The Housing Market Continues To Correct
Some housing bubble news from Wall Street and Washington. Bloomberg, “Centex Corp., the second-largest U.S. homebuilder, reported a $975.2 million third quarter loss as the housing slump and tighter lending standards cut demand. Centex wrote down $554 million in land and property values in the quarter and has cut more than 40 percent of its workforce since 2006. The company closed on 6,657 houses, a 20 percent decline from a year earlier. The average price fell 11 percent to $268,588.”
“‘The housing market continues to correct and tighter mortgage underwriting standards are affecting home prices,’ Tim Eller, Centex’s CEO, said in the statement.’
The Orange County Register. “Orange County mammoths Standard Pacific Homes in Irvine and William Lyon Homes in Newport Beach…have seen their credit ratings downgraded and both have sold properties – often at a loss – to raise cash as they struggle to stay afloat.”
“It looks like they’ve made the same old mistake: buying too much land at too high a price. ‘The companies that survive will be those that don’t have huge ownership of lots of land and that aren’t highly leveraged,’ said Kerry Vandell, professor of finance and real estate at the UC Irvine’s Merage School of Business.”
“William Lyon owned $1.62 billion in real estate inventory and had just $34.5 million in cash, according to its most recent financial report. Standard Pacific reported an inventory of $2.95 billion and only $5 million in cash.”
“‘This downturn is more protracted than anyone forecasted, and so their financial position is worsening,’ said Joseph Snider, Moody’s senior credit analyst for the housing industry. ‘Since October, we’ve had 20 ratings actions – all negative.’”
“Standard Pacific has a $150 million note due in October and $1.2 billion due between 2009 and 2015. ‘Getting out of this situation is going to be extremely hard if not impossible,’ said Tim Backshall, chief strategist of Credit Derivatives Research. ‘It’s very likely – given the lack of cash flow, the large interest and expenses – that these guys won’t survive.’”
The New York Times. “UBS, the largest Swiss bank, said Wednesday that it would write off $14 billion in losses on the troubled U.S. housing market and post a net loss for 2007. The numbers ‘include around $12 billion in losses on positions related to the U.S. subprime mortgage market and approximately $2 billion on other positions related to the U.S. residential mortgage market,’ the bank said.”
“UBS said Dec. 10 that it was writing off $10 billion of subprime investments for the fourth quarter, so the numbers Wednesday represented $4 billion more in losses than it had previously disclosed.”
“The bank had already announced a $4.4 billion loss on subprime investments in the third quarter. The figures Wednesday bring its 2007 U.S. residential mortgage-related losses to $18.4 billion.”
“Merrill Lynch & Co., the world’s largest brokerage, plans to exit the business of underwriting collateralized debt obligations and other structured credit products after the securities led to a record loss.”
“‘We are not going to be in the CDO and structured-credit types of businesses,’ new CEO John Thain said today.”
“Merrill posted its largest-ever loss last year after writing down the value of its CDOs and other assets related to subprime mortgages by more than $24 billion. The New York-based bank was the biggest underwriter of CDOs from 2004 through 2006.”
The LA Times. “The FBI is conducting 14 criminal investigations of mortgage lenders and the firms that turned their high-risk loans into complex securities that have left investors worldwide with huge losses, a top official at the federal agency said.”
“‘We’re looking at the whole range of those involved — including the investment banks and other entities that bundled the loans up for sale and the institutions that held them and reported [to investors] on their value,’ Neil Power, head of the FBI’s economic crimes unit, said in an interview from Washington.”
“The sub-prime lending investigations also extend to home builders, he said.”
“The principal focus of the probes is whether companies juggled their books to conceal problems with mortgages made during the frenzy of the housing boom. In some cases, Power said, agents are looking into whether corporate executives used inside knowledge of lending problems to benefit themselves at the expense of other shareholders.”
“In another development that came to light Tuesday, a fired loan officer alleged that a joint venture between No. 1 mortgage lender Countrywide Financial Corp. and Los Angeles-based builder KB Home improperly inflated home appraisals and falsified incomes to put borrowers into homes they couldn’t afford.”
“Officials at the Securities and Exchange Commission are conducting more than 30 investigations into the mortgage meltdown. Erik R. Sirri, head of the SEC’s market regulation division, said recently that securities firms and banks sold ‘too many lottery tickets’ tied to home loans and failed to look closely enough at their growing risks.”
“The FBI is looking at many of the same cases as the SEC, the agency said. ‘There is a lot of overlapping,’ Power said.”
From Reuters. “The FBI said it is cooperating with the Securities and Exchange Commission, which has confirmed opening at least three dozen investigations related to the subprime mortgage market.”
“Goldman Sachs, Morgan Stanley and Bear Stearns — among Wall Street’s largest banks — each said on Tuesday that government investigators are seeking information from them about their subprime activities.”
“The subprime crisis began after the housing price bubble burst months ago and left millions of U.S. homeowners with bad credit holding high-interest rate mortgages they could no longer afford. Many are now losing their homes.”
“As an economic slowdown and the subprime mortgage crisis deepen across the United States, Hispanic immigrants are increasingly in danger of losing their jobs and their homes.”
“Both legal and illegal immigrants joined Americans in buying homes they could barely afford when the market spiraled upward and many have been caught with mortgages higher than the value of their homes as prices have slumped in the past year.”
“Unemployment among Hispanics in the United States jumped to 6.3 percent in December, up from 5.7 percent the previous month and well above the national average of 5 percent, U.S. Department of Labor statistics show.”
“And almost half of the mortgage loans in the hands of Hispanics are subprime, making them especially vulnerable to the housing downturn.”
“Nelson, a 29-year-old legal immigrant and construction worker from El Salvador, had a miserable run of luck in November, when he lost his job and his subprime mortgage bills jumped $650 to about $2,650.”
“Like many caught up in the crisis, the father of three said he had no idea his monthly payments would soar two years into the mortgage when he closed the adjustable-rate subprime deal.”
“‘You have to sign a lot of things when you buy a house, so I didn’t read, I just signed. I think it was the anxiety, the happiness of buying my house,’ he said. ‘I feel a bit betrayed.’”
“He says he now has to sell the home he bought in Maryland in 2005. If he is unable to sell in the next four months, he will have to foreclose, meaning an even bigger financial loss and a damaging black mark on his credit record.”
“‘I have to practically give it away,’ he said.”
From AFP News. “Former Federal Reserve chief Alan Greenspan cast doubt on the ability of the central bank to prevent a US recession in an interview to appear on Thursday.”
“Greenspan told the German weekly Die Zeit that the Fed or political policies could ‘probably not’ keep the world’s biggest economy from sliding into recession, as financial markets widely expected the US central bank to cut its main lending rate.”
“‘The influences of the global economy today are stronger than almost any monetary or budgetary response,’ the German-language weekly quoted Greenspan as saying.”
“‘Real long-term interest rates have much more influence over the heart of economic activity than national decisions,’ he was quoted as adding. ‘And central banks have less and less power to influence long term rates.’”
“Some analysts have said that low interest rates under Greenspan’s watch were responsible in part for the US housing bubble that burst last year, and led to the current financial crisis.”
“Die Zeit quoted him as saying he found it hard to understand that ‘the Federal Reserve policy had somehow allowed housing and stock prices to rise.’”
“Fallout from the crisis, which began with a meltdown of the US market for high-risk, or subprime, mortgages, continues to rock international financial markets and now threatens the US economy with a recession.”
“For Greenspan however, the turmoil was ‘entirely the result of market forces at a global level.’”
I’m at a friend’s house today. Trying to convince him not to buy a house for his daughter in the OC. He says that demand is picking up there now because of the incentives and that this year is the bottom there. It’s hopeless; these people are nuts.
so bet him 50K -that’s what I do
usually handles things
Yep, the put up or shut up routine.
Did that with the GOOG-AAPL engineers in the Valley. Told them that before this was over any of them would be able to buy in cash.
$10K minimum bet. No maximum. 2:1 odds. Pony up the dough, bee-yatches! Put your money where your mouth is.
None of them took it. Would’ve been the easiest $10K I made.
Wouldn’t that only work if they didn’t ride their company stock down over the intervening years before the housing market bottoms?
Neccessity is the mother of intervention…
Tell him to buy two houses!
when he says…”demand is picking up there now because of the incentives and that this year is the bottom”.
and you say…”prove it”.
what does he then say?
I have given up on giving advice to people who want to buy RE. It’s like people’s religion - you just can’t talk them out of it through rational thinking.
I’d advise to finance it 100% due to very low rates. If it falls in value too much, mail in the keys. If he is right, he wins . . . if you are right, he mails in the keys.
Give him $10,000 bet if he won’t buy for another two years. Tell him the bet is risk free because if he loses, he owes you nothing, if he wins, he gets an extra $10,000.
If this still doesn’t work, just link him to this house bubble blog.
I’m in the OC and it is patently false that demand is picking up. The mortgage company owner down the street that has been trying to sell his house since May ‘07 finally rented it out after dropping the price nearly $200K (20%) and STILL having no offers. Here’s a nice link to latest figures.
http://www.ocregister.com/business/orange-county-home-1966837-prices-and
I have a friend who works at Countrywide, he said he is busy underwriting increasing load of mortgages. He was saying that there are investors coming into the market to scoop up real estates. I am sure those investors will be regretting their move
but real estate bubble is trying to reinflate itself.
refi’s or purchases?
Allow me to put out a “hypothetical” scenario. If Countrywide were to cut staff by 80%, then a 50% decrease in mortgages would result in a single person’s individual workload increasing by a large amount.
It’s hopeless; these people are nuts.
Try the 2×4 to knock some sense into them when all else fails.
You know how it goes, TX. If someone wants to do something, they will FIND the reason that makes their decision sound good…no matter what. If your friend it willing to listen, have your say and then let it go. If they won’t listen, there’s nothing else you can do.
And why does he want to buy a house for his daughter? Is this in lieu of living in a dorm? Perhaps, because she and he don’t want her to be “priced out forever!”? You know the drill….say what you have to say and then leave them to their own devices. You would have tried.
I do feel your frustration, though. It’s hard to watch people you care about make a really, really foolish decision.
BayQT~
If someone wants to do something, they will FIND the reason that makes their decision sound good…no matter what.
That is what I told myself when George Clooney asked me out…oops, just having a dream..
lol
And the other dream is that rent prices and home prices all go down fast.
Which one happens 1st. George or prices…hmm lol
Ah let him buy.
They’re not making any more land and RE always goes up.
RE tumescence. Maybe it’s all related to Viagra. What would Freud say about house lust?
“The sub-prime lending investigations also extend to home builders, he said.”
“The principal focus of the probes is whether companies juggled their books to conceal problems with mortgages made during the frenzy of the housing boom.”
The outcome of this investigation might reveal important insights as to why puts some of us purchased on homebuilders in the spring of 2005 expired worthless, even though it seemed like a perfectly obvious strategy at the time.
Professor Bear:
The outcome of this investigation might reveal important insights
You might not hear much until a court proceeding begins for the perps. Business crime investigations are kept very confidential to a select few involved until the case ends up in court. In the meantime, sit back and wait, because the fun is just beginning and this mess will make Enron look like a petty crime compared to the housing collapse mess.
even though it seemed like a perfectly obvious strategy at the time.
—————–
It sure did.
Fortunately, I magaged to get out with a few bucks, but the duration between when it (the collapse) **should** have happened, and when it actually did, made me light on shorts when they really could have done well.
Made a few bucks, but not worth the ride, IMHO.
“Goldman Sachs, Morgan Stanley and Bear Stearns — among Wall Street’s largest banks — each said on Tuesday that government investigators are seeking information from them about their subprime activities.”
3 Blind Mice…
Who let the rats out?
So he’s ignoring you??
Probably. And this dude is a CPA and money manager.
One thing I learned from the dot.com bust and now the housing debacle is that nobody wants advice or reality. They want someone to pat them on the head and say “You’re doing the right thing.” no matter how short sighted.
Can’t win on this one…
doesn’t matter…unless you read online blogs like we do or understand hard economic data it won’t amount to a hill of beans. Most CPAs and money managers are trained to be drones based on modern portfolio theory.
I’ve found that accountants aren’t the best folks out there for financial advice. I got some pretty wonky advice from my last accountant, who was pretty good as accountants go. But the good news is that I let her wonky advice go in one ear and out the other.
I hear you. My sis-in-law is a CPA and she bought two years ago in the Bay Area. This is what I’ve learned from her about the Bay Area:
1. Its different here(We all know that)
2. Rent is throwing money way.
3. Interest on a loan is tax deductible so its okay to borrow $750K.
4. People always want to live where she lives.
5. You are not complete unless you own your home.
Well, as a practicing accountant (but not a CPA)- I disagree. My strategies have been:
1. Move out of the Bay Area to an affordable place, because I wanted a home of my own that one income could support;
2. Just because you “qualify” to borrow $X, you need not do it;
3. We bought land and a manufactured home in a low-tax area, with plans to pay off the mortgage - at that time, our fixed costs will be very low;
4. Pack in 401(k) money in a variety of mutual funds (spread the risk somewhat).
5. Plan to retire at 63.5 and take COBRA until Medicare kicks in (yes, it will be there). I have 14 years to go on this plan, so far, so good despite a divorce 10 years ago that about wiped me out (along with living in the Bay Area).
Lawdy, lawd, lawd. I wanna kiss you!
Drones drunk on MPT. Yep. Say that real fast, and it sounds like “empty”.
Geez….and about to make a huge money mistake to boot. Maybe the daughter is pressuring him; either way, such a shame to have to learn the hard way.
Is she one of those spoiled indulged children on the OC wives show?
Only time I see that is in the gym when nothing else is distracting enough.. ie no young pumas to look at .
except the gay ones…they are the only ones getting action in the gym.
CPA is no match for human greed and love of easy money.
But Daddy! I want a house
Daddy: Ok Dear, anything to make you happy.
Believe it or not, my dad has offered to help me buy a house in south Florida. I kindly refused to accept one dime towards such overpriced homes in my location. He prefers I stay in south FL, I already explained why not and that house prices were the biggest reason.
If he doesn’t want to help me purchase a house anywhere else but south Florida, that is fine since ill be able to buy a house in cash in NW Pennsylvania anyway and prices are dropping nicely in Florida and some other locations.
Sometimes it’s nice having broke parents. Keeps them from intruding on your financial decisions. Hehe
Anybody mind if I round it up to a Billion?
“Centex Corp., the second-largest U.S. homebuilder, reported a $975.2 million third quarter loss as the housing slump and tighter lending standards cut demand.
“It’s very likely - given the lack of cash flow, the large interest and expenses - that these guys won’t survive.”
What they need is good ol’ fashioned cash. Nothing else will suffice.
“… have seen their credit ratings downgraded and both have sold properties - often at a loss - to raise cash as they struggle to stay afloat.”
and centex was the most swarmy and diverse w concrete operations etc……
They couldn’t have been worse than KBH with the whole Martha Stewart tie-in crap. Also, the Disney homes garbage.
“Former Federal Reserve chief Alan Greenspan cast doubt on the ability of the central bank to prevent a US recession in an interview to appear on Thursday.”
“Greenspan told the German weekly Die Zeit that the Fed or political policies could ‘probably not’ keep the world’s biggest economy from sliding into recession, as financial markets widely expected the US central bank to cut its main lending rate.”
“‘The influences of the global economy today are stronger than almost any monetary or budgetary response,’ the German-language weekly quoted Greenspan as saying.”
If the U.S. economy were a large cruise ship, then by all current appearances it is on course to crash into an iceberg, and too late to change course. But that will not stop politicians and central bankers from falling all over one another to show Americans that they are doing all they can to avoid a recession.
barn door left open
all of the horses have fled
hurry, shut the door
This illusion that recessions can be avoided is most humorous.
Seeing the .dot bomb coming I made it a point to read the Chicago Tribune’s business section everyday during 2001-2. Article after article could be cut and pasted into today’s MSM stories as they endlessly hemmed and hawed about the possibility of a recession. I don’t recall it was until 2003 that they admitted we had even that minor recession.
The difference this time around, is that the PTB seems extraordinarily scared of the “r” word - much different than 2001-2. Their efforts to deny it, as many of you say, resemble the antics of Baghdad Bob or Goebbels.
“The difference this time around, is that the PTB seems extraordinarily scared of the “r” word - much different than 2001-2.”
The problem this time is the transparency. Today’s action just unveils another shroud of protective clothing. Watching today’s action coupled with the falling dollar does absolutely nothing but heighten one’s sense of pending trepidation.
RE: “Greenspan told the German weekly Die Zeit
“Adolph” Greenspam creator of the Housing Holocaust rappin’ to the Heines…how appropriate.
“Greenspan told the German weekly Die Zeit that the Fed or political policies could ‘probably not’ keep the world’s biggest economy from sliding into recession, as financial markets widely expected the US central bank to cut its main lending rate.”
Making BB’s like hell again. How has the dollar done since Greenie advised on 60 Minutes that investors should diversify out of the U.S. dollar?
fcking lier
“Like many caught up in the crisis, the father of three said he had no idea his monthly payments would soar two years into the mortgage when he closed the adjustable-rate subprime deal.”
“Nelson, a 29-year-old legal immigrant and construction worker from El Salvador, had a miserable run of luck in November, when he lost his job and his subprime mortgage bills jumped $650 to about $2,650.”
“He says he now has to sell the home he bought in Maryland in 2005. If he is unable to sell in the next four months, he will have to foreclose, meaning an even bigger financial loss and a damaging black mark on his credit record.”
[B]“‘I have to practically give it away,’ he said.”[/B]
Who says the recent immigrant population isn’t assimilating…
I think he’s got the American entitlement perspective down pat.
” … a miserable run of luck …”
Miserable luck seems to follow around folks who don’t do their homework, don’t read or understand important documents they sign. Funny how that is.
also, who don’t run the numbers, anticipate the worst case scenario, have 6 months in savings, and live within their budget. yeah, funny how that is.
‘give the house away…yeah right, numbnuts, you never owned anything but a mortgage.
From “I’m not going to give it away” to “I have to practically give it away” to “Take it, and to h— wid ya!”
Is BB worse than Greenie?
IMHO, No. In fact I happen to like Chairman Bernanke. He is just in the wrong spot, but anybody being in the position would be in the wrong spot.
my little brother has a son. his name is eli and he is 20 months old. eli gets in these moods from time to time where nothing seems to please him. my little brother calls it the “damned if you do, damned if you don’t stage”.
big banks, wall street and politcians are not unlike eli and the chairman is not unlike my little brother.
Mr. Manning, is that you?
we will see sunday
giants will win!!!!
cannot wait to see the nra commercials as well
great time to buy-sell just a transaction!!!!!
I don’t care who wins as long as the patriots lose.
How much is he paid? It couldn’t possibly be enough.
You are correct, he is not paid 1/50th of what he would make now in Hong Kong.
Chump Change, but it is the single most powerful position in the world.
oooh, ungowa, Bennie’s got the power
Part of being “smart” is turning down offers that you know are lose-lose.
Admittedly, it’s hard if you’ve been angling for it all your life but that’s what smarts is. The ability to say `no’ at the right moment.
IMNSHO, you want to be there to pick up the pieces not to be around when everything’s being smashed to bits.
yes, that is Louie. Louie was first offered the position but turned it down knowing the carnage to come. Ben was the second choice.
http://www.youtube.com/watch?v=vHjWDCX1Bdw
T minus 17 minutes:
http://www.youtube.com/watch?v=vHjWDCX1Bdw
50 bps drop and the market rallies. I thought everyone said 50 bps was already “baked in” to prices?
It apparently was, which makes me wonder how they get the market to rally…
Some where expecting only a 30 bps cut. Since the market wasn’t 100% sure that it was getting a 50 bps cut, the market rallies a bit.
It’s the fed statement saying “risk is to the downside” that rally the market before it tanked again. Looks like Heli-Ben will be dropping cuts all over.
“Centex Corp., the second-largest U.S. homebuilder, reported a $975.2 million third quarter loss as the housing slump and tighter lending standards cut demand. Centex wrote down $554 million in land and property values in the quarter and has cut more than 40 percent of its workforce since 2006. The company closed on 6,657 houses, a 20 percent decline from a year earlier. The average price fell 11 percent to $268,588.”
Wow - given that Centex is barely breaking even at a pro-forma rate, and losing money hand-over-fist in “one time charges”, and with revenue falling off a cliff - it’s incredible that their stock is stock is trading right about at book value - about 3.25B. IMO a no-brainer short. Unless things improve dramatically in the housing market, and short of being bought - they’re looking at probable bankruptcy in about two years, IMO.
“In another development that came to light Tuesday, a fired loan officer alleged that a joint venture between No. 1 mortgage lender Countrywide Financial Corp. and Los Angeles-based builder KB Home improperly inflated home appraisals and falsified incomes to put borrowers into homes they couldn’t afford.”
Fired employees — who probably took a lot of evidence with them on their way out the door — will probably be a very effective source of information for the prosecution. (Especially if they are granted immunity…)
Of course Builders and their “Special Lenders ” were doing shady deals to move inventory .A lot of those incentive and cash back deals the Builders were touting had one set of papers ,while the Lender has another set of papers for what the deal was . Why do you think builders insisted that the borrower go through their “Special Lender “.
Is there any question how entire tracts or condo protects were sold out to a majority of investors who didn’t qualify . Remember in 2004 and 2005 how they would bring all the investors in by bus ,yet all the loan documents said owner occupied .
This is coming from an English teacher who just corrected 100 finals and had two glasses of red wine to ease the pain: PLEASE PLEASE for GODS SAKE Housing Wizard, learn NOT to space between words and the punctuation that …er, punctuates them.
Thank you. I’m going back to my wine now.
200 bps cut…
Dr. Estranged Love
(or how I learned to stop worrying and love the debt bomb)
“Greenspan told the German weekly Die Zeit that the Fed or political policies could ‘probably not’ keep the world’s biggest economy from sliding into recession, as financial markets widely expected the US central bank to cut its main lending rate.”
just kidding
talking your book, eh
Buy bye. Orders placed to sell calls at market.
lol
Half a point rate cut across the board.
Overnight Fed Funds rate is now 3%.
crap - the greenback is more and more worthless
3%. Might as well take it out of the bank and put it in my matress. Yah, a savers strike. No T-Bills, no bonds, no high interest savings accounts, just good old matress padding. See how the powers that be like that one.
Al,
I’ve been giving some serious thought to pulling my money and putting it my matress or burying it.
Why don’t they just stop pretending and set it at -3%.
The market response to this is pretty awesome. Dow is up 30, down 30 within instants. I figure 50 was baked in…come on declines! The FOMC statement admitted significant risk is still out there.
They think inflation will moderate over the coming quarters.
Translation: We will feed you a line of BS about inflatiob but you know and I know that we (the FED) is full of crap. We don’t care about inflation and our MBA and PHD degrees taught us in school that low interest rates lead to higher inflation.
inflation.
Also, the FED is not stupid. They just are stupid to think that “WE” are that stupid. Look at the Dollar.
This may show my knowledge when it come to FED policy but is this all about trying to get the subprime market and ARM holders into low rate fixed loans?
That’s one of the big reasons…..another is to lower the bank’s cost of funds going forward so that they can start lending more aggressively and start the bubble back up….
Yep, Not Missing It ,I 100% agree with you that this is what this is all about .
The big reason is lower costs for businesses and hence if you have lower costs you will have higher profits. This is really about overall growth and showing a positive growth in the U.S. economy even if we have to get there by reducing costs, not expanding sales.
Actually, inflation leads to lower interest rates. The fed lowers the rates by making more money available for lending thus increasing the supply and driving down rates.
Inflation is the source of the rate cut, not the other way around.
Not to put too fine a point on it but you’re a mor*n. With a capital M.
Inflation = increasing money supply.
In our debt-based system that means offering money at lower than what the “natural” market rate would be, and allowing credit to expand.
However, credit is not money because it can be defaulted upon.
Capiche?
Soooo, given a large percentage of money loaned will not be repaid, exactly what is the difference between loaning someone the money and giving it to them? How does this not have the same effect?
lol. that’s one of the few times I have seen that word spelled correctly on the internet
Who’s teaching Macro at Virginia Tech? Rachel Ray?
based on the lag in reaction to issues (although the real issue is housing prices) there would appear to be a good 6 month gap from disaster to reaction by the gov. so in another 6 or so months, the outlook will be bright and sunny for the economy..healthy…robust…according to cnbc. And that folds in very nicely with the rebate checks doesn’t it?
yeah-who is teaching economics at VaTech? You should sue and get your tuition back. Or actually maybe you can set up a card game for us with your professor.
Thanks for the analogy with Rachael Ray. Perfect.
I hate that bee-yatch. She is to cooking what subprime is to loans. And I hate the term EVOO!
Um…Tech is right. The “Fed Funds Rate” is short-hand for “Fed Funds Target Rate”. It is a target. They reach that target by (ready for it?) increasing the supply of money (using various open market activities), thereby making the cost of money (interest rates) lower.
As Faster Pussycat pointed out, “inflation = increasing money supply”. So to refine my previous statement, the Fed uses inflation to reach its target rate.
It’s actually “capisce.”
the point we were making was the comment inflation leads to lower interest rates…lower interest rates fuel inflation.
the point we were making was the comment inflation leads to lower interest rates…lower interest rates fuel inflation.
And my point is that your point is wrong.
I’ll say again, when the “Fed Funds Rate” changes, no interest rate has yet changed. It is shorthand for a change of the target rate, which is the rate the Fed wants to see. They achieve that target by increasing (i.e. inflation) or decreasing (i.e. deflation) the money supply.
I’m not concerned about the cut one bit. I predict that either tomorrow or the day after, Wall Street is going to have a nasty hangover and come to realization that there will probably not be more rate cuts, hence no more leaning on these hopes to sputter on with a few artificially manipulated ‘earning’ days, and secondly, rate cuts take at least 6-9 months to fully become effective. At that point we will have experienced the much-anticipated/dreaded April Resets.
There’s plenty of more damage to come and the Wall Street teams just used their last time-out.
No - there are still 3.0 timeouts left
well… looks like my prediction came a day early… up from close to 200 to -60. whoa.
So does this mean there will be another opportunity to get a fixed rate mortgage at 4.5%?
No, after this fiasco - a borrower will be lucky to get 6% 30yr fixed.
Who will want to lend mortgage money?
It is not who wants to lend it, it is who is willing to buy Mortgage Backed Securities (MBS)?
It is not who wants to lend it, it is who is willing to buy Mortgage Backed Securities (MBS)?
The Federal Reserve Discount Window?
And that will change the income/house price equation, how exactly?
Exactly, you and I (as taxpayers) are are going to be the new investors in MBS’s - via the federal government, in various forms, buying this crap…..
Hold out for 3.5%. Unlike 2003 when there was demand, this time they’ll be begging anyone to take out a mortgage (that meets FHA guidelines).
MBS are dropping which means higher mortgage interest rates.
I can (and did) short US T bonds to buy foreign securities and lock in higher interest rates. This is carry trade using the dollar as my borrowing tool. I am sure I am not alone. This will unfortunately keep interest rates relatively high, why buy an MBS when you can buy a safer T bond?
Read the Federal Reserve comments.
any guess as to your yield on this strategy?
I had been thinking back in the low mortgage days that asset prices were inflated, so it made more sense to borrow than save. I mused about taking out a first mortgage and using the proceeds to move money to a different currency. I wonder if that might be a strategy to battle against the bankruptcy of the United States.
I was so hoping Mr. B would simply come out with a wakizashi. But noooooooo…. Sepuku is too worthy for the toiling classes.
Are you speaking Pokemon?
Let the WS fools dance and party for another couple of days.
Someone took away the punch bowl early it seems…
trying now to bid for a few feb index puts. We’re at resistance on the s&p
yep
I’m actually starting to understand all this jargon.
S&P 1375 was the floor on three brutal selloffs last year/early this year. When it broke, the market came apart like a Walmart toy. Now it’s overhead resistance and I’ll bet a close over it today will be seen in a week or so as a bull trap.
Meaning…..the close over will be seen by many as the beginning of a runup, when it may not be??
It’s at 1375.08 as I type.
Right. But that’s forecasting. We’ll see. I’ve been hit on a few put bids. Not risking much on this go around. Why give anything back.
While you’re around:
Recently read a book called “Technical Analysis Plain and Simple.” At the end in the “getting started” section he talks about getting set up with charting software (among other things). Googling comes up with all kinds of different stuff…..free, not free, premium services, etc.
Anything you can recommend??? Thanks in advance.
Use the free stuff until you get a good handle on it. Big Charts, Stockcharts.com I think are free. Esignal is a good service if you want to pay.
Your assistance is greatly appreciated!!!
I’m curious….why do you use such titles as “The Market Continues…” to describe current situations? You’ve used this sort of title before….
Why? Do you guys feel surprised that the market is still going down? Do you expect it to stop going down? Here in Los Angeles, it’s not budged much at all…so what title should we use for the POS properties around here still selling for $700K-900K in middle class areas?
Any fool can ask too much for a house in this market, it takes a genius to make one actually go away.
Just rent for $2000 a month or relocate if you can’t afford even the rent. Millions have relocated.
You can’t rent a 3BR for anything near $2K in the good part of LA. Try $3500+. Move, LA is in for a very long and painful journey…one that I am not prepared to wait out while paying $40K a year in rent.
POS sounds like a good enough title itself.
“… so what title should we use fot the POS properties around here still selling for $700-900 in middle class areas?”
How about “Wealth Distributors”.
Just now looked at Ingdirect and their rate on a 12-month CD is a whopping 3.65%.
Thanks, saved me a click…now what.
Canned peas and frozen tater tots. Food seems to be getting the best return these days.
it will be even less than 3.65% tomorrow or the day after.
Comment by barnaby33
2008-01-29 17:37:46
He’s actually correct, though using a straw man. The median priced house has NEVER been affordable by the median income in SD, nor any other desirable place to live. More like the 70th percentile income can afford the median priced home. Even when homes are at their most affordable, they are still expensive in San Diego, in most communities.
Historically prices here rotate around 4-6 times median income as opposed to 2-3 in most places in America. That being said, that dude is still full of sh*t, prices have a long way to come down to get to 4 times median income.
My comment:
I did not know this! If that is the case, do most people rent? And if rent is a much better deal, why do some still buy? One could rent till he retires, invest the extra money and be better off than buying. Then he can relocate somewhere cheap.
Ive been told the same for the “desirable” parts of Florida. Median income is around $30k a year per person, but will houses drop to $60k in south FL and Gainesville? It appears that the snowbirds and retirees are the ones setting house prices while the middle class is leaving FL in droves for cheaper states with higher salaries.
To understand this phenomenon, look at the extreme case. Say everyone with below median income rents, while everyone with above median income owns. In such case the median home value will be at the 75ile income value. In areas with lots of young adults starting careers and lots of poor people (think big cities), you find that lower income people rent while higher income people own.
So what’s to stop higher income people from renting a house twice as big/nice for the same cost as “owning” or rent the same house for half the cost as “owning” and invest the rest of the money for an early retirement? It’s a fact that stocks/funds historically appreciate far more than real estate!
That is my plan, unless prices become much more affordable.
One of my clients did that. He and the wife sold the house for $915k in one neighborhood. Now they’re renting in another (very nice) neighborhood.
“So what’s to stop higher income people from renting a house twice as big/nice for the same cost as “owning” or rent the same house for half the cost as “owning” and invest the rest of the money for an early retirement?”
But then they’d just be throwing away their money!
I rent a house in tampa at half the cost of ownership. Then I put the other half in investments or spend it on stuff I want.
And my rent comes with lawn service and pool service - you just can’t beat that! Then, since it’s a rental I’m not spending any money on “granite countertops and stainless steel appliances”, so the Home Depot bill is nil.
Now tell me about those ownership benefits again???????
$1500/mo rent * 12 = $18,000/year.
$18,000/year x 20 years = $360,000.
Buy a $360,000 house now, and live rent-free thereafter. Your house also at that point has a residual value as well, whereas your sunk rent does not.
You asked why people do it. There actually is a reason.
(Ignored for simplicity: time value of money, inflation (will affect rent rates as well; tax and maintenance).
Apparently you do not understand the Ownership Society model. Everyone is made collectively better off if everyone owns a home.
And by Everyone is made collectively better off
You mean CEO’s can extract the maximum amount possible from the middle class
and by if everyone owns a home you mean
If pension funds and overseas and other investors own a lot of homes foreclosed, or with negative equity.
The big error is that the boom was based on a model of home ownership, but rather, it was based on investment while using the housing stock to create the money by false values .
Those of us who’ve grown up in SD County have been beaten down by the “Sunshine Tax”. To wit: our wages here are lower than in comparable metropolitan areas, and housing is higher, because everyone wants to live here, yaddah yaddah.
Try not to get so excited by the news of falling prices that you accidentally catch yourself a falling knife…
REAL ESTATE
Housing gap
Price drops make markets more affordable; some workers still priced out
By Amy Hoak, MarketWatch
Last update: 3:04 p.m. EST Jan. 29, 2008
CHICAGO (MarketWatch) — Those eager to become homeowners have reason to cheer the home-price drops seen in many local housing markets as a number of areas have gotten more affordable over the past year, according to a study released on Tuesday by the Center for Housing Policy.
http://www.marketwatch.com/news/story/big-affordability-gaps-remain-despite/story.aspx?guid=%7BC306F7FA%2D6800%2D426E%2D8B44%2D0C0FBB1A4B63%7D
So long Dollar, The places you’ve been to
The things that you’ve sold us
The stocks I sell
So long dollar, I sing to your spirit
The banks who have served you
So long and so well
was that John Denver? Thanks for nothing, I’ll have that damn thing running through my head for the rest of the day
Should I sell my positions?????
I dont want to be greedy….
Should I buy a house in Bakersfield?
Should I buy a house in Belize?
Should I buy a new guitar?
Nope you need to buy Calypso
I refuse to play with the black boxes. Say no to Calypso!
Yeah I’ve been humming ;
“I had a date with a pretty ballerina”
Left Bank.
60’s
40 year low…sad!
Uncle Buck hits the skids!
http://quotes.ino.com/chart/?s=NYBOT_DX&v=i
Ho-di-layee, di-di di di di di
Ho-di-lodee, di-di di di di di
Ho-di-layee, di-di di di di di
Ho-di-lodee, dee
Dang, it is my head right now.
For a minute i thought you had this song…
Holiday, celebrate]
[Holiday, celebrate]
If we took a holiday
Took some time to celebrate
Just one day out of life
It would be, it would be so nice
Hi matt,
Nope belongs to Hoz interpretation of the Calypso song by John Denver
I also wrote a song to the tune “Whip it” by Devo but the blog eater ate it or Mr. Jones nixed it.
So no repost. Entitled
Sell it!
Now I can’t get it out of my head…. thanks
“William Lyon owned $1.62 billion in real estate inventory and had just $34.5 million in cash, according to its most recent financial report. Standard Pacific reported an inventory of $2.95 billion and only $5 million in cash.”
Stick a fork in these 2 builders…
Hasta L.A. vista, baby.
I always wondered why Lyons bought his company back and went private, if they still release info like this to the public?
I got another late postcard from Ryland. It came yesterday, but the “sale” was last weekend. Same thing happened a few months ago.
So if this is how these guys are marketing…
So how low do they go? As low as 2.0%? 1.5%?
And how much inflation do they tolerate?
Isn’t the inflation issue more complicated than that? There is cost push and demand pull. The Fed may be trying to create demand pull, by putting more dollars into the economy. Buy will that be offset a lot by the slower velocity of dollars in the due to a recession or disappearing dollars from defaulting loans?
Then there is the cost push. The cost of gas, materials, food, ect. push prices up. Businesses have to raise prices because their cost will erase profits. Will demand for gas, materials, etc that go into products be low enough so the devaluing of the dollar is offset?
RE: “‘This downturn is more protracted than anyone forecasted, and so their financial position is worsening,’ said Joseph Snider, Moody’s senior credit analyst for the housing industry.
Crock ‘o crap-Mr. Snider.
Seems a lot of people right here on the HBB knew exactly where all this was going to go. Protracted, my azz.
BTW-How much are they paying you?
nice head and shoulders on the daily chart, if this is all we get for a half point….
yessir! bull trap-o-rama so far
Covered the EEV and FXP I sold earlier. Whee
nice work on the FXP!
Guess 50 bps was good for only an hour and a half. How will Ben Bernanke go to sleep tonite?
At close the Dow looked like it was flipping you off >; )
The DJIA is just a tool. It would not know how to flip me off. Drive me crazy. Yes. And now that the Dow is a broken tool it drives me even crazier.
The market did this just to make Mr. James Cramer look more of a dolt. Screaming for rate cuts without recognizing unintended consequences of killing the dollar.
The only question left in my feeble brain, is there going to be a flight from the dollar? Not a good thing.
Hoz, thought you might be interested in this……..
Ackmans submission to the SEC.
Kaboom!!!!!!!! time for the monolines.
http://www.yousendit.com/transfer.php?action=batch_download&batch_id=Mmd0UXVuQzMzeUxIRGc9PQ
Thanks for posting this info. Really, it’s high time for Open MBS and the Open MLS.
Hey Luvs
“Click on the Onion pins scattered around the globe to reveal mind-expanding factoids about the lesser, conquerable nations of the Earth. Come back each week to learn more about how little you know.”
from a click on Australia
“Australia once home to some of the most diverse and undisturbed wildlife in the world, the nation of Australia has fallen prey to a deadly scourge of nature shows, with dozen of endemic species being poked , prodded and bothered to the brink of extinction.”
http://tinyurl.com/ywdocj
You’ve got to be kidding me. A 125 MB Excel file?!? At some point Microsoft bloatware is no longer worth the “convenience” and you should be moving your data into something a bit more appropriate.
picture the media frenzy that prices are dropping like hotcakes…but not sure they are going to fool most of the “board”. it reminds me of all those 50% off xmas sales marked up 25% prior to the “sale”. The sad truth is that it will probably lure in some unrealizing purchaser.
I need to see the majority of rate resets flushed through the market before I would get involved, which would of course include a 6 month lag to eliminate those struggling to hold on. That is in addition to confirming we are back into normal pricing ratios and cash flow expectations. 18 months at least.
Wall Street is giving up the initial knee jerk gains. Maybe ppl are starting to get it. No doubt we will retest the lows in the following months.
Market just went negative for the day. Fire sale on silver bullets, although we always new it was just crap wrapped in tin foil.
The foil wasn’t even tin as it’s too expensive. It’s just wax paper spray painted silver. The FED had to be rational consumers and find a substitute.
Implausible Deniability
“For Greenspan however, the turmoil was ‘entirely the result of market forces at a global level.’”
Breaking news: Bear says Fed will cut to 2.50 in March meeting.
blmbrg
Wooo hooo!
Forex - Dollar Fall Further Versus Majors After Bear Stearns Predicts Another Deep Cut In March []
1/30/2008 3:27:06 PM The dollar extended its post-Fed losses versus other majors in late afternoon dealing Wednesday. The buck came under more pressure after Bear Stearns said that it expects the Fed to cut a full percentage point at its March meeting.
The dollar fell sharply against a basket of currencies Wednesday afternoon following the 2:15 pm ET announcement that the FOMC cut its key lending rate by 50 basis points to 3 percent, as expected.
“Recent information indicates a deepening of the housing contraction as well as some softening in labor markets,” the Fed said, noting that downside risks to growth remain. Policy makers signalled that they stood ready to further cut rates even though the economy continued to grow. The Fed offered an emergency rate cut of 75 points last week.
Versus the sterling, the dollar slipped to a fresh monthly low of 1.9957 by 3:30 pm ET. Against the euro, the dollar eased to a 2-week low of 1.4906, closing in on its record low near 1.495.
This comment today from Jim Sinclair sums it up well:
1. There is no limit above zero to which the Fed will go in attempting to prevent notional value of the $516 trillion dollars worth of OTC derivatives from becoming real value. This will occur when the losing party fails to perform.
2. There is no limit that the present Administration will go to provide fiscal stimulation in its attempt to prevent notional value of the $516 trillion dollars worth of OTC derivatives from becoming real value. This will occur when the losing party fails to perform.
Get ready for the NAR propaganda now we have another interest rate drop: “Interest rates are extremely attractive. Now is a good time to buy!”
It ain’t. If we see buyers coming in they are naive Greater Fools who will get their heads handed to them on a plate if they buy before (at least) late 2009 or even late 2010 IF we do not have a serious recession. “Serious” being the operative word. We are already in a recession but it’s still too early to judge the depth. Under no circumstances listen to those as*holes in Washington when they talk about inflation.
Of course, we can always rely on the wisdom of an ex-Washington hack, Mr. Magoo, who just a few months ago stated on the record that it was highly unlikely that the US would fall into a recession. This morning, he stated on the record that it’s doubtful we can avoid a recession.
Btw, Bahgdad Ben Bernanke is backing the wrong horse. It seems he’s done this (panic) lowering of interest rates to stimulate the economy and stated (on record) that inflation is not really a big concern.
Someone needs to grab this little dick-head by the scruff of his neck and take him grocery shopping or to the movies or get him to pay for his own gas (as opposed to us paying for his gas) and also pay his own heating bills, etc. Then he can talk about inflation. We have a seriopus problem in that all these bums get the tax payer to fork out the money for their (top of the line) healthcare, big fat pensions, day to day expenses, etc, as they are driven in their limo’s from their Ivory Towers to their pals Ivory Towers.
I thought the USA got rid of the self indulgent aristocracy a couple of hundred years ago?
I like your anger (where’s NYCityBoy?)
C’mon TX chick, there’s no bulltrap. Everyone knows the only reason the market closed down is because Charles Gasparino said AMBAC and MBIA are going to be downgraded. Reuters says so! It’s got to be true!
I though someone said that the Fed made the cuts because AMBAC and MBIA were about to be downgraded, thus wiping out the muni bond market. OK, cuts are done, now it’s time to get on with downgrading AMBAC and MBIA, and wiping out the muni market.
Wonder how much money will flee into stocks?
Related question: Did everyone notice how your wallet just got 0.5% lighter today?
“…0.5% lighter…”
Esp. foreign investers in U.S. Treasurys.
BOSTON (MarketWatch) — TOUSA Inc., the Florida-based homebuilder that’s been roiled by the housing downturn, Tuesday said it and certain subsidiaries are filing for bankruptcy.
I’m going to start a website called utorchyourownpos.com
‘Here at utorchyourownpos.com, we’ll provide you with a litre of lighter fluid, a box of matches and case oily rags, along with step by step instructions on how to recoupe the losses incurred from buying an over-priced eyesore in the middle of nowhere (San Bernadino, Victorville, etc.). You’ll be out of debt and back on your feet in the time it takes to spread some kitty litter around the basement and strike a match!
Synthetic stucco traps too much moisture to burn efficiently. It is more suited for the growth of mold.
oh great i have some severe allergies to mold
And don’t forget to add, “It will protect your credit score so that you can buy a new POS in 6 mos.”
Add a disclaimer in small print that says, “we are not responsible if you get arrested.”
“From the folks at utorchyourownpos.com, a special bonus offer. When you become a subscriber to utorchyourownpos.com, we’ll send you the suplemental instruction guide, “How To Torch Your Own POS and Get Rid of The B*tch That Talked U Into Buying It In The First Place”. Remember our motto, “No one will hear her scream (except for the meth cookers and coyotes)”.
methinks you just crossed the line…
Um, Big V, where are you? Another misogynist on the loose. BigWig, some of us gals will kick your a$$ and make you squeal like a pig.
Simply a joke. Happily married for fourteen years. Besides, I was referring to Suzanne…because she researched it!
Ok. I’m off to Costco to pick up my perscription ONLY.
I am so scared I might have to buy the 2 lb bag of starbucks.
The non starbucks brand did not wake me up.
Ok coffee and pills. That’s it.
Take that corporate America.
I’m pissed that I can’t load up on crap anymore because my allowance has just shrunk again.
Palmy; how’s shopping diet going?
Hey, Ouro, don’t know if you’ll see this, but I’m pretty much down to toilet paper, food and gas. And when I see the price of something I usually buy go up, I find something else. I’m mad as hell and I’m not gonna take it anymore.
Comment by EmperorNorton_II
2008-01-30 12:45:11
‘Any fool can ask too much for a house in this market, it takes a genius to make one actually go away.’
A genius with a match and a can of gas…
“Broke homeowners turn to arson”.
http://tinyurl.com/34k4xc
Cliff Diving Dollar/Yen
http://quotes.ino.com/chart/?s=FOREX_USDJPY&v=s&w=1&t=f&a=0
S&P Takes Negative Action On Subprime Securities .
In a sweeping action affecting $270 billion in subprime mortgage securities, Standard & Poor’s announced it had downgraded or taken negative rating action on 6,389 residential mortgage bonds backed by subprime borrowers as well as 1,953 ratings placed on CDOs, …
http://online.wsj.com/article/SB120172927286229795.html?mod=googlenews_wsj
“Standard & Poor’s on Wednesday said total losses for financial institutions from the unfolding mortgage market problems will eventually reach more than $265 billion.
The rating agency’s comment came after it said it cut or may cut its ratings on $270 billion worth of U.S. mortgage-backed securities and put $264 billion of collateralized debt obligations on watch for a possible downgrade.”
Reuters
“What - me worry” Alfred E. Neumann
I hear Jim Cramer right now and he wants to make me puke!!!! His pandering is despicable and clearly illuminates who his silent partners are.
Larry, Moe and Curley?
““‘This downturn is more protracted than anyone forecasted, and so their financial position is worsening,’ said Joseph Snider, Moody’s senior credit analyst for the housing industry.”
If these toons had looked beyond their REIC club they would have gotten better forecasting. You folks got it right here on the HBB, must be a better class of analysts here.
The 1,000 day REIC
oh, that was very very good.
Zig Hiel! Wo ist Herr Watts, unser Minister für Propaganda? Er war ein stiller, wie ein Lamm von spät.
Erik R. Sirri, head of the SEC’s market regulation division, said recently that securities firms and banks sold ‘too many lottery tickets’ tied to home loans and failed to look closely enough at their growing risks.”
And all of these “lottery tickets” were sold by banks to home buyers & by securities firms to investors as can’t lose winning tickets.