An Inherently Healthy Process
Some housing bubble news from Wall Street and Washington. CNN Money, “New home sales slipped to a nearly 13-year low in January, according to a Census Bureau report showed, down 2.8% from 605,000 in December. Sales fell 33.9% from the same month last year and hit their lowest levels since February 1995. The median price of a new home sold in January was $216,000, down 4.3% from $225,600 in December and 15.1% from $254,400 a year earlier.”
“This decline probably doesn’t accurately capture the weakness in prices for new homes, as about three out of four builders have reported having to pay buyers’ closing costs or offer other incentives such as expensive features for free in order to maintain sales.”
“‘We may not pull out of this for another 5 years,’ said senior economist at the Credit Union National Association, Mike Schenk.”
“The latest housing boom was about nine years long, and there’s a way to go to undo some of the excess, Schenk believes. ‘Prices were up 45% over the last boom,’ said Schenk. ‘Prices that are down 10% do not return us to normalcy.’”
From Bloomberg. “A decline in inventory failed to keep pace with the drop in demand. The number of (new) homes for sale fell to a seasonally adjusted 482,000, and the supply of homes at the current sales rate jumped to 9.9 months’ worth, the most since 1981.”
“Sales of previously owned homes, which account for about 85 percent of the market, fell in January to the lowest level since records began nine years ago, the National Association of Realtors also reported.”
“New-home purchases, which account for the rest of the market, are considered a timelier indicator because they are based on contract signings. Existing home sales are calculated when a contract closes, usually a month or two later.”
“Toll Brothers Inc., the largest U.S. luxury homebuilder, reported its biggest quarterly loss in 22 years. The results included pretax writedowns of $245.5 million.”
“The average price of Toll’s gross signed contracts in the fiscal first quarter fell 13 percent to $634,000 from $730,000 a year earlier. The average price of the canceled homes in the quarter was $770,000.”
“‘Ceaseless talk of a recession continues to dampen the mood of consumers,’ CEO Robert Toll said in the statement. ‘This drumbeat, coupled with concerns over mortgages, the direction of home prices, and foreclosures, has kept pent-up demand on the sidelines.’”
From MarketWatch. “Home builder Toll Brothers took more write-downs in its current quarter as revenue dropped 23% and its backlog of orders fell 42%. And what did the company blame that poor performance on? Loose lips.”
“Whether or not a recession occurs in the overall economy, it is here in spades in housing. And what is doing the talking is data. How about a conversation that begins with housing starts: They were down 30% in 2007 and they are likely to fall nearly that much this year, according to the National Association of Home Builders.”
“Then keep your jaws flapping over new-home sales, which are expected to fall to at least a 25-year low of 632,000 units this year.”
“Need another cocktail-party zinger? Cut in with existing-home sales, which are going to drop to a 20-year low in 2008. And if you want to halt everyone else’s chatter bring up the topic of home prices, which showed the first overall nationwide decline in 2007 since statistics have been kept.”
“Maybe the drumbeat that home builders really should have paid attention to was the thumping that occurred a couple of years ago as unqualified buyers and greedy investors beat a path to their subdivisions and high-rise condominiums.”
“But back then the only tune companies heard was sales and the only rhythm sales agents swayed to was the one brought by steady commission checks.”
From Reuters. “U.S. banks and thrifts set aside record amounts of money last year in anticipation of higher loan losses, as the housing and credit markets soured, U.S. regulators said.”
“FDIC Chairman Sheila Bair linked the earnings drop to weakness in the housing sector and the credit squeeze in financial markets. ‘We can expect these problems to continue in 2008,’ she told reporters.”
“Analysts said they see broad signs of deterioration in bank credit quality, mostly concentrated in a half dozen states led by Michigan, Florida and Georgia.”
“Banks set aside record reserves in the fourth quarter and for the year to cushion against expected loan losses. They set aside $31.3 billion in the fourth quarter to offset weakening conditions in the housing and credit markets, and $68.2 billion for the full year.”
“The industry’s delinquent loans jumped 32.5 percent to $26.9 billion in the fourth quarter, the biggest quarterly percentage rise in 24 years, the agency said. U.S. lending standards are being tightened and loan demand is slowing, FDIC officials said.”
“‘This is an inherently healthy process and it won’t last forever,’ Richard Brown, the FDIC’s chief economist, told reporters. The weakness in the credit markets ‘probably has several more quarters to run,’ he added.”
“Fannie Mae, the largest provider of financing for U.S. home loans, reported a $3.6 billion quarterly loss on Wednesday and said it expects a ’significant’ worsening of the housing bust.”
“Fannie Mae said its results were largely driven by a $3.2 billion loss on derivative contracts used to hedge its investment portfolio as interest rates declined.”
“Washington-based Fannie Mae, which was created in 1938 to boost homeownership, is now struggling to strike a balance between enlarging its business while tightening underwriting guidelines to protect itself from further losses.”
“Regulators and lawmakers have leaned harder on Fannie Mae and Freddie Mac in recent months to bolster the housing market, most recently by increasing the size of loans eligible for their purchase. However, losses at the companies have squeezed their profits and reduced their ability to expand.”
The Wall Street Journal. “Mortgage giants Fannie Mae and Freddie Mac are close to a deal with New York Attorney General Andrew Cuomo to make changes meant to discourage inflated appraisals, widely viewed as an important contributor to the mortgage crisis, according to people familiar with the matter.”
“The proposal, in which the two government-sponsored companies would require lenders they work with nationwide to change their appraisal practices, would cap a year-long probe by Mr. Cuomo’s office that has already resulted in a lawsuit against an appraisal-management company, for allegedly submitting to pressure by a big lender to inflate appraisals.”
The Advocate. “A Stamford hedge fund that has been steadily losing assets since the summer has informed investors that it has begun liquidating its remaining holdings and plans to close up shop for good.”
“Sailfish Capital Partners made a number of bad credit bets tied to subprime mortgages and has been dramatically affected by the widespread financial credit crunch, the firm’s founding partners, Mark Fishman and Sal Naro, wrote investors earlier this month.”
“Founded in 2005, Sailfish had managed as much as $1.9 billion last year, before it began losing assets. Clients of the firm, who couldn’t withdraw money until Sailfish reached its two-year anniversary last summer, pulled about $400 million from the fund in January, according to published reports.”
“In their letter, the fund’s partners talk about the difficult economic conditions dating to last summer, when the housing market blew up and the credit markets collapsed. ‘The world has changed dramatically and rapidly since August 2007,’ the letter said.”
The Chicago Tribune. “Nationwide, 233,001 homes received at least one notice from lenders last month related to overdue payments, an increase of 57 percent from a year earlier, according to RealtyTrac.”
“‘You have more people going into default and a higher percentage of the properties going back to the banks,’ said Rick Sharga, RealtyTrac’s VP of marketing.”
“Nationally, attempts to help struggling homeowners seem to be falling short. ‘The loan workout modification programs aren’t having a significant material effect on keeping properties from going back to the banks,’ Sharga said.”
“One dramatic trend last month was a 90 percent spike in the number of properties that were repossessed by banks, compared with January 2007. ‘It suggests that there’s little or no equity in a lot of these homes, because they’re not even being sold to investors at auctions,’ Sharga said.”
“Efforts to save U.S. homeowners from foreclosure should not unduly alter the contracts behind troubled loans, a senior Treasury Department official said on Tuesday.”
“Proposals that ‘would retroactively change contracts on existing loans’ could cause long-term harm to the housing finance system, Treasury Assistant Secretary for Economic Policy Phillip Swagel said, according to prepared remarks.”
“Such a move ‘would make it more difficult for future subprime borrowers to get into a house in the first place,’ he said.”
“Swagel said the Treasury Department is examining whether there is enough market discipline in the current mortgage finance system. ‘The originate-to-securitize model succeeded in dispersing risk … but had the unwelcome effect of also dispersing information,’ he said.”
“Investors had too little information about the true risks of mortgage-backed securities collateralized debt obligations and other products that helped fuel the recent housing finance bonanza.”
“Besides lacking information, investors relied on a faulty assumption that U.S. home values would continue to rise and so put aside some of due-diligence work.”
The Sacramento Bee. “Mortgage rates are rising, putting additional pressure on the troubled housing market, and a new report on inflation suggests that rates might go up even more. Mortgage rates tend to move in tandem with the yield on long-term government bonds, which have increased in recent weeks as investors react to concerns over inflation.”
“‘We keep seeing more and more horror stories about the economy,’ said Michael McGee of a Rancho Cordova mortgage brokerage firm. McGee said higher mortgage rates aren’t helping a housing market that he believes is the worst of his 36-year career. ‘It’s never been as bad as it is today,’ he said.”
“Consultant Steve Dutra said higher rates will blunt the impact of falling housing prices, which analysts had hoped would kick-start a new round of buying.”
“‘With prices coming down, we were hoping interest rates would stay low as well,’ said Dutra, a VP in the Sacramento office of John Burns Real Estate Consulting. Higher rates means ‘a certain amount of people will be taken out of the market,’ he said.”
“Dean Wehrli of consulting firm the Sullivan Group said higher rates aren’t especially worrisome – but the economic trends are. ‘We have to be worried about jobs again – Sacramento’s job growth has slowed down so much the last few months,’ he said.”
“Sacramento-area unemployment has risen to 5.9 percent, while job growth is at its lowest level since 1993.”
“The recent uptick in mortgage rates has proved frustrating to potential homebuyers and existing homeowners, given the publicity over the Federal Reserve’s decision to slash interest rates. The Fed’s moves affect short-term rates and don’t necessarily influence the long-term rates to which mortgage pricing is pegged.”
“‘People are calling me up and saying, ‘Hey, I heard the rates are going down – I want to refinance,’ McGee said. He’s had to turn away most of his callers.”
“The GSEs are really looked to as the last great hope for the housing market.”
what I thought it was the Canadians?
No, its the European buyers who are this market’s last hope.
right. As if owning a house was some constitutional right. Why can’t those people just rent instead of buy unaffordable homes?
I heard Sovereign Wealth Funds might be interested in single family housing. Buy!
You laugh; but there is some very serious discussion on some Chinese bbs regarding the possibility that the US will grant immigrant visas to the Chinese for buying houses in the US.
Why Not the Indians too…..Oh heck the Iraqi’s, we bombed a lot of their houses.
Forget the Iraqis coming here….Americans are going there and now building real estate. That was part of the overall plan from the getgo.
Ah the Chinese. Here they’ve been buying our crap debt for years now, and now they’ll take our crap houses off our hands. Sooner or later they’re going to figure out who’s the sucker in the room.
I’ve looked at rental properties in the Phoenix east valley on several occasions prior to the expiration of my lease. I’d estimate that about 50% were owned by Chinese specuvestors represented by Chinese realtors. They were definitely not US born.
What would motivate a Canadian/European/Chinese/Indian with $500K cash in his pocket to immigrate? Investor visas have been going to waste for years.
We still have a long way to go!
Yep, all this talk of real estate being the worst it’s been in 20 or 30+ years and yet, prices mostly still seem to be within 10% of the peak.
“Nationwide, 233,001 homes received at least one notice from lenders last month related to overdue payments”
NAR reported 277,000 existing homes sold in January, only 44,000 more than received letters.
LOL. Yeah, I know….patience….psychology takes a while to change….
Honestly, I think we’re smack in middle of the denial phase. (most)People selling homes now are telling themselves that this is all just a minor hiccup, and all will be well soon. Besides, *their* house is so special that the right buyer will be happy to pay a slight premium.
Watch what happens when the panic phase really gets in full swing.
Neil - I HAVE popcorn, and it is good. Enjoy the show….
The FB on the street cannot acknowledge that anything longer or deeper than 2001-2002 may be in the cards. Even 1990-1 is now almost a generation away in a time when memories are short. 1982? - that may as well have been when dinosaurs roamed the earth.
Well, 1982 IS a long, long time ago now. 26 years. More than a generation ago. Few born after 1975 (or nearly half the population) has any real memories about 1982.
1982: I have vivid memories of schlepping here, there, and everywhere in the vain hope of finding a job in Pittsburgh. Nothing found.
Early 1983: Finally found a job. Part-time. Minimum wage. Washing dishes. I thought a lot about the importance of a college degree (which I had) while I was back in the dishpit.
Your woes remind me of 1980, when I was one of 34 people that applied for the sole bagger job at the local grocery store. I didn’t get the job.
JImmy Carter….the good old days! All this whining about a bad economy now…remember 15-18% interest rates and 10% unemployment? I do.
“‘We may not pull out of this for another 5 years,’ said senior economist at the Credit Union National Association, Mike Schenk.”
OMG, another five years of popcorn?
Yeah, dang it, and corn’s just getting so expensive, too!
About time someone finally provided a realistic forecast of the timescale involved.
I think 20 is more realistic.
Mike from Mar 1, 2007
“Mike Schenk: Why the housing recession will be mild
* The Federal Reserve will lower interest rates in 2007, stimulating housing demand.
* Some regional and local real estate markets may see price increases around the rate of inflation.
* Housing construction recently was at record levels.
* Increasing jobs and real incomes in 2007 will maintain housing demand.
* Increasing immigration and population growth will boost demand.
* There’s a fixed supply of land, and land restrictions.
* There has been a slowdown in the monthly rate of housing quantity.
* There has been a gradual housing market slowdown from a recent frantic pace to a high but sustainable pace.
* Former Fed Chair Alan Greenspan believes the worst is over.
The guy is a wishy-washy washout.
“Washington-based Fannie Mae, which was created in 1938 to boost homeownership, is now struggling to strike a balance between enlarging its business while tightening underwriting guidelines to protect itself from further losses.”
Translation of what they really wanted to say: Bond buyers want us to buy down risk. How can we appease J6P while requiring larger down payments and paying higher risk premiums? Can we still pretend bond insurers add value?
Got Popcorn?
Neil
Neil,
Did you see where Wells Fargo is now eliminating financing over 75% LTV for any non-conforming loan in the severely distressed markets of CA? Sweet music to my ears. Should I assume 65% is right around the corner?
Interesting how the underwriters at the bank get it now — housing is going to continue to fall 20+ percent in a lot of areas — but their REO departments are not, by still holding on to their pigs at wishing price. I’d like to see them loan 90% LTV on their REO’s if they think they’re such a good deal.
They will. Once bankers get serious about unloading REO they will offer all sorts of financing concessions. The 80% limit does not apply to loans-to-facilitate the sale of REO. Banks will be offering 100% financing with below market rate 5 year balloon loans to clear REO. They did it before (1980s), they’ll do it again.
REO held by bond trustees remain, and will remain a different story. It seems that they prefer to hold onto houses and let them deteriorate rather than sell at a loss (which would be passed through to security holders). Unrealized and unrecognized losses must have crept into the AAA tranches by now on everything originated in 2005 or 2006 and later. Potential buyers must have figured this out; that’s why they’ll only purchase these tranches at a big discount.
But FDIC insured banks usually won’t loan over 90% on one of their own REOs. Why, because they have to keep it on their books as a Covered Transaction, which is technically a non-performing asset until the loan amount drops below the 90%. Regulators don’t like banks to try to bail themselves out of bad loans by making new bad loans.
Thank you for your keen insight as always, Tux. IMHO, you have some of the best posts on HBB.
WFC is sucking a lot of air. The 2nd largest holder of 2nd mortgages and the lowest underwriting standards for 2nds of any bank.
“This decline probably doesn’t accurately capture the weakness in prices for new homes, as about three out of four builders have reported having to pay buyers’ closing costs or offer other incentives such as expensive features for free in order to maintain sales.”
And I am guessing the closing costs and other incentives are financed on the mortgage loan on top of the true purchase price of the structure. If I am correct in my guess, why would this not constitute lending fraud?
“And if you want to halt everyone else’s chatter bring up the topic of home prices, which showed the first overall nationwide decline in 2007 since statistics have been kept.”
And yet I’d be willing to bet most Americans don’t know this. I’m sure the MSM used some clever wordsmithing to hide the truth.
Is Wall St. high? All negative news this morning and the market was up? Well, I suppose a potential helicopter run from Ben could be perceived as “good news” to the big boys on Wall St.
Goldilocks is clawing her way up the cliff side, bloody but hopeful that the rescue helicopter will airlift her scratched and bruised body to safety, before the bear grabs her ankles and pulls her down for another mauling.
And Goldilocks will be grabbing her ankles as well.
Or doing it bear style.
They’re not high….the people IN IT are making money…it’s just that you’re not.
“Proposals that ‘would retroactively change contracts on existing loans’ could cause long-term harm to the housing finance system, Treasury Assistant Secretary for Economic Policy Phillip Swagel said, according to prepared remarks.”
_________________________________
But we have to keep housing prices propped up so that banks don’t go under. We are in crisis mode and only short term thinking will do. We may be going into a recession right now and this is absolutely unacceptable. Foresight and long term strategic thinking at this point is a luxury we cannot afford. Don’t worry about screwing the secondary market a second time, they are still getting over the first time we rammed them. Philip, please understand that reducing the amount of pain all players feel trumps every other consideration you may have. And finally, Philip, your belongings are in a box on your desk, leave your badge with the secretary, and next time make sure to clear any incendiary statements made to the press with your superiors first. Your a worthless POS!
/sarcasm off
In the early 19th century, the Marshall [Supreme] Court decided some cases that put contractual rights and obligations above various governmental attempts to interfere. Hope the present occupants of that bench are similarly inclined.
“‘Ceaseless talk of a recession continues to dampen the mood of consumers,’ CEO Robert Toll said in the statement. ‘This drumbeat, coupled with concerns over mortgages, the direction of home prices, and foreclosures, has kept pent-up demand on the sidelines.’”
I don’t see it. Take this article from yesterday’s MSM news, for instance:
http://afp.google.com/article/ALeqM5i55XQogCtoTnx-OeKkZIwgoLte6A
“‘Ceaseless talk of a recession continues to dampen the mood of consumers,’ CEO Robert Toll said in the statement. ‘This drumbeat, coupled with concerns over mortgages, the direction of home prices, and foreclosures, has kept pent-up demand on the sidelines.’”
Mr. Toll, do you remember the ceaseless talk about housing only goes up, buy now we’re running out of land, etc drumbeat tied to ‘you didn’t need to put any money down, only pay what you want mortgages’ shot the value of home pricing into the stratosphere. Of course you do, you just can’t accept that you got caught with your hand in the cookie jar!
Was it in the early part of 2006 that all the big homebuilder C$O’s were dumping their stock? This guy saw the writing on the wall long ago. These comments of his are merely cheap tactics to create an aura of innocence and non culpability around him and others of his ilk.
I am not a Bush hater or blamer (for everything bad in the world that is), but I think he is handling this housing crisis like an absolute moron.
It’s actually the one thing I thought he has been doing rather well - mostly because he has been doing as little as possible.
100% agree. I can probably count on one hand the stuff I’m happy he’s done (or not done), and this is one of them.
I agree. More politicians should do what he is doing now WRT housing, nothing.
I’m not sure his silence and hands off approach on the issue is that great — not saying there is anything on a practical level he can do, but I think at the very least he could exercise some leadership by at least speaking up for those of us who have been responsible in this crisis, rather than paying lip service to the “save our homes” victims.
Because he is an absolute moron.
Sorry, you opened the door, I had to walk through.
All kidding aside though, what would you suggest he do? As of right now, at least he isn’t spending any of the non-participants money…
ab·so·lute - adj.
1. Perfect in quality or nature; complete.
mo·ron - n.
1. A stupid person; a dolt.
dolt - n.
1. A dunce.
Synonyms for dunce:
blockhead, bonehead, dumbass, dunderhead, hammerhead, knucklehead, loggerhead, lunkhead, muttonhead, numskull.
Yep, a complete moron.
Youre beating a dead horse (or picking on retard in this case). Actually it is his warped policies that have reeked chaos and destruction. Although they’re a minority, he belongs to a group of yammering screech monkeys who were able to sell a raft of lies and get 51% of the population to vote against their own economic interests.
At least he now has some capable people on his economic team or in key positions (Bernanke, Paulson) versus the proliferation of political hacks for most of his administration. They seem to be making relatively decent decisions from a limited set of bad options.
However Bush is still running around the country saying there will be no recession this year and that the stimulus package was a booster shot for the economy. The economy may already be in recession and headed for something more serious and the stimulus package does nothing to help with the greater long term problems with the economy.
While he may not be doing much additional harm now, his stewardship of the economy will eventually be ranked among the lowest of any American president. There is little he can do now to change that, even if he were interested or capable.
Those mean Financial Times reporters are trying to pop Bob Toll’s bubble again today.
Manufacturing data fuel US recession fears
By Chris Bryant in Washington
Published: February 27 2008 14:37 | Last updated: February 27 2008 19:33
US manufacturing orders on Wednesday recorded their biggest decline in five months and new home sales slumped to a 13-year low, compounding fears that the US economy may be sliding into recession.
Orders for big-ticket manufactured items fell 5.3 per cent in January, exceeding economists’ expectations of only a 3.5 per cent decline. The disappointing headline result wiped out a revised 4.4 per cent increase in December, when buoyant aircraft sales had provided a boost to the figures.
New home sales declined 2.8 per cent to a 588,000 annual rate after December’s figures were revised fractionally higher. Consensus estimates for January were for a 600,000 annual rate. Meanwhile, inventories of unsold homes rose to the highest level since 1981.
http://www.ft.com/cms/s/0/bfe88122-e540-11dc-9334-0000779fd2ac.html
At least the economists are now remembering that there are negative numbers and that they do exist. For the longest time I’d thought that they attended schools where this part of math wasn’t taught.
Good find prof. I’ll add my $.03 worth(inflation)
“Think about what we’ve been through since I’ve been president, recession, an attack, corporate scandals, major natural disasters, high oil prices, war and yet we had 52 months of uninterrupted growth and that speaks volumes about the American people and resilience,” he said.”
No Mr. Bush, this was not due to resilience. It was due to debt. Massive amounts of debt taken out against crapbox toll brothers mcmansions that were WAAAAAY overpriced to begin with.
This was all enabled by your administration completely turning it’s back on enforcing lending standards.
This could all have been “orchestrated” according to a formula: Let our defense contractor buddies and other predatory capitalist ilk pillage as much loot from the US treasury and working class in general, and leave the bill ready to come due just when a Democrat will likely end up in office. When it all comes crashing down, the people/sheeple will mostly blame the current sitting president and not the wretch that got us into it in the first place.
But like every business this guy ever laid his hands on, he managed to completely f^ck this up too.
If this were the 70’s or 80’s, they could depend on the media to keep a lid on it until it got REALLY bad, which in this case will probably be in about a year - just in time for a new president.
But here’s the monkey wrench in the whole thing: The internet. and blogs like this.
Because of the speed and availability of current information about the state of housing and the economy, it can’t be swept under the rug, and people’s access to this information may be causing the whole thing to accelerate faster than it normally would have.
That’s the best part. The whole thing will come crashing down while the people largely responsible are STILL IN OFFICE.
This time, there will be no doubt as to who caused the mess.
And there’s even a slim chance that the next guy in office will get credit for starting the turnaround. Assuming that a turnaround is feasible 5 years from now.
mmmmm yummy popcorn
SR
Because of the speed and availability of current information about the state of housing and the economy, it can’t be swept under the rug
Testify! This also why they are having to grudgingly admit that inflation might just be a problem after all.
It’s actually pretty amazing the world we live in. I remember my stepdad hovering over the tv set at the end of the news every night just so he could find out where the dow closed.
Now, not only can you check the dow in nearly real-time, but you can sell all your shares or buy more instantly with a mouse click.
Of course that ability doesn’t amount to a hill of beans now that it appears that the govenrment/FED/PTB are in the business of screwing around with the stock market.
Why is is that the three main indexes movements are so closely tied together anyway? You would think that there would be times when there would be significant differences between them, but they all seem to act in unison where gains and losses are concerned.
This to me means that the ups and downs are mainly influenced by institutional buying, and that individual investors, even taken as a whole, have little or no influence anymore.
Txchick or Hoz - does that sound about right?
It is my opinion that the pent up demand Toll is talking about was exhausted in the run up to the peak. By using the scare tactic of “buy now or be priced out forever” those gullible enough jumped in before they were ready. Lenders enabled this with the toxic teaser loans too. I seriously doubt that there would be much demand pent up or otherwise even if thas no drumbeat of recession.
“Fannie Mae…..said it expects a ’significant’ worsening of the housing bust.”
Um, could you be a little more specific, please?
The bottom isn’t going to happen for a few more years.
Look…
Houses act like any other commodity..the bottom is not some arbitrary number..the bottom is 0..after which it becomes a liability and then all bets are off as to where it stops.
I’m not following you. I think when most people on this blog refer to the “bottom” they are talking about the bottom of the expansion/contraction cycle.
Hey, I’m a Van Nuys renter too! s
IMO so long as a residential unit can be rented out some or most of the time, and if the likely rent money is larger than the sum of taxes, ins, & maintenance, then the property has a positive value…just nothing like the prices that have been asked in recent years.
Translation : “The housing bust will be worse for us now that Congress wants us to buy all the toxic mortgages that will self destruct right after we buy them. But have no fear, Congress and taxpayers are here to back us up.”
“Proposals that ‘would retroactively change contracts on existing loans’ could cause long-term harm to the housing finance system, Treasury Assistant Secretary for Economic Policy Phillip Swagel said, according to prepared remarks.”
“Such a move ‘would make it more difficult for future subprime borrowers to get into a house in the first place,’ he said.”
Thank heavens someone in high office is calling BS on this stupid D-ratic contract alteration plan.
There are no future subprime borrowers. The last 5 years borrowed all of them from the future.
There are plenty of future subprime sellers, though…
Why is such a bad idea even getting so much play on the Hill? Is there a shortage of fresh interns or something?
The interns bought houses in Centreville, live on ramen noodles, and they’re under water on their mortgages. Young staffers run Congress.
A lot of those future subprime borrowers were brought into the present by all those easy ways to get into a house. Thereby greatly reducing those numbers in the future, kind of like incentives with car companies.
“‘We have hit bottom in Sarasota,’ Milligan said. ‘I am eating my own cooking by purchasing property now.’”
“Milligan has bought six houses and plans to hold them as rentals. He has found single-family homes in Sarasota that sell for $150,000 or less, and can finance them as rental property for $1,200 to $1,300 per month to cover his expenses.”
Why would anyone pay that much rent when they could relocate and rent a $500k house for a few hundred more in a much better location with alot more shopping and jobs?
Surprisingly, the U Haul index between Raleigh and Sarasota last week was down to just a three to one difference northbound vs. southbound. I had seen it as high as eight to one.
Check it again in May - it’ll probably be back up there by then.
“‘We have hit bottom in Sarasota,’ Milligan said. ‘I am eating my own cooking by purchasing property now.’”
Ha! He means he’s eating his own dog food!
“Proposals that ‘would retroactively change contracts on existing loans’ could cause long-term harm to the housing finance system, Treasury Assistant Secretary for Economic Policy Phillip Swagel said, according to prepared remarks.”
“Such a move ‘would make it more difficult for future subprime borrowers to get into a house in the first place,’ he said.”
This whole ‘Great American Home Ownership’ dream is one huge load of malarkey. Just a short glance into history shows that not that many years ago there were a large number of life long renters. My Grandparents never owned a home nor did their parents. They were not poor nor rich monetarily, they were middle class. The idea that there must be sub-prime loans is nothing but a trap for those that should not ‘own’ a home to begin with. Many housing developments that are full of sub-primes are tomorrows slums, plain and simple. Want to bring an area down then bring in those who can not afford the up keep or the mortgage in the first place.
It’s also a great American “live in way more space than you need” scam.
Yes, Federal efforts to promote houseownership are suspect, but also worthy of scrutiny are the parallel efforts of local governments to similarly promote it.
If you rent you can more easily walk if local taxes get out of hand, buying a house is a boon to local governments because then they’ve got you good. In either case neither renters nor owners can escape the I.R.S. Local gov’ts should be sweating bullets.
As a Republican (I am), I am sorry to have to point out that some of this is Jack Kemp’s doing. Back in the Reagan era, he noticed correctly that slum-dwellers did a pretty good job of cleaning up their own places if they were given some kind of assistance towards “owning” their own places, instead of rent subsidies. That seemed progressive — probably to members of both parties — but it led down a slippery slope.
“The proposal, in which the two government-sponsored companies would require lenders they work with nationwide to change their appraisal practices,…”
There goes the inflated appraisal premium in home prices…
RE: There goes the inflated appraisal premium in home prices…
I call total BS concerning Cuamo’s lyin’ down for the GSE’s.
All those inner city and rural pucker-brush worn-out POS houses are going to be seeking some sort of financing. THESE HOUSES ARE FOOKING 100% DEPRECIATED as the result of NO UPKEEP or MAINTENANCE.
In addition, they are located in CRAP neighborhoods, like those LA dungholes described by a blogger yesterday.
No way can these properties pass GSE underwriting standards unless the appraiser’s LIE, LIE, LIE which they will do in order to keep the wheel turning due to both political pressure from lenders and the NAR.
The GSE’s knew WTF has been goin’ on, appraisal wise the last 4 years. They turned a blind eye so Raines could score his $100k per month pension.
The entire transaction and valuation system has been too corrupted to turn around.
“Proposals that ‘would retroactively change contracts on existing loans’ could cause long-term harm to the housing finance system, Treasury Assistant Secretary for Economic Policy Phillip Swagel said, according to prepared remarks.”
“Such a move ‘would make it more difficult for future subprime borrowers to get into a house in the first place,’ he said.”
Asinine moves like this make it more difficult for anyone to borrow. Lenders won’t lend if contracts are altered by the government.
They will if the only lender left standing *is* the government. Cue helicopters and Phase 3 of the Real Bailout ™.
Where will the govt get the monies to lend?
Nationalizing corporations like Cuba or Venezuela did? It would probably work in the short term.
Oh, I see — we are following the Cuba model now?
Careful, exeter may experience a rapture at the very thought of it.
Let’s hope not! But give our gubmint enough time, I’m sure they’ll figure out some way to screw us and reward all the FB’s out there.
I am afraid this is the direction in which we are heading…..if the government needs money, they will just print it….
8^(
Commercial credit markets are still frozen. Spreads are 150-250 bps point higher on any deals. I am shopping some stuff and we are being priced way above our normal rate (plus spread). Bankers are telling us “Give us 6-9 months and this will pass. Then the cheap money will flow again…”
“Give us 6-9 months and this will pass. Then the cheap money will flow again…”
And if the cheap money is back out that fast then the dollar will sink even lower and on into oblivion. The Chi-coms must be very happy to be holding, what? A couple trillion dollar bits.
“‘With prices coming down, we were hoping interest rates would stay low as well,’ said Dutra, a VP in the Sacramento office of John Burns Real Estate Consulting. Higher rates means ‘a certain amount of people will be taken out of the market,’ he said.”
We are in the midst of a simultaneous inflationary-deflationary maelstrom. Homeowners are going to be ripped to shreds.
Financially speaking, many home-debtors are being gutted like fish. Or squashed like bugs under a shoe; if you prefer your trout whole, for face-slapping.
UHaul from Omaha to San Diego is $400 less than the way we’re renting in April. Of course, a 3/1 house rents for a third of what we’re renting half a duplex for here. A lovely cost-effective adventure awaits us. Yes, and snow and ice, whatever. It was retire there or keep working forever here.
I have a customer there that said everyone pulled over as a funeral went by and removed their hats.
Yes, and snow and ice, whatever
You may find that its nowhere as bad as you are expecting. Our SoCal friends think that we spend 4-5 months buried in snow and constant sub zero weather.
James,
keep us posted on how things work out. I’m betting Omaha is a pleasant place to live.
“Investors had too little information…” and “…investors relied on a faulty assumption…”
Funny, no mention of investors relying on AAA ratings.
“Mortgage giants Fannie Mae and Freddie Mac are close to a deal with New York Attorney General Andrew Cuomo to make changes meant to discourage inflated appraisals, widely viewed as an important contributor to the mortgage crisis, according to people familiar with the matter.”
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Just one more factor that will put more downward pressure on sales and prices going forward. The virtuous/vicious cycle (depending upon your point of view - I believe it to be virtuous) continues.
WSJ op-ed
‘Inflation may be worse than we think’
http://tinyurl.com/yun42b
I thought this was a good piece, also chats about gold. Gold, gold, gold…
Thanks for the link. I don’t understand why food and energy increases are usually passed off as “fake inflation”. I realize that inflation can be a complex matter, but for myself and J6P, food, gas, and utilities is a good chunk of my budget. When these prices go up, it leaves a lot less to spend on other items.
“fake inflation”
Food and energy are inflating while interest rates are falling and wages will stagnate or fall. I prefer to think of it as ‘inflation manipulation’. In a real inflation environment interest rates should rise; I’m beginning to think the only way to push things along is to invest all monies outside of the US. PM’s are an alternative, but they can pull the bottom out of them in a heart beat.
Interest rates are rising! The US government Treasury rates have a captive buyer - the Social Security System. Corporate rates are almost 10%.
Ron, what are PMs? (Have mentioned before, the majority of my non-mortgage assets is indeed in foreign-denominated vehicles. But still would like to know.)
Thanks for the link. I don’t understand why food and energy increases are usually passed off as “fake inflation”.
Because they are “volatile”. Of course, so is the stock market, but when the markets trend is upward it is described as “sizzling” or “hot”. Of course the volatility is an excuse to tell us to ingnore the man behind the curtain.
I don’t understand why food and energy increases are usually passed off as “fake inflation”
The logic, and there is some merit to it, is that food and energy are highly volatile. If there is a trend upward (or downward), it will eventually be reflected in other prices. For example, if fuel has a long-term trend upward, shipping costs more, and this is passed off in the price of goods. If food costs more, workers will demand higher wages, and this will increase the price of Ben’s Super Widget.
That’s just fine-and-dandy, and at first glance, sounds like pretty solid logic, but today everything is turned on its head. The dollar has plummeted, but foreign producers, rather than jacking prices to make up for currency changes, decided to eat the difference (this was covered tonight on ABC news). Or as someone else said, deflation in the the things we don’t need (plasma TVs, cell phones) and inflation in the things we do need (fuel, food).
Of course, eventually the currency differences will be so great that foreign producers will have to raise prices. Once that happens, all hell will break loose.
The article assumes a flat wage increase for 30 years. BS
Corporate America has pretty much eliminated cost of living increases. How long they will be able to hold that line is anyone’s guess.
For as long as there are more working adults than there are jobs.
“The accompanying graph shows how rapidly the purchasing power of income declines from an ongoing inflation of 4%. After nine years, an income of $100,000 is worth only $70,000. After 17 years its purchasing power has been cut in half, and after 30 years by about 70%.”
However, the purchasing drain of existing public and private debts falls at the same rate. I suspect the Fed may be willing to inflate to create a de facto default on those debts, and convince the rest of the world it can no longer lean on the U.S. as the buyer of last resort.
Something tells me that when the trade deficit goes away, J6P is going to belatedly find out that it was his own personal deficit that created it, and that he has less than before.
Another bottom call on the theory that it can’t get much worse from here?
Lehman begins coverage of home-builder stocks
Analyst sees more volatility but improving housing trends later this year
By John Spence, MarketWatch
Last update: 10:48 a.m. EST Feb. 27, 2008
BOSTON (MarketWatch) — Analysts at Lehman Brothers have initiated coverage of home-builder stocks with a positive outlook even though the shares may continue to see dramatic near-term swings due to housing market uncertainty.
“We expect that the stocks could continue to be volatile over the next few months, as we do not believe that new-home sales have yet reached a bottom,” wrote Megan Talbott McGrath in a research note. “However, we are expecting trends to improve by the back half of 2008. As such, we believe that meaningful upside potential exists for several of the stocks.”
http://www.marketwatch.com/news/story/lehman-initiates-home-builder-coverage-positive/story.aspx?guid=%7BC452BC2F%2DF446%2D4258%2DAFFB%2D6564C53695DA%7D
Fannie no match for Florida:
“NEW YORK (Reuters) - Fannie Mae (FNM.N: Quote, Profile, Research), the largest provider of funding for U.S. residential mortgages, said losses on Florida home loans have more than quadrupled since the end of 2006.
The loss ratio in Florida has climbed to 180 basis points this year from 160 basis points at the end of 2007 and 40 basis points in December 2006, Rob Levin, Fannie Mae’s chief business officer, said on a conference call.”
Would Fannie be allowed, like some other banks have done, to just refuse to loan in Florida?
“…just refuse to loan in Florida?”
= redlining
http://www.house.gov/apps/list/hearing/financialsvcs_dem/roubini022608.pdf
Quite a performance, and interesting that Congress is heaing from the doomeister himself.
But there is no mention of the upside. The combination of huge investment losses and more affordable housing could reverse some of the massive increase in inequality created over the past three decades. After all, the low point of inequality in this country was the Great Depression.
There is no reason to “save the bubble,” because the bubble was bad.
imo the housing bubble masked the real problems of the country - global labor arbitrage and falling real incomes. Until DTI ratios get better, nothing will change. Until government gets out the business of housing, we are all screwed. Somewhere along the way, the American dream got caught up in housing…as Will Marre says “Your dream isn’t to have a home, your dream is to have a life.”
“This drumbeat, coupled with concerns over mortgages, the direction of home prices, and foreclosures, has kept pent-up demand on the sidelines.’””
Bobby Toll, you took demand from the future by getting people into your houses using “affordability enhancing loan products”…what pent up demand are you talking about?
Where’s Ivy Zelman when you need her…didn’t she once ask Bobby “what Kool-Aid are you drinking?” I’d pay good money to see her smack Bob Toll with a trout.
Arroyo, you are way too kind. Mr. Toll deserves a good drubbing with a J-Tree.
I agree with everything said about Toll and the direction of the housing market stated here, but my TOL puts are suffering. Anybody have any idea why the stock has been on a rocket since early Jan?
200 markets have “troubles”
http://www.reuters.com/article/marketsNews/idUKN2734821720080227?rpc=44
Yeah, kinda like “The Troubles” in Northern Ireland.
Funny you should mention that.
Being from there I keep an eye on the NI property market. The province had a huge run-up in RE 2002-7. Aside from the ‘peace dividend’ (property prices returning to levels of similar areas in the rest of the UK) I heard the same types of rationale for the ridiculous prices and why they were never going down as i did here in San Diego.
Everybody became a property developer almost overnight. Talked my brother out of investing in ‘buy-to-let’ (investment) property, just by pointing out the insane discrepancy between rents and costs of ownership.
The first sets of figures indicating that the party’s over are just coming out.
Great job WF. As far as I can tell, you’ve pinned the problem down to just the areas where there are houses.
Outside of that, lending will remain robust.
They could save some money by focusing not on 200 housing “markets” but instead on the one market that really matters - the global market.
Good thing all real estate is local. If there had been a national bubble we could really have problems.
Per the Reuters link about the 200 markets facing housing troubles, Virginia ranks right near the top with Michigan and Ohio.
Ben and some of us NoVA posters have been saying all along that Virginia was about as bubbly as any part of the country.
“Fannie Mae and Freddie Mac shares soared as much as 16 percent Wednesday after the government-sponsored lenders’ regulator removed limits on the growth of the companies’ mortgage portfolios.” (from http://money.cnn.com/2008/02/27/news/companies/fannie_freddie_caps.fortune/index.htm?postversion=2008022713)
OK. I am obviously missing something. I understand why the holders of these mortgages are thrilled that Fannie and Freddie will be able to buy these loans. But why are shareholders happy that the GSE will be able to buy loans that none of the other banks currently want to make? How can these loans help either companies bottom lines? Why the 16% gain?
Does it seem to anyone else as though this happened in a vacuum of fanfare or political justification? I still don’t see how the bulls think an increase in GSE conforming loan caps will fix anything given falling home prices and a reversion to meaningful credit qualification standards.
Fannie and Freddie: big hopes to arrest housing slump
By Saskia Scholtes in New York
Published: February 27 2008 20:21 | Last updated: February 27 2008 20:21
Investors are pinning their hopes on Fannie Mae and Freddie Mac, the government-chartered mortgage groups, to arrest the deepening slump in the US housing market.
Word that the US housing agencies’ regulator had removed the caps on the size of their mortgage portfolios boosted equity and mortgage markets on Wednesday when investors bet that the agencies could provide relief.
(EDITOR’S CHOICE
Regulator lifts cap on Fannie and Freddie - Feb-27
Lex: Fannie and Freddie - Jan-31
US mortgage refinancing offers hope of stability - Jan-29
Case-Shiller index adds to US housing gloom - Jan-29
US homebuilders face growing bankruptcy threat - Jan-30
Rate cuts might not benefit borrowers - Jan-14)
The move comes as the Federal Reserve’s efforts to alleviate the effects of the housing slump with interest rate cuts appear to have had little effect. Since September, the Fed has reduced its target for short-term interest rates by 2.25 percentage points to 3 per cent. But mortgage rates have not followed suit.
http://www.ft.com/cms/s/0/b21911a0-e564-11dc-9334-0000779fd2ac.html
cool…the loans for which people are disqualfied just got larger.
that’s about all that’s gonna do.
Aw, darn. I was thinking of going out and applying for a $500k loan.
fellers the sellers in nj are still not budging much on their listing prices. i see maybe a 10% or 15% correction in some places and zero in others.
That’s fine. They can ask whatever they want for the home, I’m not going to buy it…every month that goes by as a renter, my down payment grows, and every month that goes by where home prices don’t go up, I’m a huge winner.
I don’t expect home prices to rise for a long time…regardless of what sellers think…
yep
NJ is in a world of trouble with state taxes.Despite high property taxes, the state is deep in the red. Are you sure you want to buy there?
There is also the New Haven Advocate nearby, which is basically a what’s-playing-who’s-gigging rag.
OT but relevant to any discussion of consumer spending, etc:
NEW YORK (Reuters) - U.S. retail gasoline demand last week declined from its year-earlier level for the fifth straight week, although demand was up slightly from the previous week, MasterCard Advisors said Tuesday.
“Apparently, American consumers are cutting back on driving,” said Michael McNamara, vice president of MasterCard Advisors.
American motorists pumped 9.056 million barrels per day on average in the week that ended February 23, up 0.2 percent from the previous week, according to MasterCard’s weekly SpendingPulse report.
But demand for retail gasoline decreased 3.8 percent compared to the same week last year. The four-week average, usually indicative of long-term trends, also showed gasoline demand down 2.7 percent from last year.
Average retail gasoline prices jumped 10 cents last week to $3.07.
“Fundamentally, from the demand side of the equation, it doesn’t seem to be supporting the price increase,” said McNamara. “Maybe we’ll see some price relief in the next couple weeks if demand trends continue.”
MasterCard Advisors estimates retail gasoline demand based on aggregate sales activity in the MasterCard payments system coupled with estimates for all other payment forms. MasterCard Advisors is a unit of MasterCard Inc.
The U.S. Energy Information Administration will release its report on nationwide fuel inventories on Wednesday and energy analysts anticipate the report will show a slight build in gasoline stocks for the sixteenth rise in a row.
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Note the nearly 4% reduction in YOY gas use! That’s significant considering that normal growth is +1 or 2% YOY. With gasoline inventories at over 250 million barrels (about 30 days), I can’t imagine gas or oil prices staying high much longer - the refined stuff DOES have a shelf life after all. Any Europe already exports their surplus gasoline to the US - they mostly use diesel fuel.
With the HELOC party long over and the Credit Card party at last call, there will be very little money left to burn in the SUV, or anywhere to go in it. Malls and big-box stores will really begin to empty out, as Americans rediscover the value of parks, neighborhood streets, or their own backyard.
I would not be surprised to see $2.50 gas in a month - despite the falling dollar.
I’ve seen a LOT less traffic in Tucson big box stores. In fact, I’ve been seeing it since the fall of 2006.
Note the nearly 4% reduction in YOY gas use! That’s significant considering that normal growth is +1 or 2% YOY.
I agree that it is significant, but drivers can only cut back so far. Maybe with some careful planning drivers will be able to get 1 more day out of a tank, but they will eventually hit a wall. Not everyone can work at home.
I don’t think this has much to do with “careful planning” or driving to work - this is people either no longer having a job to drive to, no longer having money to spend and therefore no stores to drive to, not going out to lunch or dinner, movies, etc, etc. Real reductions in travel, real “consumer pullback”. And with all forms of credit being closed off, this is just the beginning.
In Phoenix the dropoff in construction vehicle traffic has been obvious for over a year now, and the dropoff in weekend “pleasure” traffic is starting to show. Gas was at $3.20 when oil was under $70 over a year ago - now gas is trying to hold $3.00 with $100 oil?
Meanwhile, bicycle shops are quite busy here in Tucson. I’m also seeing more motorcycles and scooters on the streets.
O/T: Maybe someone can shed some light here: How does one cancel a CC. Bank of America keeps sending my wife checks on a CC that she cancelled when they took over her Rotary Card from another bank some 8 yrs ago. We have called the promo number and told them to close the account, they say yes and then keep it open. Short of going to my Congressman, is there any way to get through to these idiots. Nowhere on their web site or on promo is there any address or number to call to cancel. I think needs Congress to get involved to curtail these scum.
Why you might not want to close the account:
http://blogs.creditcards.com/2007/11/food-for-thought-on-closing-a.php (scroll down)
How to close the account:
http://www.bankrate.com/brm/news/dollardiva/20010604a.asp
Close my account already, BoA, you evil swine letter template:
http://www.bankrate.com/brm/news/forms/credit-cards-closing.asp
What about going to a local branch and getting a human face to face? If it’s still open after that, go to management at that branch.
What is the deal with Zillow? Shows a neighbors house that recently sold has gained $23,000 in value last month? There is no way that is possible. Is Zillow completely useless or what?
IMHO it isn’t worth a hoot, but I think a few here might disagree.
I don’t think much of Zillow. The best way to determine a house’s ‘value’ is to look at the prices of houses currently on the market, the region’s inventory, what’s under contract for how much, and what recently sold. Zillow to me compares (1) apples and oranges and (2) sales that aren’t so recent. The problem in the last few months has been the light volume of sales.
A housing crisis that lasts five years will get in the way of baby boomer retirement. An estimated 8.8 million homes are now worth less than the trillion dollars in mortgages that they carry. And this is just the beginning. The is long-wave decline.
http://www.longwavepress.com/Baby_Boomers_Generation_X_SCv1a.pdf