A Real Lack Of Wisdom
Some housing bubble news from Wall Street and Washington. Bloomberg, “The U.S. median price for a single- family home dropped 7.7 percent in the first quarter, the biggest decline in at least 29 years, as values tumbled in two-thirds of U.S. cities, the National Association of Realtors said. The median was $196,300, down from $212,600 a year ago, the largest decline in records going back to 1979. Sales of single-family houses and condominiums fell 22 percent to 4.95 million at an annualized pace, the slowest in a decade, the group said.”
“‘Prices have fallen in neighborhoods with a wide prevalence of subprime loans, because more foreclosed properties are being sold at discounted prices,’ said Lawrence Yun, the realtor group’s chief economist, in today’s report.”
The Associated Press. “In California, Sacramento prices plummeted 29.2% to $258,500 compared with last year and Riverside prices fell 27.7% to $287,100. Prices in Las Vegas fell 20.2% to $247,600 and those in Phoenix dropped 15.4% to $222,200.”
“The worst hit market was the Sarasota area, where condos dropped 35% over the past 12 months to $268,500. Sacramento condo price cratered 33.4% to $147,200. In Miami, prices fell 26.4% to $176,100.”
“Toll Brothers Inc., the largest U.S. luxury-home builder, reported its eighth consecutive quarterly decline in revenue as demand for new homes tumbled.”
“The company said it may incur pretax costs of as much as $375 million to write down the value of real estate, more than the $245.5 million it had last quarter. ‘The just-completed spring selling season was quite weak in most markets as buyers remained on the sidelines,’ CEO Robert Toll said in the statement.”
“Customers canceled 25 percent of contracts in the three months ended April 30, the lowest rate since the same quarter a year earlier, when they withdrew from 19 percent. The net value of contracts fell 58 percent from a year earlier. The order backlog, or homes under contract that have yet to be sold, declined 50 percent. The average price of the canceled contracts was $760,000 per house.”
The Philadelphia Inquirer. “The average price for a new home contract signed in the quarter slipped to $590,000, from $711,000 a year ago, and $634,000 in the first 2008 quarter.”
“Toll Brothers attributed lower average home prices to several factors, including an increase in sales in lower-priced communities, and fewer sales in high-priced markets such as California and Manhattan.”
“Toll’s chief financial officer, Joel H. Rassman, said the builder expects to ‘continue to face challenging times.’”
“Orleans Homebuilders Inc. yesterday reported a hefty loss for its third quarter, with orders for new homes down 40 percent. The company saw its cancellation rate - buyers who back away from signed contracts before closing on the homes - soar to 31 percent from 20 percent a year earlier. The largest increase in cancellations was in Florida.”
“The company said that buyer confidence was extremely low this winter. Mortgages were at a standstill, and cancellation of new homes ’spiked up much higher than we had ever seen,’ it said.”
The Charlotte Observer. “Beazer Homes USA, formerly a major Charlotte-area builder, on Monday revealed more problems in its recently closed mortgage unit and said it suffered heavy losses last year as the housing market faltered.”
“Since last year, the Atlanta homebuilder has been the subject of federal investigations triggered by Observer reports that the company arranged loans some buyers couldn’t afford and violated federal lending rules.”
“Beazer said it lost $411 million in the year ended Sept. 30, compared with earnings of $369 million a year earlier. The losses included nearly $612 million for writing down the value of inventory and abandoning land options. Sales sank to $3.49 billion, down 35 percent from $5.36 billion the previous year.”
The BBC News. “The number of house sales in Northern Ireland during the first three months of 2008 dropped to its lowest in almost 25 years, a new survey has revealed. The University of Ulster quarterly house price index report said some of the 120 estate agents surveyed reported no sales at all.”
“The economist Alan Bridle, head of research at Bank of Ireland which produced the survey in partnership with the university, said the local housing market was ‘technically in recession’ for the first time since the early 1990s.”
“‘As an observation we may have something of a stalemate, with vendors looking to sell at 2007 prices and potential buyers deferring purchase in anticipation of lower prices and easier access to credit later in 2008 or 2009,’ he said.”
“In the latest survey from the Royal Institution of Chartered Surveyors (Rics), 82% of surveyors saw prices fall in the three months to April.”
“That figure was up from 66% in March, with all surveyors in East Anglia, and the North and North West of England, reporting price falls.”
“There was also downbeat news from two UK house building firms on Tuesday. Redrow said the number of reservations so far in 2008 was half that seen the previous year. while cancellations of reservations, which had been running at about 20%, had seen ‘a marked increase’ since Easter.”
“Rics said that regions where prices had still been rising until recently have now been caught up in the general decline. In Scotland, which had bucked the UK trend, the house price ‘balance’ also turned negative last month.”
“‘The real issue is the collapse in the number of housing transactions,’ said Rics spokesman Ian Perry. ‘Large numbers of distress sales - either repossessions or sales from those attempting to avoid the repossession process - have not yet appeared in the market place.’”
“‘This has very real implications, not just for the property industry but also the High Street and the wider economy,’ he added.”
“London’s property market had the most widespread price declines in at least 14 years last month as the slump in financial services deepened and banks curbed lending.”
“The number of residential property agents and surveyors saying prices fell in the capital exceeded those reporting gains by 94 percentage points in April, the lowest since records began in 1994, the Rics said today.”
“The U.K. capital has ‘caught up with the rest of the country,’ Simon Rubinsohn, chief economist at the London-based surveyors’ group, said in an interview on Bloomberg Television. ‘There has been a sea change, and it’s not wholly surprising given the impact of the financial-services industry.’”
“London banks will cut 10,000 jobs by 2011 after losses from credit-market turmoil climbed above $329 billion, an Experian Group Ltd. report last week showed. London will bear the brunt of 40,000 job losses in U.K. financial services in the next three years, a report by Experian, the world’s largest credit-checking company, showed.”
The Daily Mail. “The global credit crunch is claiming more than 300 jobs a week in the City. Some of the highest-paid executives in London’s Square Mile and Canary Wharf have been sacked as the world’s financial markets go into paralysis.”
“A total of 6,500 people will be axed by next month but more than 4,000 have already gone, according to analysis by London’s Evening Standard.”
“Junior staff have been casually dismissed in the office lift and whole trading departments have been ‘black bagged’ - told to clear their desks and marched out by security.”
“The bloodletting began in earnest in December when global giants such as Citigroup lost billions on bad mortgage debts in America. Thousands of jobs were lost as companies frantically reduced their workforces, dismissing everyone from heads of department down to junior traders.”
“Now the second wave is beginning to bite amid the renewed fallout from the US subprime crisis. Top executives such as £1-million-a year Barclays boss Edward Cahill have also been hit by the most dramatic job cull in decades.”
“People working in complex types of debt related to sub prime, such as Mr Cahill - in charge of ‘collateralised debt obligations’ - were among the first to go.”
“There has been a general policy of last-in-first-out, such as the case of Charlie Roast, who was hired as an executive by Merrill Lynch from Deutsche Bank a year ago and touted as a hotshot only to be ditched last week.”
“One managing director at JPMorgan said: ‘The mood is pretty bad - no one really knows what is going to happen. Last year, when the credit crunch began, we still knew we were going to get decent bonuses because overall 2007 had been okay. This year everyone knows it’s going to be terrible. What I fear is working until November and then being laid off, just before bonuses are due.”
The LA Times. “Investors are increasingly throwing in the towel on Southern California-based savings-and-loan mortgage lenders IndyMac Bancorp, FirstFed Financial Corp. and Downey Financial Corp.”
“Defaults keep climbing on the nontraditional mortgages made by the companies, and bond buyers still shun securities backed by such loans. The lenders are awash in red ink, and their stocks are down by about half or more since the beginning of the year.”
“But the losses keep coming. On Monday, Pasadena-based IndyMac reported a loss of $184.2 million. To conserve cash, the company suspended dividend and interest payments on some preferred securities.”
“Although CEO Michael Perry declined to predict when IndyMac would again turn a profit, he portrayed the thrift as on the upswing. Keefe, Bruyette & Woods analyst Frederick Cannon expressed skepticism, citing previous optimistic predictions by Perry, some of which have not come to pass.”
“‘Mike said today that they’ve turned the corner,’ Cannon said. ‘But he’s said that so often that by now they’ve gone around the block at least once.’”
The New York Times. “Kenneth C. Griffin, who runs one of the biggest and most successful hedge fund firms, has a blunt assessment: ‘We, as an industry, dropped the ball.’”
“The breakdown happened, Mr. Griffin contends, when big investment banks gambled away money and jobs during the late great credit boom. The bosses let all those young gung-ho traders take far too many risks and now everyone is paying the price.”
“‘As an industry, we have a responsibility to manage risk in a way that is prudent,’ Mr. Griffin said matter-of-factly.”
“He is upset that the investment bank Bear Stearns ran aground. He is annoyed at the big-name chief executives who took too much risk and then watched as billions of dollars of value vanished from balance sheets. He is anxious about high-priced finance jobs moving abroad.”
“And he is particularly galled with regulators in Washington who have overseen what he calls ‘the great depression on Wall Street.’”
“‘When you read that UBS did not even view parts of its mortgage portfolio as having market risk, it becomes very obvious that a number of firms were not dotting the i’s and crossing the t’s when it comes to risk management,’ he said while on (a) panel to a packed room.”
“A problem, he says, is youth and inexperience — and that’s coming from a former child prodigy. ‘Walk across any of the trading floors — they are full of 29-year-old kids,’ he said. ‘The capital markets of America are controlled by a bunch of right-out-of-business-school young guys who haven’t really seen that much. You have a real lack of wisdom.’”
“On top of that, many CEOs of big universal banks, the ones that combine all sorts of financial services under one roof, ‘only understand a small part of the business,’ Mr. Griffin said, suggesting too many of them come from sales backgrounds. Put those two things together, the traders and the chiefs, and you have the making of an outright debacle.”
“The problem is compounded further by weak government oversight, he said. ‘The unwillingness of the Federal Reserve and the S.E.C. to require working capital’ limits, he said, only exacerbates the risk-taking environment because the banks are playing the equivalent of no-limit poker.”
“‘The sad truth of the matter is it didn’t have to be this way,’ he said.”
The Tennessean. “Homebuyers are finding it increasingly difficult to qualify for conventional mortgage loans in the Nashville area as mortgage insurance companies tighten their underwriting standards.”
“MGIC Investment Corp., one of six major mortgage insurance companies in the nation, will further clamp down on borrowers in the Nashville area in June after adding the entire metropolitan statistical area recently to its list of restricted markets.”
“The company’s growing blacklist…now also includes parts of Utah, Connecticut and Kentucky. A second national mortgage insurance company toughened up on Clarksville recently.”
“‘There’s no doubt that due to the mortgage crisis, everything has tightened up,’ said the president of the Greater Nashville Association of Realtors, Mandy Wachtler. ‘A year ago, if you could fog a mirror, you could get a loan.’”
“Months ago, mortgage insurance companies began refusing to insure home mortgages for borrowers with no money down. Now, many of them are further tightening standards to require 5 percent down payments or making other changes.”
“For instance, in some cases homebuyers must come up with 3 percent down payments from their own funds, not gifts from the seller or family. Others are refusing to insure investment property or second homes in certain areas. Most are demanding more documentation, such as proof of income and more bank statements.”
“One borrower described the process of getting a home loan these days as a colonoscopy, said Tim Davis, a mortgage broker in Nashville. ‘If you’re getting a mortgage these days, you better have the patience of Job,’ he said.”
“Getting a colonoscopy” is how I described getting my first mortgage over 20 years ago….
Deja vu!
J, so true. When my wife and I got our loan in early 1996, we had a paper file that had to be 6 inches thick. I know I can be tinfoil at times, but the goobermint had nothing compared to the file our lender had. These guys probably knew what doctor delivered me in 1967.
Every debt on the credit reports was questioned, which turned out to be good because a few items needed to be corrected. Even the old rule of 42%/36%, or something like that, was stretched because we were at something like 45%/38% and even then we got a stern tongue-lashing from the madame lender. Said this was a stretch for us and the bank and this was FHA. If I only I knew then that I was part of the beginning of the shaky underwriting standards, I could have bet against the market 10-12 years earlier and made a killing. Oh well, just wanted to get into a house then. My have times changed for me and the wifey!
But now the tip is from a Joshua Tree.
And no anaesthetic.
Getting a loan ain’t my colostomy bag, baby.
when people refer to 3-5% downpayments as getting a colonoscopy, it is clear that the denial is still widespread. This bubble is not over until we are back to at least 20% downpayment, income multiples like 2.5-3x and mortgage rates over 10% (to compensate lenders for the actual default risk).
…and that will never happen while we have Uncle Sam pushing wage deflation and a discount window that makes getting money for consumer lending cheaper and easier than a Tijuana whore.
yes, they are trying to postpone the inevitable and I don’t doubt there will be some mad proposals from the politicians and banksters down the road to keep their pyramid game going.
In Europe it’s even worse, the bubble mentality is still widespread here, most of the toxic mortgages are still available (even with government-provided mortgage insurance). Nobody worries that homes prices could fall: they won’t! Prices have been surging for 10-20 years in most of Europe, so a decline is simply impossible, against nature.
It’s a cycle. Lenders and insurers overreact. With the passage of time, the bad memories fade, some players leave, others appear… pretty soon they start fighting for business, and here we go again. Good spectator sport if you don’t have to be in the game.
I have the sneaky feeling that you’d get a far different reception if you walked in and said you wanted to put 20%-40% down.
“Now, many of them are further tightening standards to require 5 percent down payments or making other changes.”
======================================================
Whooo eeee! Yep they’re really turnin’ the thumb screws now.
When 20% down payments are whispered, will it be Armageddon?
15 years ago I got my first mortgage….
We need you to write a letter explaining why you were late on one charge card payment 5 years ago.
Ummmm… I don’t remember being late on a charge card payment 5 years ago.
Well, then write a letter saying that becasue you can’t have any unexplained late payments.
Only 7.7%? Feels a lot steeper here!
Anyone have a feeling how much the numbers coming out of NAR reflect true declines in valuation, as opposed to changes in the the types of housing stock moving (e.g., if most home sales occuring these days are low price point foreclosures, it is not clear what the price decline in mid to upper bracket price point homes actually is)?
Thats why I thank Ben for the paid “X” and sold for “Y” stories. They make it more real for me.
“A problem, he says, is youth and inexperience — and that’s coming from a former child prodigy. ‘Walk across any of the trading floors — they are full of 29-year-old kids,’ he said. ‘The capital markets of America are controlled by a bunch of right-out-of-business-school young guys who haven’t really seen that much. You have a real lack of wisdom.’”
I guess that this surplants the myth that the most dangerous thing around is an American teenager with a M-16.
Capt Willard: Who’s in charge here soldier ?
Soldier: In charge? I don’t know man. I thought you were …
I’ve been looking for these numbers myself. So far, no dice. Bracketing seems to involve new vs. “used” homes, condos vs. SFHs, or Jumbo vs. conventional. It’s a moving target…
I don’t trust NAR…or any of their statistics they spew out or vomit up..period
NAR is in defense readiness condition (DEFCON) 1 “Pucker Factor Fear Mode”.
They’ve been selling crap and propaganda for years and now they can’t even take one because they’re so scared…and going HUNGRY
Do the NAR numbers include FSBO or anything else not run through the MLS?
IIRC, the all time peak median price nationally was somewhere around 230k back in spring 06.
“A problem, he says, is youth and inexperience — and that’s coming from a former child prodigy. ‘Walk across any of the trading floors — they are full of 29-year-old kids,’ he said. ‘The capital markets of America are controlled by a bunch of right-out-of-business-school young guys who haven’t really seen that much. You have a real lack of wisdom.’”
******
No kidding!
Jim Rogers has been saying the same thing for quite some time now.
And they all thought he was some old coot who didn’t know what he was talking about…
Everything is like that now. I swear the world is run by 20something dudes. Everyone’s so in love with youth - the boomers put them in chargea and say aren’t they great, such energy! (Tee time!)
“Walk across any of the trading floors — they are full of 29-year-old kids”
Now that I’m in my early 30’s, I don’t resent this kind of comment…
“a bunch of right-out-of-business-school young guys who haven’t really seen that much”
Having worked in IT through the tech boom of the late 90’s, stock options and all, then seeing everything disappear, including my job in 2003, I can say much wisdom was learned… of course, the cost of said wisdom was losing years of my life (literally and financially).
Now we’ll see how the younger generations, GenY and the Millenials, deal with financial adversity. Should be interesting given they’ve been coddled/protected their whole life…
Just remember boys and girls, “Adversity builds character”, “That which doesn’t kill you makes you stronger”, etc…
Northeastener,
The more I think about Griffin’s comment, the more I think it’s just disinformation. The major players like John Devaney of U.S Capital Markets ( and his now repo’d 210′ yacht “Carry Trade” ) were running their own firms.
Not that there’s any particular comment there other than “Hey, I’ve been around, worship ME!” So… Devaney ( Housing Bubble Hall of Shame member ) operated independently of the wire houses. Right now these HF guys are saying anything to deflect blame.
Don’t TRUST anyone under 30
Ooops!…too late
And now for some “old school” young dudes:
http://www.youtube.com/watch?v=XT54T42ldec
“The average price for a new home contract signed in the quarter slipped to $590,000, from $711,000 a year ago, and $634,000 in the first 2008 quarter.”
YOY percentage decline in Toll new home contract =
(590,000/711,000-1)*100 = -17 pct
Annualized quarter-over-quarter rate of percentage decline =
((590,000/634,000)^4-1)*100 = -25 pct
Conclusion: The rate of decline in the value of a Toll sales contract is accelerating.
Yes & lets see how many of those “New Builds” actually close in 4-5 Months-
I’m betting not a lot of them will!!
“…The average price of the canceled contracts was $760,000 per house.”
So, the garlic & strawberry pickers aren’t the only “homeowners” who seemed to have “over-extended”
I wonder what would happen to the real estate “industry” if mortgage rates went to 14+ % for just 6 months?
A guy walks into a bar and says: “Give me a Pabst Blue Ribbon…now listen… I had a house worth a million dollars and then…”
Seems that when one is applying to get hundreds of thousands of dollars, it should be a rather grueling process. I mean…HUNDREDS OF THOUSANDS OF DOLLARS?
The fact that half a million and more loans were just handed out like lollipops at Halloween was beyond stupid and crazy.
Colonoscopies help to figure out if you’ve got something wrong with you, or if you’re healthy down there. Seems like a good analogy for the financial inner workings of a loan applicant.
M.
No kidding. Think how long it takes and how hard it is to earn a half-million dollars for most folks.
And yet, people could get a loan with little or no documentation for a half mil as easily as rolling out of bed.
I mean, you take a step back and think about it - and it’s amazing. Even [strong expletive] amazing.
zeropointzero,
Or stroll into a brokerage firm and tell them you’d like to borrow 750k to “do a little commodities trading” and I’ll start the countdown until security escorts you from the building!
Yet somehow when it involves RE everything is just groovy.
the loans are probably backed by fannie and freddie (the taxpayer). the ultimate loss will be made up by the taxpayers. the bankers get their fees and transfer the loan to fannie and freddie.
Seeing as the colonoscopy is meant to determine if you’ve got a cancer “down there”, I’d say the mortgage process as a colonoscopy has been a complete failure. The process didn’t detect the cancer in the financial system at all.
Lucky for me, the medical version works as advertised.
“One borrower described the process of getting a home loan these days as a colonoscopy, said Tim Davis, a mortgage broker in Nashville. ‘If you’re getting a mortgage these days, you better have the patience of Job,’ he said.”
Oh my. Most of those stated income loans that went belly up did so because the “stated income” was basically a load of what you’d expect to see working its way through the colon.
And having a job, not so much the patience of Job, is definitely a requirement these days. Along with a down payment. Along with the credit worthiness and lack of existing debt to the extent that the lender can reasonably expect you to make the payments. All of which means most of the people who got loans 2 years ago wouldn’t qualify for them today. Why do they need patience? They have nothing to wait for; they’re out of the mortgage game. It’s the sellers of property who need patience. And as for Job - remember, he lost everything he owned in the end.
“And as for Job - remember, he lost everything he owned in the end.”
Uh…actually, he doubled everything he had previously in the end.
Well, sfv- “The Lord gave Job twice as much as he had before.” Job 42:10
My point was that Job first lost everything he owned. In the Biblical context it is because of his extraordinary righteousness and act of repenting in dust and ashes, that the Lord accepts Job and doubles his blessings. I don’t know how many stated income liar loans will be “forgiven” but those folks just might need to lose it all and repent. Unless Barney Frank and Co. can do a Charlton Heston number and part the Red Ink for them.
Interestingly enough, some scholars believe the happy ending in the Book of Job was added to the book after the fact, because the main message of the story — that bad things happen to good people — was just too unsettling.
Yeah, I read that. Also, the book of Job is of uncertain origin and is the oldest of the books of the Bible. For certain it is a great parable [a sort of mini version of Genesis?].
“can do a Charlton Heston number and part the Red Ink for them.”
or his ‘ Planet of the apes’ ending with world annihilation…”Damn you all to hellll”
Good to see that Nashville is also getting a taste of the slowdown. The more equity locust insurance cities like these can get, the better.
I distinctly remember Clarksville, TN mentioned as a Good Place to Retire in one of those “Where to Retire” magazines. I wonder if that one article was enough to send enoug retirees to Clarksville to puff up the bubble there, leading to foreclosures and precipiating the red-line from the mortgage insurers.
We’re looking to get out of CA pronto and Vanderbilt Univ in Nashville is at the top of my list, just under Duke.
Isn’t Amos older?
Maybe there needs to be patience because the underwriters are actually doing their jobs, instead of feeding the data into a flawed computer “model”. I also think that the appraisals are more difficult to do when prices are in freefall.
Top executives such as £1-million-a year Barclays boss Edward Cahill have also been hit by the most dramatic job cull in decades.”
That is about $2 million a year. I could lose just as much money as he did, and I would do it for only $1 mil. Hello Barclays.
“A problem, he says, is youth and inexperience — and that’s coming from a former child prodigy. ‘Walk across any of the trading floors — they are full of 29-year-old kids,’ he said. ‘The capital markets of America are controlled by a bunch of right-out-of-business-school young guys who haven’t really seen that much. You have a real lack of wisdom.’”
This is the dynamic I have had described to me by a friend who worked at an investment bank. He said most people don’t make it past forty as brokers or traders. If they’re successful they’ve made so much money by then that they don’t see any need to put up with the hours and the stress. By the time they hit their late thirties they either take a position in upper management or they quit. It creates an environment where a significant portion of the employees are young with a very short term time horizon. When you combine youth with a compensation structure that encourages taking enormous risks with other people’s money you significantly increase the possibility of disaster.
Frank,
Then amplify the problem when they strike out and start their own firms. Remember a lot of this garbage was outsourced to specialty firms and of course the cr@p paper was then shipped to China and the EU.
I’m hoping for a 50 - 60% correction in the bay area…Only then will I buy here…..
Who isn’t that lives here? The fact is that houses are STILL way the hell overpriced here. Some homes are now 100k less than last year. But 550k versus 650k? Both of those prices are still way too much. Unfortunately, the Bay Area would probably need a severe recession followed by a healthy earthquake to get a 50% number. I’m just not trying to get my hopes up too much. I wish some of that Sacramento action would head our way.
Well, there are some that think the Bay Area is the most immune to any real price drop., but it WILL fall to the normal income-to-mortgage ratios like every other place in this country.
50 to 60%? It may be more like 70% there when it’s all said and done. Even average HH incomes of $100k to $150k only support average housing prices of $250k to $450k. Isn’t the average Bay Area house still around $600k? What was the peak - $800k?
Nice to see Sacramento go from $365 to $258, in line with other desert cities. It still has another 30% or so to go probably - consider the average HH income and do the math.
At this rate California might just be a nice affordable place to live again, like it was in the 1970s.
Anyone ever wonder what would happen if retirees and computer techs didn’t relocate? I wonder if that would keep prices higher for longer. Also, there is a higher tolerance for high prices, an immunity to “sticker shock”, if you will. Of course, local economic conditions are the biggest confounder.
It would be interesting to know what market forces in a given area create pressure against the overall trend of price declines, and to what degree…
One market force that keeps prices high is just the fact that people willingly stretch their budgets to live in the City. I think the population (bout 750K) more than doubles on a workday, if not triples, and commuting back and forth from anywhere is a pain.. Marin, the penninsula or the East bay.
Every one of those commuters daydreams of living in the city. So many people feel owning or renting in SF is worth the pain, and higher-dollar rent capitalization implies higher property values.
Another factor is the city didn’t experience a lot of new construction.. just about the only way to get an empty lot is to tear something down. To a great degree, this limited the huge oversupply of inventory that places like Vegas experienced. Granted there were condo-conversions and some new construction, but not much.
As far as retiree’s go I suspect Prop 13 will be repealed soon with taxes rising fast. California has to do this it simply does not have a choice. They way the budget is going I think the option will be on the table by the end of 2008.
Son of a friend in Okland put house on the market for $1.3M. Sold in one day. Cash trasaction. This happened last week.
There are pockets of significant strength….I will post a recent deal in Market Observations this weekend…
Pockets of resistance in the Bay Area are probably universal: schools, low crime, access to stores and job centers. The problem with the BA is that due to the innumerable anti-development clauses- including the measures where I live in Alameda- suburbs are pushed far away from the center. The problem has been for decades that laws like these manipulates the supply to be limited and seemingly precious.
The other fact that CA schools are 47th nationally means that living anywhere close to a normal functioning school that isn’t a set of trailers demands signifigantly higher prices. I wouldn’t call the BA a prime area to raise children. But the few areas that are more conducive to do so cost an arm and a leg.
Either way, I’m sick of being pissed off about it because it all seems to stupid.Even IF the BA was the most desirable place to live on the planet,that still doesn’t explain how homes can still sell at all when fundamentals have been so heavily violated.Frankly I’m tired of trying to make sense of it.
Most of the people selling at these ridiculous prices have never had to pay anywhere near what they are trying to sell for. They have the mindset of lottery winners. I think they would have a lot more respect for the local homebuyers and incomes if they had actually earned the money that they extracted from their equity.
Quite simple actually. Holding property in California is relatively cheap for those that are grandfathered in with Prop 13. When prices dip the strong hands come out and suck inventory on the cheap - that is those strong hands that didn’t HELOC out to buy property in the central valley…
Quick questions: What’s the price history? Where is the location? PPSF?
“$1.3 million in one day” doesn’t really paint a picture of a market.
Alameda. Owned it for like 11 years so previous sale is probably irrelevant.
Well, there are four homes in my neighborhood selling for at least 1.25Mil each. Not one bite for 4 months. One of the four is been in the market for 12 months.
Some houses will sell and the house in Oakland (all cash) is unique but I’m seeinghuge drops in the next 18 months. Spring is almost over and I dont see houses moving in my area.
Yes, yes, and yes. I agree with everything you’re saying. but… homes are still selling here. SO far, the slide in prices unless you’re in the ghetto haven’t been what I’d call dramatic. The prices seem to remain stubbornly high and I swear I know of numerous people who think that now is a swell time to start looking “because they’ve been reading about how that prices are coming down” when in reality, the amount has been negligible.
I agree- I’m one of those seemingly high salary wage rollers, as in make a wage that in 90% of the country puts me in the upper class. But here, we would be lucky to afford a bare-bones starter home and live like civilized people.
I WANT to believe that prices will dump here any day as a result of pressures from other Northern California cities. But so far….
It is very. very frustrating. Doesn’t matter, I’m probably outta’ here in a few years and on my way to Austin, Nashville, Atlanta, or some other less insanely expensive place. How the Bay Area can count on any sort of future economy since most of us are leaving is a mystery.
Why wait a few years to rejoin the sane world? Free yourself soon.
The common ratio for prices to incomes is 4.1x income.
520K range with a 100k downpayment.
I doubt that incomes hold up in the 100-150K area. A lot of that was real estate income and other sales related jobs that will go away.
When I look up the numbers on ole Wiki they are a lot lower than you’d think. Only a couple of the towns have median incomes near 100K for a family. Most are lower in the east bay.
A more reasonable range is in the 300s.
Perhaps you meant San Fran… nope… median income is around 70K. San Mateo county averages out to 80K.
How about Smug County… Marin… 89K.
Seems like it would be higher.
Are there a lot of rich people there. Yes. Will they be able to keep prices elevated with out stupid loans. No.
As usual there are gentrification effects and rich enclaves in the bay area. However, I think lots of people will be exposed as posers in all this.
All data from ole Wiki. Enjoy.
80k*4.1=328k
“At this rate California might just be a nice affordable place to live again, like it was in the 1970s”
Wal Mart paved over THAT California and made a parking out out of it years ago az-lender
“The company’s growing blacklist…now also includes parts of Utah, Connecticut and Kentucky. A second national mortgage insurance company toughened up on Clarksville recently.”
Wouldn’t the proper term be a ‘redlined list’?
But Mr. Griffin isn’t just a serial complainer. He has thought about solutions.
First, “the investment banks should either choose to be regulated as banks or should arrange to conduct their affairs to not require the stop-gap support of the Federal Reserve,” he says.
But that’s not all. He also wants new government oversight of the arcane world of credit default swaps, a business with a notional value and risk of $50 trillion. “Everyone is missing the elephant in the room,” he said.
*****
Regulation and elephants in the room.
Hmm… I wonder where or when we’ve thought of that combination before…
I said it here last week.
You can be sure that when anyone ASKS to be regulated by the Feds, you can also be sure that becoming regulated will benefit the organization.
Since investment banks and their reputations are going to be hammered in the coming slowdown, it is (more than anything else they can do) in their best interests to go out and “get regulated.”
We’ve already seen Hankster the Bankster leading the charge for his cronies.
Their hope, as stated by Griffin, is that the regulation does not regulate too much.
sf jack,
That rubbed me the wrong way too. Here he is on one hand complaining about kids calling the shots and on the other he’s imploring NO regulation changes?
Oh! You want “everyone else” regulated… O.K.
“For instance, in some cases homebuyers must come up with 3 percent down payments from their own funds, not gifts from the seller or family.”
How can these banks expect the current crop of FB wannabes to come up with 3% down! And it has to be their own funds! They’ll have to have $7500 of their own money for 250k house! OMG, that makes it almost impossible to get a house for many. Damn, being financially responsible is hard work!
Actually I amazed that you can still get a loan with only 3% down.
bizarroworld,
I know this may not be popular here but the FB’s financial behavior was very much sculpted by the mort. brokers. These clowns paraded around like they were some kind of “financial professional” telling them as long as they used their equity or profit from the sale to “pay off this, this and this” we can get you into that 600k home w/zero down!
Well how many friends, neighbors and Stanley Johnsons’ do they need to see pull that stunt before it becomes “the norm”?
DinOR, I have fell prey to a few scams in my life and it has cost me plenty, but I didn’t go out and blame everyone else for my mistakes (or stupidity). While the brokers and bankers can manipulate the system, the people don’t have to be manipulated. But mass hysteria, fear and greed tend to blind people to the cost of actions taken.
bizarroworld,
Most of us (when we’re being honest) have been scammed. No big. Here’s where I think this is a little different. If I scammed someone by saying they had to PAY extra (and they got little or nothing in exchange) that’s pretty hard to do! Most people find it hard to part with a buck, no matter how great the “value” might seem.
Now… what if I told you “I’ll pay off all these bills for you and in turn you can buy an EVEN BIGGER house!” (That was after all “the pitch”) I think most people have a hard time saying “no” to that? I’m not taking sides I’m just saying there “is” another side.
I agree that there is always another side to a story, but part of the problem stems from many people not knowing anything about bubbles, history, finance, fools gold, or saving for a rainy day. I was actually looking into NM land in 2006, but something told me that this constant upward value trend can’t be real, so I retreated back to reality, thankfully. Money for nothing and your mortgage for free may sound good, but it usually doesn’t end good.
“Actually I amazed that you can still get a loan with only 3% down. ”
That’s what I find odd about this story, that because Moody’s said Nashville home prices will slide 4% the mortgage insurer now wants 3% down from the purchaser. I’d think 6% to 8%, or around twice the forecasted depreciation, would be more responsible, but I suppose it would kill business.
Does it add up that the experts are predicting a price slide of 6 to 8% in the near future ,yet government backed loans should be given out at 3% down or less ?
As a taxpayer ,I don’t want to give any low down loans until the market totally corrects . As a taxpayer ,I don’t want to throw money out the window on this contrived Social program which is a attempt to save the banks and gamblers and shore up the fake real estate market .
Can’t the government get behind the idea that they need to make good loans to create a stable real estate market ? Yes ,its a given that the losses will be huge regarding the current loans ,but you cant make bad loans good and you can’t make new loans good by being risky with them either .
Are government officials allowed to put taxpayers dollars at risk when it is clear that it would be a uncalled for risk based on prudent standards of lending as well as forecasts by experts on how much real estate will still crash in value . After all the basis of a real estate loan is based on the asset value being a stable market
value with a accurate appraisal . In declining markets you have to require more down ,not less .
problem, he says, is youth and inexperience — and that’s coming from a former child prodigy. ‘Walk across any of the trading floors — they are full of 29-year-old kids,’ he said. ‘The capital markets of America are controlled by a bunch of right-out-of-business-school young guys who haven’t really seen that much. You have a real lack of wisdom.’”
“On top of that, many CEOs of big universal banks, the ones that combine all sorts of financial services under one roof, ‘only understand a small part of the business,’ Mr. Griffin said, suggesting too many of them come from sales backgrounds. Put those two things together, the traders and the chiefs, and you have the making of an outright debacle.”
BS BS BS BS - They knew exactly what they were doing. They put a lot of young, aggressive types in these positions, gave them every incentive to ignore risk and go for the short term gain, then gave them the green light, a wink wink nod nod and sat back to collect their fat paychecks knowing that when the sht hit the fan they would jump out with their golden parachute and let the government deal with the mess. This story line is similar to the Soc Gen story that a single rogue trader lost them billions with no one knowing. BS BS BS
As a taxpayer ,I don’t want to give any low down loans until the market totally corrects . As a taxpayer ,I don’t want to throw money out the window on this contrived Social program
You’ll have a cheeseburger and like it!!
The collective pain of the national builders is music to my ears. It is proof that what goes around, does indeed, come around. Our country in general, and good people specifically, will be better off when these greedy, corrupt and dishonest businesses are kaput. But even if they all went away today, we’ll all be paying for their graft and incompetence for years to come…
teufelhunden,
Music here as well but what drives me forward is knowing that some day soon, practically NO ONE is going to be talking about real estate and we can get back to having a r-e-a-l economy. Not one based on playing musical houses.
Sure, we’ll be paying but let’s fight that tooth and nail and press on with medical, pollution and efficient technology as we attempt to wrestle control back and actually do something productive for a change. I would have loved to see some corrections in the tax code p-r-i-o-r… but given a 2nd home in Bend, OR or Tahoe will go for about $59,000 you won’t get much mileage on your tax return for that $219 a month payment so I say let ‘em go for it!
That way all the true believers can say; “See, we didn’t need to change a thing and it was NEVER a factor!” Pffftt.
What’s wrong with selling houses to each other and securitizing bad debt? Everybody seemed to make a great living of that.
/sarcasm off
Great, just what we need. A lecture from a Hedge Fund manager! Of COURSE they don’t need any regulation! It’s all these “29 year old kids” ruining for…” Whatever dude.
all this bad news on homebuilders…and my SRS has barely budged…
“A problem, he says, is youth and inexperience — and that’s coming from a former child prodigy. ‘Walk across any of the trading floors — they are full of 29-year-old kids,’ he said. ‘The capital markets of America are controlled by a bunch of right-out-of-business-school young guys who haven’t really seen that much. You have a real lack of wisdom.’”
We might have been just a little too reticent in not teaching our young adults about the possibility of failure existing, in their go-go world.
The other problem is that we seem to be in an era where people are not given the freedom to fail and learn from the experience.
“A problem, he says, is youth and inexperience — and that’s coming from a former child prodigy. ‘Walk across any of the trading floors — they are full of 29-year-old kids,’ he said. ‘The capital markets of America are controlled by a bunch of right-out-of-business-school young guys who haven’t really seen that much. You have a real lack of wisdom.’”
Mentoring… where’s Michael Douglas when you need him?
The old Smith Barney ads featuring actor John Houseman (famous as the law professor in the film and tv series The Paper Chase) featured the famous line: “We make money the old-fashioned way. We earn it.”
Updated and translation.
“We make money the old fashioned way. We STEAL it
Does anyone know the best way to find a conference aimed at investment advisors with smallish portfolios? Like a small college endowment or a private foundation? Something that doesn’t require membership in an association to attend but might be run by one? One that might sell conference materials after the event even if you don’t attend?
I’m looking for how the sellers represent complex investment strategies/products to people who basically know what they are doing but aren’t complete experts.
“A problem, he says, is youth and inexperience — and that’s coming from a former child prodigy. ‘Walk across any of the trading floors — they are full of 29-year-old kids,’ he said. ‘The capital markets of America are controlled by a bunch of right-out-of-business-school young guys who haven’t really seen that much. You have a real lack of wisdom.’”
Gee, how long have I been complaining about this? 4 years? Hoz, what do you think of this? Kids in charge of huge amounts of money.
Rogue traders, the lot of them…
“Society produces rogues, and education makes one rogue cleverer than another.”
Oscar Wilde
Segment on CNBC today was former Enron, MCI crooks getting speaking gigs at Ivy leagues…Steal million, get 25years, do 2 and go on the speaking tour at 5k a pop…what a world.
Never trust anyone over the age of 30…until you turn 30 yourself.
The light on my hand has gone out. Not much longer and I’ll have to report to the incinerator
I don’t trust my kid with the keys to my CAR
“‘There’s no doubt that due to the mortgage crisis, everything has tightened up,’ said the president of the Greater Nashville Association of Realtors, Mandy Wachtler. ‘A year ago, if you could fog a mirror, you could get a loan.’”
And the fact that you now have to actually qualify for a mortgage is a crisis?? No, the crisis has already happened….millions of Americans are in houses they will never be able to afford.
LOL.
Good one.
“What I fear is working until November and then being laid off, just before bonuses are due.”
Me too! I hate when that happens. I was really counting on a cool million to do some X-mas shopping.
I thought bonuses were given for good performance. so if you are losing money why expect a bonus. I guess it’s like executive bonuses…you get them even for running the company into the ground.
That’s what struck me after reading this comment:
the banks are playing the equivalent of no-limit poker.”
“‘The sad truth of the matter is it didn’t have to be this way,’ he said.”
If it wasn’t that way, then where would all the “bonus Money” come from? High-octane fraud gets big-time bonus money……….then a quick dash to the Hamptons! Cash the check and give the firm the finger.
From the WSJ: “Maybe there’s a way to thrive in the howling wasteland that is the home-loan market. Bonds backed by mortgages look like a buying opportunity, assuming a new spate of defaults doesn’t send their prices tumbling again.”
That’s some assumption.
http://online.wsj.com/article/SB121038388852782139.html?mod=CommercialRealEstateMain_1
“The good news for investors is that subprime loans are not being packaged into MBS. Even better, the chastened Wall Street firms that packaged this garbage have mostly gotten out of the mortgage-backed business.”
“These days, MBS are almost entirely the realm of government-sponsored entities: Ginnie Mae, Fannie Mae and Freddie Mac. These so-called agency MBS don’t hold subprime loans and can’t blow up. If the underlying loans do go bad, the issuers must subsidize them. Agency mortgage bond prices, too, got walloped in the credit crunch — unjustifiably. Ginnies, Fannies and Freddies are easy to buy through a broker. With yields slightly over 5%, investors get safety and a higher return than Treasurys.”
Not that much yield if you ask me.
No kidding–if just a few percent of those underlying loans “do go bad”, and see major losses in foreclosure, you’re back at treasury yield or testing the implicit government guarantee.. And it will be a lot more than a few percent that go bad.
5% yield, is that before or after taking the yearly decline in the stock value (and the US dollar) into account?
O sorry, I missed that these fine companies have top ratings, just like all the other garbage that Moody’s etc. could lay their hands on. As safe as US Treasurys, sounds great!
For 15-20 years the agencies were 90%+ of the RMBS market. I think Citibank was the first to package home loans into securities and make a market. At the time, conventional MBSs were for the adventurous. Looks like we’re back to where we started.
Does the fact that the Fed accepts mortgage paper as collateral affect its value?
Does “its” refer to the Fed or the paper?
“……particularly galled with regulators in Washington………”
So, let me see if I get this right……..the big money jackholes get the Republican-led government that they bought and paid for, one that they knew would “let the free-market regulate itself”.
Now they are mad at the government, for not saving Wall Street from itself.
If this is typical of what the government and Wall Strret brain trust thinks, this country is too stupid to survive.
I blame OSHA and the consumer safety movement………back in the old days (when common sense prevailed) stupid people killed themselves off early, by making stupid decisions, before they could grow old and get into positions of authority and make bigger stupid decisions.
Now that “stupid” is protected and subsidized, common sense can only do so much to rise above the flood of stupidity that is overwhelming the country.
Amen!
Forrest Gump shouldn’t be President
Oooooops………..too late.
I have no problem with stupid. It’s immoral and greedy that I have a problem with.
Gulfstreamsitter,
great post.
“So, let me see if I get this right……..the big money jackholes get the Republican-led government that they bought and paid for, one that they knew would “let the free-market regulate itself”.”
Right on the money again Gulf.
Thats fat coming from Griffin - IIRC he made 1.6 BILLION in 2006.
If 29 year olds were running the financial programs and risk for this last decade ,where were the older managers and regulators in this time-span ? Could it be true that the baby boomers looking toward retirement saw that they stood to gain by closing their eyes to the folly of their younger co-workers that were so willing to be so risky with investments ?
So many different age groups and Corporations stood to gain by a real estate bubble at the time .I have to ask myself all the time how this break down in the check and balance system came about . The break down in regulation came about because the people of all age levels had a need for a way to generate money to provide the life style and needs that the real economy was starting to not provide anymore .
Look at how innocent Congress/Senate is always acting regarding the housing boom . The day that all powers started getting into the concept of using a asset like real estate to generate income and buying power and keep a economy going was a bad day .
I had a funny thought while reading this thread. Flashback to childhood, when I have a vivid memory of Watergate being a “bad word” long before I understood what the real issues were.
I’m guessing in a couple of years, preschoolers will be putting together the same type of negative-associations-with-no-context for terms like “nontraditional mortgages”.
preschoolers will be putting together the same type of negative-associations-with-no-context for terms like “nontraditional mortgages”.
.. and getting their hands slapped for saying “Yo momma’s a Realtor!”
Regarding the Sacramento declines, recently I started checking the Zillow.com value of our old house (sold for 450k in Jan. 2005).
About two weeks ago, it had an estimate of 330k. Since then, I have checked back every few days and it seems to drop by $1500 every 3-5 days. It is now at 318. Based on recent comps, it is probably more like 295 actual “value.”
The house was bought as an investment by a Chinese couple from the Bay Area. As I recall, I got to see the amount they were financing for the purchase, and it was about 390,000. Property taxes are close to $7000 per year. They still have it, according to Zillow.
“‘Prices have fallen in neighborhoods with a wide prevalence of subprime loans, because more foreclosed properties are being sold at discounted prices,’ said Lawrence Yun, the realtor group’s chief economist, in today’s report.”
I could have sworn that I read last week that foreclosures were not calculated in the average/median?
The transfer of title from defaulted borrower to the bank, the foreclosure, is not counted as a sale. The subsequent sale of the bank’s REO to a third party is counted as a “used house” sale.
The UK cat is out of the bag
UK house prices could fall “at best” by 5-10% this year, according to secret Cabinet briefing notes accidentally revealed by a housing minister.
The notes - prepared by officials for Caroline Flint - also said: “We can’t know how bad it will get.”
http://news.bbc.co.uk/1/hi/uk_politics/7398244.stm
http://www.bloomberg.com/apps/news?pid=20601087&sid=aTaxeVZnKGQA&refer=home
Why do these ratings even matter?
Who is lending to MBIA ect with low rates based on these BS ratings?
My guess is pensions and funds where the investor has no idea what’s going on. ie people investing with other peoples money.