subprime doesn’t border on being a crime it was a crime and some should face stiff fines or a little stint in jail?

Comment by awaiting wipeout
2007-12-26 09:01:31

I agree100%.
How does that saying go…
Rob a bank with a gun, get 20 yrs.
Rob a bank with a pen, you might get 1.5 yrs.

Unfortunately, there are so many robbers and fraudsters out there, its the law of diminishing returns. The FBI’s Fraud Dept. can’t even stratch the surface.

Comment by measton
2007-12-26 09:06:14

What do you mean the FBI works for the fraudsters.

Comment by Mike
2007-12-26 08:26:13

“They had food. They had a band. They were dancing. They had liquor,” said Fred Caldwell about a party he attended at the Saddlebrook Resort.

Sounds like a scene from “Titanic”. Oh, wait a minute….

Comment by Lostcontrol
2007-12-26 08:30:20

Ben, my earlier post did not show up. I attempted to post a second time, and your server’s response was that this was a repeat. May I ask, am I doing something wrong?

Comment by Tim
2007-12-26 08:34:30

I have noted the same problem. Even during the same time period, some post immediately and some take an hour or more to show up, regardless of the order they were sent. It should appear in less than an hour unless you got an error message.

Comment by Arizona Slim
2007-12-26 08:57:36

Arizona Slim checking in from eastern Pennsylvania, where I’m visiting family.

Last night’s dinner table discussion featured us talking about two neighborhood examples of carpenters who bought their houses during the waning days of the housing boom.

In one instance, the marriage has already broken up, and he’s living in the Huge House (with Huge Mortgage to match) by himself. She’s living in a nearby townhouse with the kids.

When this couple was still living in this locale, their arguments were so violent that the neighbors refused to let their children go over to Huge House to play with the Huge children. (Methinks that the arguments were triggered by financial stress. Specifically, the stress that comes from living beyond one’s means.)

The other carpenter didn’t overpay for his family home, but my mother reports that he isn’t going out to work as much as he used to. In fact, today is the first day that I’ve seen his work van away from the property, and I’ve been here since Saturday.

This carpenter also had a real case of the Home Improvements, but those projects seem to have slowed way down. (Methinks that the house ATM has gone dry, but it’s hard to tell.)

Comment by vile
2007-12-26 23:25:47

One of the first things that I learned from this blog = “When poverty walks in the door, love flies out the window.”

My partner and I just got through 3 years of financial hell. But we made it. (The booze helps though.)

Comment by BlueStar
2007-12-26 09:13:14

Did Sudan dump the dollar?

Source quotes BBC and some Arabic news source on Dec. 25th.

How many OPEC countries will it take to switch off the dollar to create a tipping point? Can the FED raise rates to soak up the billions of excess $$ floating around the world?
So far we have Qatar, Iran, Kuwait, Sudan and a few smaller members. Venezuela is itching to dump the dollar and Russia is moving that direction too.

The oil-dollar linkage is America’s greatest economic weakness.

Comment by Not_In_Montana
2007-12-26 09:19:49

A house is being framed in a new subdiv right next to me that has been sitting dormant for some time. They were out putting up the skin on Christmas day. Spec house or someone building their own place to live?

Comment by Tom
2007-12-26 09:25:30

Miami was hit with a 12.4 percent decline in the month, the most of any area. Tampa fell 11.8 percent and Detroit, 11.2 percent. Sun Belt cities have suffered deep losses with San Diego down 11.1 percent in the past year, Phoenix off 10.6 percent and Las Vegas 10.7 percent. In Los Angeles, a huge market, home prices have fallen 8.8 percent.

Only Charlotte, N.C. (4.3 percent), Portland, Ore. (1.1 percent), and Seattle (3.3 percent) showed positive price growth.

Comment by bill in Maryland
2007-12-26 10:42:19

Sun belt is where I want to be. The percentages are good starts, but they only are a drop in the bucket. Those places are still well above the Case-Shiller index. It will be 2012 when price to rent ratios in those areas are back to near historical norms. We’ll see double digit price drops Y-O-Y in those areas again this time next year.

Comment by motorcityjim
2007-12-26 09:29:43

“More women are buying houses instead of renting, and even buying ‘fixer-uppers’ for investment, Hughes said. Overall, Hughes said, these are pretty savvy buyers who are looking for properties as long-term investments, including to aid their retirement.”

There’s the most disgustingly overused word to come out of the housing boom, savvy. I think it stands for

Comment by sohonyc
2007-12-26 09:35:21

The lenders didn’t go “berserk” at all. They acted completely rationally given the lax environment of zero-risk which they were given by a nation that lacked any semblance of regulation or oversight.

The lender’s goal was to make money for themselves by creating new consumer debt. Period. They were never, at any point asked to bear risk. In a world of securitized debt, where actual debt lives on a lender’s books for a matter of days — why on Earth would anyone have predicted an outcome other than the one we reached?

“Risk” is a long forgotten concept in among institutions. “Risk” is something that’s created by institutions, sliced and packaged by different institutions, rated by utterly-inept bureaucratic ratings agencies and sold back to us, our retirement funds, municipalities and foreign neighbors in shiny, hopeful packages that bear the word “risk” in very fine print.

Let’s be clear: Those who bear no risk, bear no responsibility. Ever. Anywhere. Period.

Comment by Not_In_Montana
2007-12-26 09:37:55

I posted this in Bits but it’s just so rich I gotta share it. My local paper has launched a mortgage lender blog, apparently to give advice to confused buyers…it’s here. I can’t tell who the bloggers are supposed to be exactly, but they’re giving out advice like “now is the time to buy!” LOL. I am on the case! I’m surprised it isn’t more of a Realtor blog, but maybe that was too obvious. It might be some sort of quid pro quo for the two subprime stories (local and wire) they finally did right before Christmas. I’ll bet there’s a backstory to that somewhere.

Comment by Doug in Boone, NC
2007-12-26 09:44:15

“The sales tactics were like nothing Tampa had ever seen. ‘A lot of food, a lot of dessert, a lot of liquor,’ said Fred Caldwell, who attended a party at Saddlebrook Resort. ‘They had a band. They had dancing.’ Four years later, the scenario sounds insane. But it marked an era when Florida’s housing industry wound itself into a speculative feeding frenzy, then deflated. Live Oak, cursed by timing, could be the poster child. Transeastern was destined for infamy.”

Just like the pre-Depression flappers used to party!

Comment by Housing Wizard
2007-12-26 10:19:29

I could not believe it the other day when I saw a couple of stock cheerleaders on a TV business program suggest that people buy real estate now ,but only if they are going to live in it ,and even if RE is going down more . Are they crazy?

Buying a house in a declining market is not the same as buying a TV in a declining market ,or for that matter ,stock buying on dips for averaging . A house is a major purchase and you never know when you might need to sell because of job loss or job change . To suggest to home buyers that they buy in a declining market ,during a tight money market that might last for a long time ,is just plain WRONG .

What about the credit crunch that might limit ability to sell a property in the near and distant future ? No, until the market is normal again in terms of available mortgage funds and the markets reach the levels of sustainable and affordable prices in any given market ,it’s a great risk to purchase .

Comment by SeattleMoose
2007-12-26 10:18:58

“‘They had a band. They had dancing.’”

What about:

1) Free balloons and popcorn
2) Lines of dancing dogs dressed in party hats
3) Drawings for a luxury car
4) Certificates for free dinners at swank restaurants
5) Celebrity grand openings
6) RE agents riding in local parades (see 10)
7) Chimps wearing sun glasses
8) Free wine and cheese in sales office
9) 2 inch stack of glossy brochures showing “beautiful people” living the good life
10) Golf carts with V-6 engines

Ah yes, those were the days. Actually this is exactly what they are going to have to use NOW!!

Comment by simplesimon
2007-12-26 10:41:41

CNBC cracks me up….top tech picks for 2008…tech again? didn’t that bubble pop in late 1990’s..any way possible to get you to part with your money…

Comment by Muggy
2007-12-26 14:14:50

I was going to skip a day of bubble news and enjoy nature (which I did), but I had to report back: I went kayaking down Weeki Wachee and there were ‘For-Sale’ signs all along the river. It was completely ridiculous.

Seriously, do you expect someone on a kayak to buy your damn house? You might as well post photos of your $hitbox in the urinals at Raymond James, too. You know, because certainly a drunk Bucs fan might be looking for a home or two.

Nothing is sacred anymore, and I mean NOTHING. I might move to Vermont just because there are no freakin’ billboards.

Comment by bkiddo
2007-12-26 15:19:41

No billboards in Hawaii and it’s ALOT warmer :)

Comment by tresho
2007-12-26 16:20:15

Just stay alert for tsunamis.

Comment by reuven
2007-12-28 16:39:03

“Memo to everyone who didn’t buy a house in the last four years: Please stop talking about the housing crisis in front of those of us who did. We’re too busy to listen. We’re trying to figure out how we’re going to send our kids to school, or if we’re ever going to be able to retire.”

Memo to those of you who bought houses you couldn’t afford these past few years.

Those of use who pay taxes, have saved money, and have ZERO debt hate you because you expect us to bail you out. You are despicable people who are ruining America.

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