An Unsustainable, Unprecedented Run-Up
Some MarketWatch news from Wall Street and Washington. MarketWatch, “U.S. home builders have slashed their prices by a record amount, but sales still plunged by 8.5% to a 17-year low in March, the Commerce Department estimated Thursday. The decline in new-home sales to a seasonally adjusted annual rate of 526,000. New-home sales are down 36.6% compared with a year ago and are down 62% from the peak in July 2005. February’s sales pace was revised lower to 575,000 from 590,000.”
“The figures likely overstate the number of sales because they don’t account for canceled sales, which have ballooned. with sales plunging even faster, the supply of homes on the market rose to 11 months, the most in 27 years.”
“Inventories are likely understated as well because of canceled sales contracts.”
“Median sales prices for new homes have fallen 13.3% in the past year to $227,600, the biggest decline in 38 years. Average sales prices are down 11.3% to $292,200, the biggest drop since the record book begins in 1963.”
“Sales fell in all four regions, dropping 19.4% in the Northeast to a 27-year low, falling 12.9% in the West to a 17-year low, falling 12.5% in the Midwest to a 27-year low, and slipping 4.6% in the South to a 12-year low.”
From CNN Money. “‘The explosion of single-family building permits in 2003 to 2005 produced an unsustainable, unprecedented run-up in the building economy,’ said National Association of Home Builders chief economist David Seiders.”
“But when the housing market crashed, new housing permits ‘fell off a cliff,’ according to Seiders, returning to levels not seen since the 1991 recession. That left a huge glut of unoccupied new homes on the market without many potential buyers.”
PR Newswire. “Pulte Homes announced a net loss of $696.1 million for its first quarter ended March 31, 2008. The first quarter 2008 net loss included $663.6 million of pre-tax charges related to inventory impairments and other land-related charges. Impairments and land-related charges for the prior year quarter were $132.1 million. Consolidated revenues for the quarter were $1.4 billion, a decline of 23%.”
“Net new home orders for the first quarter were 5,402 homes, valued at $1.5 billion, which represent declines of 36% and 50%, respectively, from prior year first quarter results.”
“‘The difficult housing environment continued to erode during the first quarter of 2008, said CEO Richard J. Dugas, Jr. ‘Buyer demand for new homes continues to be soft, home prices remain under pressure, and overall buyer confidence is weak.’”
From Reuters. “Ryland Group Inc, the No. 8 U.S. home builder, said on Wednesday its quarterly loss widened, citing fewer sales, lower margins and higher selling and other costs. Ryland’s quarterly results include charges for write-offs for inventory and property values of $27.4 million.”
“Home-building revenue for the Calabasas, California-based home builder fell 42.2 percent to $399.6 million, as sale closings fell 33 percent to 1,543 homes and the average selling price fell nearly 14 percent to $257,000.”
“Gross profit margins were 11.9 percent before the charges compared with 18.7 percent in the same period a year earlier. New orders during the quarter fell 27.8 percent to 2,159 and their value fell 39.7 percent to $526.4 million.”
“M.D.C. Holdings, Inc. today announced a net loss for the quarter ended March 31, 2008 of $72.8 million, which included pre-tax charges of $54.8 million for asset impairments and $1.7 million for write-offs of deposits and pre-acquisition costs associated with land option contracts the Company does not intend to pursue.”
“Paris G. Reece III, MDC’s chief financial officer, said, ‘As has been the case in each of the last five quarters, the impairments this quarter primarily occurred in our West homebuilding segment, with almost 90% applicable to subdivisions in our Arizona, Nevada and California markets. Over the last seven quarters, we have impaired approximately 60% of the 13,100 lots we owned at the end of our 2008 first quarter.”
“Reece continued, ‘We reduced our lots owned, excluding lots with homes completed or under construction, by 13% in the first quarter alone. We accomplished this reduction in large part through the sale of more than 800 lots primarily located in Arizona and California. While these land sales had little impact on our book income for this quarter, they contributed almost $30 million in proceeds and generated a tax loss in excess of $70 million.’”
“The Company closed 1,136 homes and produced home gross margins of 11.5% in the 2008 first quarter, compared with 2,001 home closings and home gross margins of 15.8% for the same period in 2007. The average selling price for the 2008 first quarter was $313,200, down $42,500 year-over-year.’”
From Bloomberg. “Rolling Meadows-based Kimball Hill Inc. and 29 affiliates have filed for Chapter 11 bankruptcy protection as demand for new homes tumbles. Kimball Hill sells houses in California, Illinois, Florida, Texas and Las Vegas.”
“‘Today’s decision was difficult to make, but we believe it is in the best interest of all of our stakeholders,’ Ken Love, Kimball’s CEO, said in a statement.”
“Kimball Hill, now the second-largest builder in bankruptcy, announced Feb. 27 that it was exiting the Florida housing market due to increased home inventories and foreclosures there. Kimball joins at least a dozen homebuilders that have filed for bankruptcy since June.”
The Associated Press. “Credit Suisse Group on Thursday posted a loss for the first quarter as the global effects of the U.S. subprime mortgage crisis continued to spread. Switzerland’s second-largest bank said it had net write-downs of 5.3 billion francs ($5.3 billion) for big buyout loans and mortgage securities.”
“Ambac Financial Group Inc. posted another steep loss for the first quarter on Wednesday as turmoil in the bond market pummeled the value of many of the bond insurer’s deals. The company has lost almost $5.3 billion in the last nine months.”
“The New York-based insurer recorded $1.73 billion in losses on a book of contracts promising to cover missed payments on complex investments backed by home loans.”
“The contracts Ambac is recording losses on insure sophisticated investments known as collateralized debt obligations. Because these investments derive some of their payments from mortgage bonds, the insured CDOs suffered from ‘dramatically lower’ prices in the first quarter, especially in March.”
“Ambac set aside $1 billion preparing to pay claims on defaulted mortgage debt.’
The Sun Herald from Australia. “After a record-breaking boom last year house prices across Victoria are falling. A report by the Victorian Valuer-General released yesterday reveals the median house prices in Narre Warren North have had the biggest fall dropping by 24.5 per cent from $570,000 down to $430,250, while Surrey Hills dropped by 14.4 per cent from $1.1 million to $943,000.”
“Geelong median house prices fell by 8 per cent from June to September last year, and Yarrawonga house prices dropped by 10.5 per cent.”
“Property prices in seaside towns also declined with prices in Inverloch falling 13 per cent from $305,000 to $288,000 and the price of a home in Anglesea falling by 9.7 per cent from $440,000 to $420,000.”
The Sydney Morning Herald from Australia. “The big residential developers will be pleased that Barry Goldman, principal of the real estate agency Portfolio Realty, has said that Sydney property has become a buyer’s market.”
“Mr Goldman said that while prices in some outer areas of Sydney would continue to fall in the next 12 months, across the Sydney metropolitan area they would grow 10 per cent, with higher gains in the central business district and eastern suburbs.”
“‘The areas close to the CBD are like a pressure cooker with a shortage of stock and strong demand, especially from professional people who are property-savvy. Prices have not fallen there and it is absolute rubbish to suggest prices will fall by 30 per cent or more over the next few years,’ Mr Goldman said.”
“‘I believe there will be upward pressure on values very soon as interest rates fall, so the time is ripe to buy either apartments or houses. The lack of supply of new dwellings … will guarantee price increases in the longer term,’ he said.”
The Globe & Mail from Canada. “Canada may not have the sizable subprime market of the U.S., but the engine behind the country’s housing boom has been increasingly leveraged first-time buyers. Nearly two-thirds of buyers in major centres now favour extended amortization periods of up to 40 years, while putting little or no money down was prevalent in 38 per cent of regional markets surveyed across Canada.”
“The findings raise questions about what’s been driving soaring house prices in recent years. ‘The reason we think the market has been staying hotter much longer than anyone anticipated was because of these newer amortization mortgages,’ said Craig Alexander at Toronto-Dominion Bank. ‘Because it really does change the affordability equation.’”
“‘We’re more vulnerable than we were in the past, and I think that’s just a factor of financial and mortgage innovation,’ said Adrienne Warren at Bank of Nova Scotia. ‘At the same time, it’s a trade-off - more people are getting into home ownership earlier.’”
The Winnipeg Sun from Canada. ” A shortage of affordable houses is forcing prospective first-time Winnipeg buyers to accept price tags going through the roof, or to leave the market altogether. A Re/Max report on housing affordability says the inventory squeeze has brought at least a slight drop in first-time purchasing here this year.”
“‘It’s a big problem. Demand is insatiable,’ Cliff King, a broker with Re/Max Executives Realty, said of the trend in Winnipeg which nevertheless continues to be one of Canada’s most affordable centres for housing.”
“‘I’ve had some first-time buyers who have just thrown in the towel and said, ‘This is crazy.’ One couple, who I think I wrote 12 or 13 offers with over a lengthy period of time, didn’t get a house. So they finally kept increasing and increasing what they would pay, and still couldn’t get anything,’ he said.”
Dow Jones Newswires. “In a bleak warning on the state of the U.K. housing market, house builder Persimmon Thursday said conditions had worsened over the past three weeks and were likely to deteriorate further.”
“Revenue for 2008 is currently about GBP1.37 billion, down 24% from GBP1.8 billion last year. Volumes are down about 18%. The statement didn’t say what the current cancellation rate is, but in February the company said the rate was 19%.”
“Persimmon noted: ‘An increase in discounting, marketing costs and incentives are being utilized in the market to compete for the reduced level of demand and this is having a negative impact on margins.’”
“The British Bankers’ Association Wednesday reported that mortgage approvals last month slumped to the lowest level in a decade. The Bank of England this week sought to restart the interbank lending market by making GBP50 billion of lending available to banks by swapping government bonds for mortgages.”
“British banks will be happy to swap their hard-to-sell assets for trusty government debt, but don’t look for them to increase their exposure to the teetering housing market.”
“What it is, in short, is liquidity. What it isn’t is capital, which is the true constraint on British mortgage lending. While banks could theoretically take the government bonds, turn them into cash and lend the money to homeowners, gearing up their already very big exposure to British housing, it would be a risky move by an industry now rediscovering risk controls.”
“‘I don’t think it gives the banks a green light to go through an enormous lending program,’ said Mike Amey, a fund manager in London with Pimco. ‘While it will free up some liquidity, how much we would see in mortgage rates coming down is less clear cut.’”
“A measure authored by Rep. Barney Frank, chairman of the House Financial Services Committee, (would) use the Federal Housing Administration to avoid foreclosures by moving borrowers into more affordable loans.”
“The strongest opponents to the Frank plan remain Senate Republicans, according to analysts. ‘It is going to have a tough time passing the Senate,’ said Andy Laperriere, managing director of ISI Group. ‘Most Republicans are of the same point of view, that a taxpayer-funded bailout is not going to help, and it is not fair and it is not popular.’”
“‘To think that we can continue to simply issue more debt and the rest of the world is gladly going to buy it at attractive rates to us…I kinda doubt it,’ said Paul Kasriel, chief economist at Northern Trust Co. in Chicago.”
The Times News from South Carolina. “Like many around the country, this home is in foreclosure. The family will move to an apartment in Greensboro, where the wife has a new job.”
“The husband, who asked not to be named, said the trouble began with the drought. He works for a waterproofing company and made nearly $100,000 annually in a sales job. With the drought, he said, people weren’t concerned with water proofing their basements and crawl spaces anymore.”
“As soon as he and his wife recognized their financial crisis, they decided she’d return to work as a physician’s assistant. She hadn’t worked since the children were younger and her license had lapsed. It took more than four months before she renewed her license and found work. But it was too late to save their home.”
“His pay was entirely commission, so he quickly went from making great money to being unable to pay the mortgage. ‘I’m not blameless,’ the salesman said. ‘This was not self-inflicting. I didn’t just decide, ‘To hell with my job. I’m not going to pay for my house.’ Life happened to me.’”
The C & G News from Michigan. “Facing foreclosure is a difficult and emotional ordeal. The good news is that there is an alternative to foreclosure — the short sale.”
“‘We need to let people know there is a resource out there for them that will somewhat save their credit, and that option is a short sale in lieu of foreclosure,’ said Gary Patrosso, a Realtor in St. Clair Shores.”
“‘It costs the bank an average of $50-$60 per day for every day they have a foreclosure sitting vacant on the market, because they’ve got to pay commission to the agent, pay utilities, taxes, lawn care and upkeep, and then things like people breaking into vacant homes and stealing things, and they have to pay for the board-up and maintenance,’ said Ralph Newkirk, manager of Real Estate One-Corporate Foreclosure Division in Southfield.”
“‘By the time that it gets to the foreclosure process and once it’s over the houses aren’t in that great of shape. … A lot of time in foreclosure, people take it out on the house — they rip up carpeting, take lighting fixtures, the furnace, and things like this. The old saying is that they’ll take everything but the kitchen sink, but I had a house in Commerce where I didn’t even know where the kitchen was,’ said Newkirk.”
“To qualify for a short sale…the homeowner will have to submit a hardship letter, among other documents to prove their case.”
“‘The essay question is, ‘How did you get in this trouble?’… Don’t just put on there that you don’t have any money. Tell them how you got there: Tell them about job loss, job reduction or price, divorce, illness, death, something. Go into fine detail and tell them exactly what happened. … Don’t be embarrassed,’ said Newkirk. ‘This market is just the way it is, and you’re not alone — don’t feel bad.’”
“Short sale sellers also have to consider all of their assets, said Newkirk, so it’s a good idea to talk to a CPA.”
“‘With that short sale packet, you have to list all your assets and all your liabilities. That includes 401Ks, any properties they have, anything, besides any liabilities, which include second and third mortgages,’ said Newkirk. ‘If they have assets, like a 401K, the banks are going to ask them to try and pull some money out of there and try to keep the house up.’”
From the original post:
“‘With that short sale packet, you have to list all your assets and all your liabilities. That includes 401Ks, any properties they have, anything, besides any liabilities, which include second and third mortgages,’ said Newkirk. ‘If they have assets, like a 401K, the banks are going to ask them to try and pull some money out of there and try to keep the house up.’”
This graf gets to the truth behind that “Keep Families in their Homes!” rhetoric. It’s more about keeping the house payments flowing into the coffers of financial institutions than anything else.
No, no, no. Remember what FB Monique Ray said? ‘I think owning your home is one of the most important things you can do, or you can have,’
*Nothing* is more important than feeding that hungry ‘gator.
Not your health
Not your sanity
Not your family
Not your career or business
Not your savings/retirement
Uhmerikans have their priorities straight!
Lawd, it’s like a freakin’ obsession.
What about your happiness?
But Pussycat, how can I possibly be happy when I’m not living the American Dream?
401k’s are protected in a bankruptcy. They should just tell the bank where to shove it.
Of course, if they knew that, they wouldn’t be FB’s in the first place.
Exactly, plus the banks seldom approve S/S because if the borrower forecloses, they get paid off by the mortgage insurers. Oh and they give the agent something to do.
I just want to slap one of these people so hard.
No, really!
Didn’t most FBs get around the PMI under-20%-down requirement by using “silent seconds”? Not to mention the “bank” no longer owns most of the loans it originated. Sold downstream (often changing hands multiple times) to MBS/CDO investors. Oh, then there’s this whole “insuring counterparty insolvency” thingie, where you can’t actually *collect* on your insurance “policy” because the insurer (hedge fund) is now bankrupt.
What insurance payout? Seems to me the current CDO/MBS owners should take whatever money they can get right now and run.
“What insurance payout? ”
Well I guess it comes back to ‘he who panics best, panics first’ rule.
“No Money..humm, Veeeery Interesting !”
“Stake this Fb spread eagle on the downward slope of our housing bust and waterboard him until he coughs up his 401k cash Sgt. Schultz.”
“I know nothing! I see nothing! NOTHING!”
“I just do the mortgages Colonel Klink”
Pulling money out of a 401k to extend time in a home you can’t afford is suicidal to your future, better to walk away period and suffer the credit hit. F the banks.
F the banks AND the FBs.
At the point the lender demands a 401k withdrawal to do a short sale is the time to send them the keys and let the greedy bastards handle a foreclosure. If lenders had used proper underwriting instead of trying to earn a quick profit, many wouldn’t be in this situation.
SDGreg:
You forget they don’t hire people like me who would say NO. they hired the cutest dumbest little chicky poos and guys to front for the company. And then They get promoted and hire more just like themselves…..vicious circle
‘the sale of more than 800 lots primarily located in Arizona and California. While these land sales had little impact on our book income for this quarter, they contributed almost $30 million in proceeds and generated a tax loss in excess of $70 million.’
I’m thinking 30 cents on the dollar, and that’s if it wasn’t written down in those 7 quarters before.
It’s interesting to note a couple of these corps still have double digit gross profit margins. And who ever is buying this land, or getting options back, will want to do something with it. Point is, the building will continue until there isn’t any profit left.
“Unsustainable, Unprecedented”
Oh and you forgot—— UNNECESSARY!
So David Seiders and none of the other Cartel (TM) members could see this back in at least 2005?
Does this housing bubble make you just furious?
I really feel like it is all an attempt by the aging baby boomers to steal my future income to fuel their unsustainable lifestyles.
Where did all the money go? It seems they are all living sham lives of luxury…
No one with a six-figure income should have to pay more than 3x his income for a crappy house that my parents would have turned their nose up at 10 years ago.
Boomers stealing - really? What I see are the so-called greatest generation living high on the hog retirements with pensions, paid medical, & paid houses off middle class life. Boomers are just starting to retire. What is it they are stealing from you? They shouldn’t downsize once kids are grown? They shouldn’t retire if able?
“What is it they are stealing from you?”
I’m generalizing, but it seems that since they are now the dominant generation, they often have the expectation that they should have the best of everything, and they vote for politicians who prey on their illusions. They have created an economy based on speculative bubbles, and let a lot of jobs that my generation would have wanted leave the country because they weren’t “statusy” enough.
I feel the way anyone would feel that has to pay more money, work more hours, and get paid less than they do. It sucks that their riches came from fake equity, and that they have an attitude towards people like me who don’t have nearly as much because I only buy what my paychecks can afford.
Anyway…
I know plenty of FB gen X and Yers. The baby boomer generation doesn’t have a monopoly on stupidity or greed; there’s plenty of those in every generation to go around.
I know plenty of FB gen X and Yers. The baby boomer generation doesn’t have a monopoly on stupidity or greed; there’s plenty of those in every generation to go around.
Agreed. And “are they crazy” has a very profound point: the “greatest generation” came out on top in the retirement ponzi scheme. It will be crap shoot for the boomers: some covered by pensions, most by a failing social security system paid in by workers who don’t expect to reap the benefits of that system.
I think there’s a high probability that planning for “retirement” (ie - some how living the last 2 decades of your life without working) will morph into saving money for the nursing home within my lifetime. (That’s what we’re doing, by the way.) The concept of retirement for the masses doesn’t work unless there’s bunches of young workers around to fund it.
This bubble had cheaters of all ages participating.
What did the housing bubble have to do with boomers? Weren’t they the ones who bought with 20% down, lived within their means, paid off their homes, etc?
This bubble was created by loan brokers, banks and realtors; abetted by the Feds and fueled by greed from all age groups. If you breathed, you got a home!
I don’t recall anyone of my generation (boomer) ever complaining for one second about paying into the Social Security system for 40+ years to fund the retirements of our parents and grandparents.
Well you were too busy turning on, tuning in and dropping out to have enough stable marriages and babies to maintain the 10-1 taxpayer per retiree ratio that kept SS solvent, yes?
When it’s 2 taxpayers per oldie, there will be blood. Or at least Soylent Green-style euthanasia centres…
OT: Is it me or is the stock market beginning to remind you of December 1999?
I don’t remember the market in 99, but find it odd that the market ignores economic data such as really bad home sales, but if some analyst or CEO says something like “our liquidity is solid” or “we stand by the AAA rating” the DOW rockets.
So maybe you are right (if speaking of the pre-tech plunge) and the market is now driven by psychology rather than fundamentals.
I remember watching the market news back in those days and I told my roomate, “watch this, which every stock this analyst talks about the price will immediatly go up”
And like clock work it would. And I didn’t, nor do I now, know much about the market.
I have a friend who would day-trade for an hour before work back then.
Here’s what you did: you turn on CNBC and fire up your online trading program. Then when you hear the name of a tech company mentioned on TV you hit ‘buy’ without thinking. You have to be just a little bit quicker than the thousands of other people who are also watching CNBC. You can’t even wait to hear whether it’s good news or bad news - just buy. Then you sell a couple of minutes later - just before everyone else does. Sometimes the profit was all gone in the second it took to sell.
It makes about as much sense as a drinking game.
He gave it up pretty soon, muttering something about his sanity.
TIME-tunnel
see this
http://www.time.com/time/magazine/article/0,9171,995808,00.html
article from the Millenium edition of Time Magazine.
Wow. Vintage cramer.
“The strongest opponents to the Frank plan remain Senate Republicans, according to analysts. ‘It is going to have a tough time passing the Senate,’ said Andy Laperriere, managing director of ISI Group. ‘Most Republicans are of the same point of view, that a taxpayer-funded bailout is not going to help, and it is not fair and it is not popular.’”
I knew if I lived long enough I would finally agree with Republicans. It took a while, but it is nice to see the party showing some sanity again.
I honestly hate both parties. I try to actually vote for individuals, not parties…it is extremely difficult to find anyone with the cojones to make up their own minds anymore.
I have voted Republican and Democratic on many occasions. I too tend to go with the person before the party. But that was before the Republican party was hijacked. Now it comes down to 3rd party or Dem, and voting 3rd party is the same as voting Republican. Can’t do it. Enough damage has been done.
It wasn’t always this way. I had a lot of respect for the ideals of the Republican party. So when you guys get back your party let me know. It was seriously hijacked by the neo-cons, and they have the country on the brink of collapse.
Amen to that - both parties suck. Both have become Soviet-style Nomenklaturas trying to herd the sheeple into the financial elites’ incorporated global plantation. It astonishes me to hear otherwise intelligent people touting the virtues of “their” party over the worser of two evils, when both are irredeemably corrupt, unprincipled, and incompetent.
I know, crazy isn’t it. If only McCain would go anti-war, I’d probably vote for him **shudders**
McCain is as much a neo-con as the group who stuck us with a senseless war in Iraq as any Republican, and as such, can be relied on to continue the war in Iraq and spread it to Iran if feasible.
Until the movement conservatives in the Republican party are neutralized, Republicans cannot be trusted.
“Until the movement conservatives in the Republican party are neutralized, Republicans cannot be trusted.”
Only when they confess their unholy allegiance to the wealthy elite and then swear them off will they ever become the party they want you to believe they are.
If everyone is so convinced that all the Republicans are war criminals….
Go ahead and get Billary or Osama elected, then have them bring the Republican brain trust up on war crimes charges? The Democrats have been criminalizing policy differences for 30 years anyway. That, and preemptively announce your withdrawl schedule from Iraq BEFORE the election.
C’mon…….give the US a real policy choice.
Jane,
From Bill Bonner today…
“* First, we turn to Project Overreach: America’s Imperial Budget, 2008. George W. Bush et al. have been stretching in all directions. And now comes his party’s chosen successor, John McCain, with even longer arms.
McCain wants to lock in place Bush’s $350 billion of tax cuts…and then cut another $300 billion more. Here at The Daily Reckoning headquarters we’ve never met a tax cut we didn’t like. But it’s the other side of the ledger than concerns us. If revenues go down, how would McCain pay for all those spiffy projects – mortgage rescues, student loan bail-outs, the never-ending war in Iraq, bombing Iran…not to mention all the regular giveaways to America’s seniors, poor, cripples, veterans, bankers, and feeble-minded citizens?
The idea, put forward by Arthur Laffer and the Reagan crew, was that lower tax rates would stimulate economic activity and, ergo, more tax revenue to the government. But now, McCain’s top economist – Douglas Holtz-Eakin – says the estimates of increased tax revenue as a result of lower rates were “overblown.” As director of the Congressional Budget Office, he admitted to Congress that a “dynamic analysis” of tax cuts (taking into account the likely positive effect of cuts on economic activity) made essentially no difference to the outcome. Conclusion: if you cut taxes…you also must cut spending…or you’ll find yourself in the hole.
The Bush Administration has worked the United States into the biggest hole ever. Like Diocletian, Septimius Severus and Caracalla, the next president will face the consequences of overreach…inflation, budget deficits, and rapidly expanding debt.”
Names. I want names.
I wonder if my state’s R senator is on board with bailouts. Knowing him, probably not. He’s not really a kinder gentler type -
former Philadelphia District Attorney
Good grief, when Specter was the DA, we in the Philly suburbs thought he had rabies. He was that hardnosed tough.
Philly DAs have to be tough, considering the native population.
You won’t get any argument on that one!
Why is it so hard for these “experts” to see how far we are from the bottom? Did they skip Econ 101? The Case/Shiller index shows housing prices for 150 years were fairly stable and directly linked to rent/own and income/price. It takes almost no math to see where home prices should be and how far we are from them. The pace of decline may be uncertain, but the end price level is not. (of course we will probably go through the floor first, and then bounce back,)
That’s all I was trying to share in the previous thread where “timing” is concerned. You’re right, we’re bound to over-correct to the downside before we revert to the mean!
What “I” tend to think Schiller glosses over is the fact that (however poorly constructed) new homes have a lot of features that simply weren’t even a consideration as recently as the 80’s. Our first home had a dishwasher (and that was IT!) Today A/C, carpet, really slick appliances and upgrade everything come standard.
Not that any of that makes a hoot to me (or the avg. poster here) but again it’s a factor that doesn’t interface well w/ Schiller’s model. Just sayin’.
Yes, it may not be comparable to a house from 1890, but it is pretty comparable to a house from 1992, and it’s pretty clear that houses have come a long, long way since that time.
At the same time, input costs have dramatically decreased… dimensional lumber, concrete, steel, nails, windows, etc are all far cheaper today (adjusted for inflation), than they were even 30 years ago. Plain and simple, it is much cheaper to produce the same and even much nicer houses (even with appliances) than it was in history.
Don’t underestimate the deflationary power of technological improvements and supply chain efficiencies. Houses should cost less today because they are much cheaper to produce.
Chuck Ponzi
That’s why in “conservative” Wisconsin and thoughout the midwest, they built a limited number of new houses in 1992. No NEED too as, we have zillions of ratty, historic, old world “charm” 1890 models that owners and the realtywhores can charge premium 2005 prices for and the rubes STILL by them
http://milwaukee.craigslist.org/rfs/654345796.html
“What “I” tend to think Schiller glosses over is the fact that (however poorly constructed) new homes have a lot of features that simply weren’t even a consideration as recently as the 80’s. Our first home had a dishwasher (and that was IT!) Today A/C, carpet, really slick appliances and upgrade everything come standard.
Not that any of that makes a hoot to me (or the avg. poster here) but again it’s a factor that doesn’t interface well w/ Schiller’s model.”
that’s funny, because he does make quite a point of that in Irrational Exuberance. He says that increasingly efficient methods of construction are one big reason why house prices don’t rise much over time.
Elizabeth Warren makes a similar point, when she finds that the average American family spends less today on pretty much everything *except* mortgages and car expenses, than families did in the mid twentieth century (that includes clothing, eating out and home appliances). Spending on computers is up since the seventies (of course), but it is offset by lower dry-cleaning bills! Time is a strange thing.
I hear you- the local news in Boise always get quotes from industry shills who predict a bottom every month. Total homes sales in the area are down 41.68% vs last year, and inventory is up 9%- does not look like the market is recovering.
“The pace of decline may be uncertain, but the end price level is not. (of course we will probably go through the floor first, and then bounce back,) ”
It’s possible the new floor may be lower than the old floor if long-term economic prospects or general wages decline. I agree with your scenario, otherwise (though after crashing through the old floor, prices will more likely slowly ease back towards the new floor rather than “bounce” back).
The only Credit Suisse product one should own is of the highest karat imaginable and individually serial numbered…
“Credit Suisse Group on Thursday posted a loss for the first quarter as the global effects of the U.S. subprime mortgage crisis continued to spread. Switzerland’s second-largest bank said it had net write-downs of 5.3 billion francs ($5.3 billion) for big buyout loans and mortgage securities.”
“Credit Suisse Group on Thursday posted a loss for the first quarter as the global effects of the U.S. subprime mortgage crisis continued to spread…”
They hold my mortgage and are not the nicest people to do business with. I’m curious how many people who are slightly under water who just let it go due to $15 pay by internet payment fees and rude “customer service” agents. Frankly if they’re getting a payment from you they shouldn’t be charging you. Think about the cost savings to them by not handling any checks.
They charge you $15 to pay via internet? As in an electric automatic bank payment?
“They charge you $15 to pay via internet? As in an electric automatic bank payment?”
Yes, it is. The last “customer service” representative told me they were going to be reducing the fee on the internet to $5.
Dang, a stamp costs less than half a buck.
Slate has a great article on liar loans and the breakdown of financial ethics:
http://www.slate.com/id/2189576
http://www.slate.com/id/2188982/
The next mortgage crisis.
“Last month, the California Realtors’ association (folks who in October managed to “project” that prices would fall 4 percent in 2008) reported that, actually, California house prices in February fell 26 percent from a year ago. In the places where the foreclosure boom has hit hardest, it’s worse.”
Nice, deserved dig at the CAR. This type of context should be present in more articles. Here’s their new forecast and, by the way, here’s how the last one turned out.
“Many of the loans that are in trouble now, or will be in trouble soon, fall into this category.”
“Keep in mind that in some places (for instance, San Diego), half the people in the market were taking out stated income loans and so bidding up prices to points where almost any house became impossible to finance for someone who did not lie.”
Lenders were financing so many multiples of incomes that it wasn’t necessary to use stated income loans to finance many purchases, except for those with very low incomes or for very high amounts.
The effect of “liars” loans was to push up prices for all people that tried to buy and will push up the default rates of all types of loans made during that period, not just “liars” loans.
SDGreg,
Well said.
LIE ( or be priced out forever! )
Winnipeg, late-comer to the housing bubble game
” A shortage of affordable houses is forcing prospective first-time Winnipeg buyers to accept price tags going through the roof, or to leave the market altogether. A Re/Max report on housing affordability says the inventory squeeze has brought at least a slight drop in first-time purchasing here this year.”
“‘I’ve had some first-time buyers who have just thrown in the towel and said, ‘This is crazy.’ One couple, who I think I wrote 12 or 13 offers with over a lengthy period of time, didn’t get a house. So they finally kept increasing and increasing what they would pay, and still couldn’t get anything,’ he said.”
Let’s see now:
- Winnipeg is the slowest growing big city in Canada
- Surrounded by empty prairie in every direction
- nickname “Winterpeg”
- gets almost no immigrants
Well of course you’d better buy now before it’s too late!
‘The reason we think the market has been staying hotter much longer than anyone anticipated was because of these newer amortization mortgages,’ said Craig Alexander at Toronto-Dominion Bank. ‘Because it really does change the affordability equation.’
Well no, Craig, they just borrow affordability from the future, with interest.
Like, er, in Japan and the US, you know?
‘If they have assets, like a 401K, the banks are going to ask them to try and pull some money out of there and try to keep the house up.’
I wouldn’t. Houses come and go. The 401k is judgment-proof and to be kept for when I’m old.
The 401k is judgment-proof
Which is why they will try every trick and cajolement they can think of to get you to pull money out of your 401k voluntarily, since that’s the only way they will lay their hands on it!
“Which is why they will try every trick and cajolement they can think of to get you to pull money out of your 401k voluntarily, since that’s the only way they will lay their hands on it!”
The reason they make you document everything is so they can prep their case against you to collect what they lose after the foreclosure sale. If you show a lot of assets you can believe you will be sued in states where it’s allowed.
They can sue as much as they like, but as far as I know, in no state are they allowed to go after your 401k. Recent court decisions might have tightened that up to include IRA’s as well (I can’t remember when I saw that). All other assets are, of course, fair game to them in a civil suit, which is no doubt why they gather the info. And the 401k they want documented maybe just so their debt collectors can intimidate you into raiding it. But they can’t force you to do it.
“…in no state are they allowed to go after your 401k.”
I should have been more clear in the fact that I’m not disputing that fact. It was more of a warning not to send this kind of stuff off to the bank showing a bunch of assets that are not protected. Use a property attorney. The bank is not your friend.
You can borrow from the 401K for a house if you have to though, right?
Not that you should ever have to.
If… IF you have an absolute ton of equity, and no source of employment/income ( a requirement to get a loan/re-finance these days ) it “can” make sense. Especially if you think your payments were manageable prior. Since most FB’s probably have less than 10k in their account and are looking at $3,500 to $5,000 payments, it won’t buy a lot of time.
What they “should” do is rather than fork over what little they do have is simply pledge a small fraction of it as a measure of good faith and then see if they can’t get the arrears tacked on to the end of the loan. The FB needs to leverage what little they got right now and if they’re 20k in arrears and only 10k in their plan they have to learn to play it smart.
If they can get the lender to call off the foreclosure proceedings with as little as a grand and still have a little walking money if they can’t re-fi/short sale and have to move out. They need to dangle that like candy in front of the lender and if they’re not too far under water maybe they can get lucky and sell or… find a second job etc.
I just hate the way that borrowers are waiting to see what kind of bail-out package they might qualify for?
Perhaps, someone could clairify this for me. My understanding is that future credit problems are much the same whether you do a SS, a deed in lieu, or just walk away and allow a foreclosure.
If that is the case, why even try the short sale option?
Not true: Deed in lieu is best, followed by SS, then the worst case is the foreclosure. All result in a ding, but from my understanding the dings are not equivalent.
“‘To think that we can continue to simply issue more debt and the rest of the world is gladly going to buy it at attractive rates to us…I kinda doubt it,’ said Paul Kasriel, chief economist at Northern Trust Co. in Chicago.”
But I thought we based our whole economy on this concept, what changed all of a sudden ?
Debt, our Number 1 Export
“‘To think that we can continue to simply issue more debt and the rest of the world is gladly going to buy it at attractive rates to us…I kinda doubt it,’ said Paul Kasriel, chief economist at Northern Trust Co. in Chicago.”
People here bitch about the weak dollar. Now that dollars are being dumped as the reserve currency of the world, we will never be able to pull the kind of shenanigans we have over the past 20 years. We will probably never again have the same standard of living…but I think that is a good thing, since it was all an illusion based on debt anyway.
True, but it also punishes those who behaved rationally, unless they were able to convert their savings to Euros before the devaluation.
Well, it’s not about punishment so much as doing the right thing. I hold even us rational savers and spenders responsible for not raising more of a fuss when the drunken mortgage orgy was in full swing (yes, I am one of those responsible too).
“”The Sydney Morning Herald from Australia. “The big residential developers will be pleased that Barry Goldman, principal of the real estate agency Portfolio Realty, has said that Sydney property has become a buyer’s market.””
Sounds familar. Same talking points as the US ? Lets see
“‘The areas close to the CBD are like a pressure cooker with a shortage of stock and strong demand, especially from professional people who are property-savvy. Prices have not fallen there and it is absolute rubbish to suggest prices will fall by 30 per cent or more over the next few years,’ Mr Goldman said.””
Hum, Sounds like they aren’t making anymore land, buy now or be priced out forever, we are differnet, everyone wants to live here, and of course a little ditech thrown in with a people are smart. Or savvy as the ausseys like to say.
Here is what is coming to your market realatard Barry Goldman,
Tiiiimmmmber
“Savvy” and “snap up” are two phrases that this bubble have embraced. If I never heard them again, I would die a happy man.
Snap up is the one that really grates on my nerves. They should put out a sign “Buyers snapping up homes here; come back in 2 years after the foreclosures start”.
That term, for whatever reason really gets to me.
Me too. One “snaps up” a minor purchase (say a case of good wine that is on sale), but not houses! To me the word implies an impulse purchase.
“The strongest opponents to the Frank plan remain Senate Republicans, according to analysts. ‘It is going to have a tough time passing the Senate,’ said Andy Laperriere, managing director of ISI Group. ‘Most Republicans are of the same point of view, that a taxpayer-funded bailout is not going to help, and it is not fair and it is not popular.’”
Stay the course! Mortgage bailouts create moral hazard for financial profligacy, and we cannot afford to be profligate going forward.
“Stay the course!”
I agree. Widespread bailout will work to delay the final collapse of the housing market.
Now with that said I’ll say what always gets me in trouble here. There are people who really bought what was being sold to them. They had the money to start their 3/1 or 5/1 ARM and their lender said they could refi out of it. Now they have $100K in negative equity and an ARM resetting that they can’t afford. I think the mortgage companies need to be compelled (if not by the government by their investors) to hold the interest rate and drop the loan amount to the current market value with the agreement that upon sale of the home any equity up to the amount fogiven is given back to the bank.
OK. Get the pitch forks out and show up at my front door.
How do you know what the current market value really is???
Pull 3 comparable sales in the last 30 days. If there haven’t been 3 sales in 30 days take 25% off the average of 3 listings.
Tired of hearing these dopes shouting it is a buyers market.
IT IS NOT BUYERS MARKET.
When the time comes when house prices are a normal multiple of incomes then it will be a good time to buy, but before then shut the F$%$# up an stop the lies.
and Stop The Insanity!
remember her?
I actually ran into her in a sporting goods shop in Seattle, WA maybe 10 years ago. It was well-past her heyday but still, she seemed pretty unassuming and down to earth.
Don’t worry, when it finally does become a buyer’s market nobody in the real estate complex will be suggesting we buy. Nope, they will be too busy trying to buy up the bargains. I expect them to go fully negative at the bottom to discourage anyone from competing with them.
And that is how we will know the bottom has been reached.
“New-home sales sink 8.5% to 17-year low
Despite huge price declines, inventory on market rises to 27-year high”
The housing shortage has morphed into a knifecatcher shortage!
Aah, the psychology of deflation.
You can print all the money you want but bankers and traders will never shove that money towards the asset class that is collapsing. They will look for the next “boom”.
Like DUH!!! These economists are less than clueless.
‘They will look for the next “boom”.’
Yeah, but you’d think they’d take a breather and lay low somewhere - in the very least to count their spoils. Instead it looks like they’ve found more mud puddles to jump into without missing a beat.
Why?
Just like builders either build or don’t get paid; and bankers either lend or don’t get paid; traders either make bets or don’t get paid.
That’s how they earn their paycheck, and that’s how the system works.
Not doing anything is really not an option if you want to get paid.
Lend or don’t get paid, but if you fire half your employees you can still get paid with minimal lending.
Well, whoop-dee-doodle-doo, pardner, that calls for even more unemployment, and hence foreclosures, and hence, still doo-diddly-doo smells like deflation to me.
Today’s NYT article on new home sales: “Prices continued to fall as well, which could discourage would-be buyers from re-entering the market.”
And I thought high prices discouraged buyers.
“And I thought high prices discouraged buyers.”
This is the paradox of markets powered by something other than fundamentals.
Raise the price of tomatos, or gallons of gasoline, or most any item and consumers will buy less of them; Meaning: demand will decrease.
Raise the price of stocks, gold, houses, and other items of “investment” and people will want more of them; Meaning: demand will increase.
It would make better sense to buy stocks, gold, houses, etc. when prices are down, but apparantly that’s not how most people are wired.
Go figure.
i figure: Price is a result, not a cause.
Changes in supply and demand result in price changes. Prices change for a reason.. Prices do not change unless and until there’s a change in supply/demand.
A company stock might experience favorable news. It is then more attractive and experiences increased demand. More people buy it and stock “supply” decreases. As this happens it’s price rises to some level.
A drought might reduce the tomato supply. Tomato supply decreases. Tomato price then rises. People eventually buy fewer tomatoes. Demand falls to match supply and price eventually stabilizes.
In other words, price only follows supply/demand fluctuations, without which prices would remain stable.
You can’t just raise price without a cause or the competition will undercut you. And, there are laws against all suppliers conspiring to raise prices without good reason.
“You can’t raise price without a cause or the competition will undercut you.”
Normally true, but not true when prices disconnect from fundamentals.
It was true for houses when the fundamentals were connected to incomes and comparable rents. It became not true when mass psychology overturned this fundamentals-price link.
The Beanie Baby mania is an excellent example: The Beanie Baby was just another doll until marketers convinced thousands of mothers that it wasn’t. Then the price of the dolls went nuts.
Fundamentals mean nothing once a mania takes control.
I agree that a mania has some rules unto itself.. but even with Beanie Babies an increase in demand caused a rise in price. Increased Beanie (or housing) demand might be based on rational judgement or wishful thinking or on pure insanity, but the demand is genuine in any case.
For whatever reason, people suddenly want something and are fighting over it. Price increase follows close behind.
Since many things happen simultaneously during a cycle, it might be better to say that price mirrors supply/demand. However there is no time when price will change all by it’s lonesome and lead the way, imo
But a price rise can translate into a increase in demand.
People want a Rolex because it is pricy; the fact that it is pricy is what gives it its appeal.
Tiffany not long ago cut back its silver bracelet offers because too many ordinary teenagers were buying them thus diluting the exclusivity associated with the name Tiffany.
hmm.. ok.. i’ll go this far: A high (or low) price can influence the level of desirability..
But I don’t think high (or low) price translates to demand. If it did, Rolex could simply raise prices at closing time and, in the morning, make the claim that demand for their watches increased overnight.
Demand is the quantity demanded by consumers. This number reflects actual sales, not just by how often an item appears on someone’s Christmas list..
If people really-really-REALLY want something but nobody can actually buy it because of high price, sales are nil.. and the supply/demand schedule remains unchanged.
btw.. i went shopping for a Rolex .. i didn’t see one watch i liked.. notta one… all gaudy looking things..
OK for impressing people with bling-bling but that’s about it.
Learned on Antique Roadshow that Rolex became famous when it invented the inertial winding mechanism.. (wound by wrist movement). That watch was called a bubble-back for the big metal bubble that housed the mechanism. In all other respects it was a plain, old watch.
oh well.. Evidently, either I or the Roadshow was mistaken.. Someone else invented the self-winder.
http://en.wikipedia.org/wiki/Rolex
“A high (or low) price can influence the level of desirability.”
Speaking of influence …
Several years ago a book titled “Influence”, by Robert Cialdini, told of an experience of a desert trading store that couldn’t sell its Indian jewelery. The owner tried every sales tactic he knew but nothing worked.
So, before going on vacation he left orders to his staff to cut prices by 50% and clear out the inventory.
The staff misunderstood the owner and doubled the prices instead of halving them.
The result? Every item of previously unsalable indian jewelry was sold!
The reason? For many people Price equals Value.
Most people don’t know much about jewelry so they use price as a guide to quality. High price translates to high quality. Low price translates to junk.
FWIW.
..they use price as a guide to quality..
Why? It’s because we know from experience that (apart from the occasional accident) prices are set according to the laws of supply and demand in an open, honest, efficient and competitive market.
That which is more rare or more expensive to produce or aquire tends to have a commesurately higher price tag.
When comparing apples to apples, price is a fairly accurate guide to quality, imo.
As soon as he and his wife recognized their financial crisis, they decided she’d return to work as a physician’s assistant. She hadn’t worked since the children were younger and her license had lapsed.
Oh god, here we go again… The Kids! The Kids! I swear you see so many of these sob stories only to see that a family was doing the whole 50’s nuclear family thing- mommy staying at home to rear the runts while daddy earns the bacon. Wake up. Its the 21st century.
There’s nothing wrong with that if you can afford it.
????
We have no problem living on one income, neither do most of our friends. What exactly are we missing? More Chinese junk? Why throw my wife into the rat race? It’s nice to come home to a home cooked meal and clean clothes.
It’s nice to come home to a home cooked meal and clean clothes.
Uhh . . . on the other hand, you can have these things without one spouse staying home. In fact, you can even give your wife a break, and provide them for her once in awhile!
I just fail to see the benefit really. Both parents working can easily accomplish the same thing. My parents, her parents, and their parents both worked. We’re a Southern family too. I never felt like I didn’t see my parents enough. I never felt deprived. I feel it also prepared me for the realities of life, which is that people work and earn money and thus have to manage their time.I knew tons of families that had bratty kids who hated their parents in stay-at-home-mom families almost more so than those who had parents that both worked.
I dunno… Moms staying at home just seems… a bit outdated and too stereotypical with the whole “man of the house” mentality.Sort of like a vision of a woman in a cleaning lady outfit manning the electrolux vacuum cleaner. Men and women are both equal.People seem to make large sacrifices just so the woman can stay home.
Just my opinion. No worries.
I’m going to take a guess here that 1 person in each household had “career” and the other person had, well, “just a job” in the situation you describe. It’s very difficult to run a 2 “career” household with the kiddos. Kids get sick, require transport at odd times, etc. It’s close to impossible to give a job the kind of “all” it requires to climb the ladder and take the time off when you need it to give proper attention to the kids.
I agree with you that men and women should be afforded the same equal opportunities. The point is *someone*, male or female, is running the household and minding the kids. That is much easier when one of the partners limits their paid employment to part-time or less while the kids are young.
My sense is the current trend towards stay at home families is actually more about having someone raise the kids and living a semi-sane, semi-rested lifestyle rather than looking back to lock people into traditional gender roles.
Nothing wrong with raising one’s family this way. They just need to recognize that they won’t be able to keep up with Joneses. Forget the McMansions and luxury cars.
jetson-boy,
In ways I agree. “The kids” can be used as justifications for all KINDS of things! From 2nd homes at the beach to buying a ridiculous house you can’t afford in a neighborhood you don’t belong so “the kids” can go to the ‘right’ school. If someone wants to stay home ( hell I WORK there ) that’s fine. But I did it because I was tired of the corporate BS and the commute, not to be a better parent. Btw we also down-sized while we still had a junior in high school. “Dad, a… c-o-n-d-o!?”
Pffftt, like you’re around enough for it to matter.
(Tip for those with teens) If the older brother/sister is out of the house and has an apt. or rental you won’t be seeing much of the younger one! I finally asked daughter #1 if she minded having a permanent fixture on their living room couch and she ‘did’ confide there were times when it got old but… “She’s my SISTER!”
Bad Andy, are you the same Bad Andy from arstechnica.com? Anyways, your idea stinks. People SHOULD NOT have their loan balances reduced just because they are under water. That is just rewarding failure.. failure to pay, and failure to make a prudent financial decision. Better to lose the house and clear the deadwood out of the market.
Slightly off topic, but a fun read:
“A landlord couple have been charged in San Francisco with waging a campaign of terror against their renters in a South of Market building, including cutting out the floor supports at one apartment after the tenant went to court to keep from being evicted, authorities said Wednesday.”
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/04/23/BAIU10ALDM.DTL&feed=rss.bayarea
I would have simply shot the SOB when he broke and entered my apartment, he would have never had a chance to kick me in the chest. These folks should be made an example of.
The last time I rented in the Lower East Side in NYC and my landlady wanted to get me out, she simply disabled the downstairs door locks so the local junkies could come into the lobby and shoot up, and the local whores could come into the lobby and turn tricks. Eventually, we took a buy-out.
“But when the housing market crashed, new housing permits ‘fell off a cliff,’ according to Seiders.
“Housing market crashed???”….. Interesting language shift by one of the top RE voodoo priests. Such acknowledgement of the truth would have been blasphemous just 9-12 months ago.
Can someone tell me how long after declaring bankruptcy until the bank gets the house? Finally heard from my LL, she’s losing the house I’m renting in her bankruptcy (not her primary residence). Jut wondering how long I have till the bankers come around…
i dunno.. her lawyer or the bank legal dept might have some idea.. But the time frame probably depends on the financial details, and/or on how much effort she exerts to forestall it.
Meanwhile, I might try to make a deal with the new LL (the bank) to stay on and take care of the property… mow the lawn.. keep the riff-raff out.
Sorry to hear that, lost.
“Sales fell in all four regions, dropping 19.4% in the Northeast to a 27-year low, falling 12.9% in the West to a 17-year low, falling 12.5% in the Midwest to a 27-year low, and slipping 4.6% in the South to a 12-year low.”
If places are hitting 27-year lows, then I guess we are back to the 1981 recession level of sales. Clearly the market has bottomed out — or has it???
At any rate, try not to catch yourself falling knives.
The institute’s NSW president, Chris Egan, said Sydney’s property market was thought to be at the bottom end of its cycle, with good prospects for long-term growth, but it would not become apparent until 2010.
This imho has got to be the world’s most rigged housing market…Its a continent larger than North America with less than 20 million people. They severely limit construction so the price is held artifically high. Then these so called good interest rates are always 1-2% higher than you would pay in the U.S. or most of Europe. It actually makes Florida look fundamentally sound.
“”As long as house prices are falling, it is going to keep the financial system under pressure, keep the dollar under pressure, and cause oil and food prices to rise. I know it sounds odd, but it is true. Not until the housing market finds a bottom will all this start to sort itself out,” Zandi said in a television interview. ”
Well, if Mr. Zandi really thinks this, he should want an organic bottom reached as quickly as possible, instead of prolonging a long slow decline propped up with taxpayer money.
Ripping the bandaid off quickly rather than slowly pulling it off, ripping out a hair at a time, will allow the economy to get back to sustainable growth more quickly.