The Numbers Don’t Work Out Like They Used To
Friday desk clearing time; first from Wall Street. “Dominion Homes, Inc. closed 315 homes during the three months ended March 31, 2006 compared to 478 homes closed for the same period a year ago. Home sales conditions continue to be difficult in all of our markets. The average sales price of homes in backlog at March 31, 2006 was approximately $200,300 compared to $202,300 at March 31, 2005, reflecting more aggressive pricing of our homes.”
“The Compensation Committee of Countrywide Financial granted 13,714,540 stock appreciation rights under the Plan to various employees, including its executive officers.”
“U.S. Treasury debt prices tumbled on Friday, sending long-term yields to fresh highs. ‘The market thinks the strong payrolls report warrants a 5 percent funds rate, and possibly 5.25 percent, said Tony Crescenzi. St. Louis Federal Reserve Bank President William Poole said futures-market expectations that suggest the Fed may raise its target rate to 5.25 percent are ‘a perfectly reasonable understanding given the information that is now available.’”
“Every sensible person trying to analyze bonds and the Fed thinks that the Fed must have insights that we can’t imagine, let alone understand, and then… then…. The Fed this week released verbatim transcripts of its meetings in 2000. That fall, Greenspan and the Fed’s research director in painfully clueless language dismissed any prospect of weakness in technology, or the stock market, or the economy. Wow.”
“I had this dream that I could flip middle-class housing. One of the agents in the back beckoned me over. ‘What made you think you could find a house like that? And how many have you found?’ ‘None.’”
“‘Didn’t you wonder why? The reason is, if any of us found a house like that, we’d flip it ourselves. You’re looking for something that is too good, and the people who own this company should know better.’ All the risks I had taken, and the money I had blown through, and for what? A dream that didn’t exist; a mirage. And I had learned that it didn’t exist because my firm’s own agents had told me. Couldn’t somebody have pointed this out five months ago?”
From Arizona. “With about 13,000 homes and condos for sale in the Southeast Valley, you need all the help you can get if you’re trying to sell a home. ‘It (staging) is almost a requirement. The inventory (of homes for sale) is going up. The gap between list and sales prices is going up month by month,’ said Heather Sanders, an Ahwatukee Foothills real estate agent who stages homes.”
“Renee Hoffman, an Ahwatukee Foothills agent who has her own staging company, said the process (makes) it less likely the seller will have to reduce the price. ‘The price of staging a home is less than the first price reduction,’ Hoffman said. Julie Cowan, an agent and accredited stager in Chandler, said, ‘I think of it as hidden equity. It’s hidden beyond the clutter,’ Cowan said.”
“Real estate broker, Margot Murphy, who specializes in listing pre-foreclosure properties, said, ‘If San Diego is any indication of how homeowners have been refinancing to pull money out of their home, then any decline in home values there could create a fairly substantial market of equity-deficient properties.’ Her next stop is Sacramento, CA.”
“Homebuilders in Sacramento, Yolo, Placer, El Dorado, Sutter and Yuba counties sold 2,081 homes from January through March 2006, compared to 4,812 in the same three months last year. The decline has builders sweetening incentives, which nearly tripled from early 2005. Builders are cutting prices too.”
“Yuba County saw the sharpest percentage drop, down 92.8 percent in a year from 497 sales in first-quarter 2005 to 36 in the first three months of this year.”
“Orlando’s theme parks have been a magnet for tourists since Disney World opened its doors in 1971. At Reunion, owners have the option of putting their properties into a rental pool. The close proximity to Disney may help them find tenants, although regionally, the rental market has hit a snag. ‘Property prices have gone up but rent hasn’t,’ said Lesley Dolby of Dolby Properties in Orlando. ‘The numbers don’t work out like they used to.’”
Another great week of building a bubble consensus. My thanks to those who support this blog. Please check back this weekend for news, your topics and market observations, as well as the new batch of housing bubble photos!
Thanks Ben for another exciting week of news.
Thanks Ben! I am addicted to this blog.
And another great week for the BUBBLEHEADS. Thanks Ben, for hosting this site, without which we would not have a forum to gather, vent, share, and strategize. Our collective voice is only starting to be heard. This is going to be a cruel summer.
Thanks Ben….
the poet T.S. Eliot once wrote: “April is the cruellest month.”
I never knew exactly what he meant, but I think we’re going to find out.
At the rate the Phoenix AZ inventory is rising, it would hit 50,000 by Aug-Sep me thinks.
“The Compensation Committee of Countrywide Financial granted 13,714,540 stock appreciation rights under the Plan to various employees, including its executive officers.”
Note to self: Short CFC.
Take it from one who’s given up on it: it’s still way too early to short CFC. Yeah yeah I know it’s practically at its all-time high, but there are two things the overall housing numbers don’t tell you:
(1) CFC is getting a much bigger piece of a smaller market. They increase their business when players that are too small to short go under. Even if no new homes are built, CFC will still make money on new mortgages, distress sales, foreclosures, etc. In fact, the more panicked the market, the quicker people walk away from their homes, the better for CFC.
(2) any mortgage company income is based on prices x #sales. Just one of those factors falling (#sales, see (1)) is not necessarily enough to hurt CFC. Median prices are still going up (because the lowest-end buyers are finally being priced out).
“U.S. Treasury debt prices tumbled on Friday, sending long-term yields to fresh highs. ‘The market thinks the strong payrolls report warrants a 5 percent funds rate, and possibly 5.25 percent, said Tony Crescenzi. St. Louis Federal Reserve Bank President William Poole said futures-market expectations that suggest the Fed may raise its target rate to 5.25 percent are ‘a perfectly reasonable understanding given the information that is now available.’”
I guess not everyone has forgotten the lesson of the Phillips curve…
several writers have suggested that the recent moves in the Treasury market have nothing to do with FED policy but are simply a result of the latest comments (regarding ‘diversification’ out of US Treasuries) coming from China.
Along with that one should consider that the Chinese can be extremely patient, and will probably bide their time to give the US the maximum amount of rope to hang itself.
Maybe this also explains that long term interest rates in Europe still are not moving up; maybe the markets are sensing that China will buy more EU debt (no matter how much euro’s the ECB is printing) and keep interest rates their low for the next years?
Along with that one should consider that the Chinese can be extremely patient, and will probably bide their time to give the US the maximum amount of rope to hang itself.
Excellent point.
“Yuba County saw the sharpest percentage drop, down 92.8 percent in a year from 497 sales in first-quarter 2005 to 36 in the first three months of this year.”
Hum… wonder when SD will report its first 93% drop?
I just had a door-to-door refinance offer…that’s a personal first! This can’t be good…
Multi-level marketing next?
AmWay (TM) Mortgage Services
Direct marketing (al la Amway), at family holiday gatherings…
On my way home tonight there was this HUGE billboard ad saying: “Buy 4 investment properties a year! No Money Down! We will show you how!”
I think the MLM scams are here… they are going to Out-Ponzi the 21st Century’s biggest Pyramid scheme yet. It ain’t over till you Ponzi the Ponzi.
investment websites in Europe are still plastered with advertisements of US REIT funds that promise 20-30% yoy gains …
My friend listed his condo. His agent had a conflict and my friend was going to sit on the open house last week but could not. I was drafted - I am not a realtor. A mortgage broker stopped by to solicit business. He was going to all the open house in the neighborhood. This is was in Fairfax County - Wash, DC suburb.
So the flipper wannabe cried her eyes out when she realized there was no free lunch. Cue the violins.
Wonder how many others cried because they can’t afford things because of people like her.
She will soon be very thankful she didn’t buy a house 5 months ago to flip. Those that buy in these days are the fools at the bottom of the pyramid. Game over.
These are the latter days for flippers, soon to be followed by Armegeddon.
http://www.armageddonbooks.com/catastrophism.html
Exactly. Even the best laid plans to extort from the young working class can fall apart. Who knew? Alison Wilson, snooty self-righteous greedbag extraordinare, gets no sympathy from me as she documents her journey of failed extortion culminating in her running crying back to her unsympathetic husband and mother. I think I’m going to open one of my favorite Ridge Zinfandels and celebrate the ass-paddling of another worthless specuvestor. What a waste of human flesh.
“Even the best laid plans to extort from the young working class can fall apart.”
Got that right, OC Max! I’m surprised more folks don’t see things this way, i.e., with a little more clarity. This reminds me of the stories where the jock who threw the touch down pass and married the home coming queen has spent his investor’s money on the good life…and they never saw it coming.
I cried for three hours. First I wandered blindly for a few moments: Night, on foot, in suburban Jersey, with no Springsteen soundtrack isn’t a beautiful thing.
Ah yes. I recently had a “Shawn of the Dead” moment as I walked down my street one evening, oblivious to the weeping, empty-eyed flipper-zombies lurching past all around.
OK, it hasn’t happened yet, but just wait till next Spring.
Schadenfr[ue]de –> Schadenfreude
Better? (Thanks for the correction)
The transcript(s) were shocking. I knew they often did the wrong thing, but to see it in print. It took them months to notice that the NASDAQ had popped. I was reading current Fed quotes, and the general sentiment was: we don’t know what is happening, we’ll wait for the data (to show us what happened in the past).
Don’t ever, ever believe the government knows what’s going on. Public officials know less than the private sector do about matters in their jurisdiction. Officials spend most of their time in meetings with other officials trying to look like they know what they’re doing. At best government gives you the illusion they have things under control.
The whole Sac Metro seems to be comming apart as bad as Florida, Denver & San Diego….What do they have in common ??
No buyers
Abundant buildable land ??
Everyone wants to live there
From that Sac Biz journal article.
“He said there is still plenty of demand, driven by solid job growth.”
Then there was the link to this other article on the same page.
http://sacramento.bizjournals.com/sacramento/stories/2006/02/06/story2.html?jst=s_cn_hl
People are working hard to fool themselves at this point.
Excellent Sac article….
Sacramento has been touted for a number of years as “the alternative to high-priced Silicon Valley”. But it’s still mainly the state capital. That hasn’t stopped the builders from going 30 miles of Sacramento itself (cheap land at the time) to put up their house farms.
Ditto for Reno, which offers its own disappointing numbers in another article excerpted in a later main post. It’s had its own boom as people and businesses from CA flee the horrid business climate. But except for the casinos and U.Nev@Reno, much of it is another indistinguishable strip mall.
I’m going to go out on a limb and suggest that Colorado also has been promoted as an alternative to Silicon Valley. Boulder at least has been plugged as “Silicon Mountain” or somesuch — a lot of disk drive companies set up shop there in the 90’s.
Maybe the common factor is that they are portrayed as “alternative to X”, which people assume means it will become “the new X” very quickly, and overbuild.
I’ll leave it to others to offer arguments for San Diego, Phoenix, and Las Vegas.
OT, but will the gvt resurrect the RTC to handle the fallout from the inevitable bank failures?
I’d love to buy some nice assets at 30 cents on the dollar again.
The RTC debacle revolved around the commercial market….Is the residential market any different if there are not enough willing buyers to go around ??
Doesn’t much matter — many places are frothy on the commercial side (esp. retail) and commercial RE will get dragged down the pipes with residential…
As Ben noted within the past few days, some lenders categorize residential construction projects as “commercial lending,” adding to the severity of the incipient bloodbath.
GetStucco– you notice all of the new commercial buildings in the OC? 5 @ Jamboree– as an example. Was out around the 71 in Chino over the weekend….SHEESH– just a couple years ago it was dairy farms….now it’s either new industrial/warehouse buildings (many with FOR LEASE signs) or they’re scooping up the manure and staking it out to pour more foundations.
Yup, Commercial’s gonna suck wind too!
I had to go into Santa Clara today. While listening to the radio I heard that in the Fresno area and places in the bay area all this weather (rain) was keeping housing projects from completion and painters, etc couldn’t work….and this was leading to a loss in pay and therefore will translate to a loss of retail sales. Dah, what about mortgage payments, car loans, HELOC payments?
I was musing today that the housing situation reminds me of the drug problem faced by the Fed’s in the 80’s and 90’s. They knew they had a cocaine problem on their hands but they needed a certain amout of monies in the underground economy so they looked the other way. That is until doctors, attorneys, cpa’s, dentists, etc got hooked on the drug; then they woke up and realized that instead of buying taxable goods the money was being spent on nontaxable drugs and leaving the country. But not to worry, the perfect solution presented itself with the death of Len Bias and another popular sports star. The government with a willing press stepped in and started a campaign to right the wrong……it’s a’gonna happen here folks…just pull up a chair and watch!
There is a lot more to our drug problem than most understand. Here is a URL that will fill you in if you have the interest:
http://www.tpromo2.com/gk/stacey/ciadrug.htm
in the Netherlands they found a perfect solution for this by shoveling all this crime money into real estate. Professor Piet Eichholtz (the guy from the ‘Herengracht index’) recently warned that there is a strong accumulation of crime money in the Dutch housing market.
Part of this is coming from the legalized softdrugs scene, where people make obscene profits in a government-guaranteed monopoly business; the other part is from (illegal) hard drugs - with most of that money coming from the US at the moment.
Authorities already now this but choose to look the other way; what better guarantee for reelection than soaring home prices?
(sorry if this post appears twice, my earlier posting magically disappeared)
in the Netherlands they found a perfect solution for this crime money problem: most of the money ends up in real estate and feeds the housing bubble. We are getting new publications on a regular basis from government agencies that show how good all this criminal money is for the Dutch economy (so hey, why do something about it?).
Professor Piet Eichholtz (the guy from the Herengracht index) recently warned that a lot of crime (drugs) money is ending up in the housing market, and that these criminals are controlling vast amounts of real estate in some important areas.
Part of this comes from (legal) softdrugs where some shrewd businessmen make large amounts of money in a government guaranteed monopoly; they have vast amounts of cash that needs to be whitewashed. The other part comes from (illegal) harddrugs trade, and most of this money comes from over the borders, especially the US. It seems to be extremely easy to whitewash criminal money by investing it in Dutch real estate.
Government already knows this but they choose to look the other way; there are no investigations or prosecutions for this at all.
Of course, there is no better way to make sure you get reelected than with a soaring housing market. And if you get a little help from criminals to get reelected, why not?
There is definately money laundering and scheming going on. Twice now I have seen homes in the 1-4mil range fester on the market and then get bought for over asking apparently by people who drive the exact same cars as the previous occupants. There are too many variables for me to tell much of anything from anecdotal information, but it really seems like some of these big house sales must be fabrications constructed for some alternative purpose such as money laundering or market pumping or both.
The RE in the area around Gilroy, Morgan Hill, San Jose used to be listed in the weekend paper (haven’t seen that in about 5mo.) by zip which if you want to use median price made a tad more sense. Each area had a median based on the relative value of RE in that area. Therefore, an area of $1,000,000 homes had no effect on an are of $300,000 homes and one could track the number of sales in each area.
The SJ Mercury News does it in their Saturday paper. Each zip code in the county, number of sales, median price, etc.
I was wondering what happened to Allison - I googled around when her first articles were published, only to find 3-4 of the pieces. Glad to hear that her bubble dream of quick and easy cash while lying on her back “making dreams come true for others” turned into her nightmare of being a middle-class whore.
The next one for the chopping block, hopefully, is Nina at “Sitting Pretty” (what a joke). Of course, she’ll never let us know what really happened to that “fixer” she was supposed to take the 100K “tidy” ROI from but thank heavens for Zillow. LOL
I got a giggle out of Allison’s article - read the whole thing — she really comes across as clueless. I lost money on ONE rental - I bought a crappy house with a crappy partner in the 80’s, a section 8 disaster, lost my downpayment of $1,000 and took it as a loss on my tax return, got away from the crappy partner, and learned my lessons well. Now I just deal in quality properties, and very seldom would I have more than two, historically. We sold 2 and have only one now. I would never go from house to hosuse and meeting to meeting acting the fool. How did she ” blow through ” money ? Why can’t she work a regular job - 40 hrs - and do her real estate on the side ? I always have. Also, it’s a good thing she has a husband who is no doubt working and earning the income they need to support her money-losing habit. What an idiot !!!
She is indeed clueless, and her partners used her, but at least they put together a business model which kept her from leveraging herself to the eyeballs for crap housing about to plummet in value, unlike all the other would-be property magnates out there who did absolutely no research nor analysis whatsoever. She lost time, money, and pride - but at least she didn’t lose money owed to someone else.
Note to self — the next time I want to go to Disney World, I will either stay in our Disney Vacation Club resort ( total cost $24,000 ), and that was before I found out you can rebuy the points USED for less, or RENT a hotel room for the requisite number of days that I will be visiting the theme parks. I would never purchase a $310,000 home to stay in for just a few days or weeks a year. Stupid waste of money, considering how saturated the market is down there ????!!!! You know, Disney hotels are awfully nice, and there are plenty of nice offsite ones too, for less money. I can think of a lot of other things to do with my $ 310,000…..
For $100~$150/night, you can rent a 3~5 bedroom house with a pool in those same cookie-cutter neighborhoods.
When i went to disney world i got a hotel just outside of dw campust for $60/night on priceline.
And just when Fresno housing market is starting to implode this comes along:
Fresno is hot investment item
Out-of-town buyers are showing interest in commercial properties.
By Tracy Correa / The Fresno Bee
(Updated Sunday, April 2, 2006, 7:39 AM)
For out-of-town investors, the Fresno commercial real estate market is hot.
Hah, I’ll see your Fresno and raise you Isleton. KNTV (channel 11, San Jose) last night did a story that that long-busted town of 840 people is contracting with a builder to build three hundred new homes in the town of 840 — so they can get more voters and get rid of some City Council jerks. (link is to their video segment)
Let us all look at history. There has been a strong RE downturn every decade in the USA since the 1970’s. Big down market in 70’s, 80, 90’s, and now how can anyone say there won’t be a downturn this decade.
Expect a big downturn because that is what is going happen when we get a RE caused recession. Have some cash on hand for the bargains later on.
The RE bulls are finished for this cycle.
In case some of you haven’t seen this
http://www.itulip.com/housingpriceregionscascade.htm
Importantant takeaway from the linked piece for those of you impatiently awaiting a chance to buy in bubble cities - the bubble moved from the early days in the inner cities outward to the suburban and rural areas as people were priced out and forced to move further out to find lower prices. A bubble pop will work in reverse, with the inner (highest priced) areas being the last to drop, as mentioned here many times by me and others. Ergo, those of you wanting 40% off a Santa Monica or San Francisco place are going to wait longer than those wanting to buy in Fresno (LOL as if anyone is) for example. This is why in Big D (that’s “D” for “dump”) the places like Frisco and McKinney ( where the really dumb out of state money is “investing”) never really appreciated much and will really ratchet down in a downturn while the Park Cities (which I recommend to anyone forced to live in Dallas) will hold value much better and longer and will not decline anywhere near as much.
thanks, excellent link! It applies equally well to what has happened in the Netherlands, the UK and probably other EU countries - (although we are about 5 years ahead of the US schedule).
You could also apply it to Europe as a whole, with the originally strongest EU economies as the ‘metropolitan centres’ and the newest or aspiring EU countries as the ‘rural areas’ where the housing bubble started around 2000 or later.
I’m afraid that if the model in this article is correct regarding timeframe, the bubble in my area of the Netherlands (rural area, mostly dependent on government jobs) will take more than a generation to correct
The potential price drop will be enormous here, but I don’t have the time or patience to wait until the bottom.
Just noticed that in a small town near my hometown, asking prices are again increasing strongly - the average appreciation over the last 15 years is now near +1200% there.
P.S.: just noticed one thing that doesn not apply for Europe:
the article assumes that the collapse of rural housing prices in the post-bubble period (in the US) is driven by higher energy prices. In most EU countries gasoline prices have always been high (about 75% of the price is a government energy tax). The recent increase at the pump because of higher oil prices is not significant here, I don’t think anyone will change jobs because of this (yet).
Maybe that explains why the bubble keeps growing here