The Bigger They Are, The Harder They Fall
The Rocky Mountain News reports from Colorado. “It looks like the mountain community of Edwards won’t be getting a luxury condominium tower with cutting-edge urban design by architect Daniel Libeskind after all. The developer has pulled the plug on the $125 million, 140,000-square-foot tower 15 miles west of Vail. Matt Fitzgerald, a broker with Slifer Smith and Frampton Real Estate, said he believes the project was first slowed by ’strong neighborhood opposition.’ ‘Then the market may have ultimately killed it,’ he said.”
The East Valley Tribune from Arizona. “Sales at Fulton Homes’ Freeman Farms project, at Ocotillo and Greenfield roads, have ground to a halt as buyers find credit has dried up for the $400,000-plus homes that the builder has been trying to sell there since 2006.”
“Forty of the 761 lots in the development have been sold, Fulton Homes president Norm Nichols said Friday, and he’ll be lucky to break even on it in the end. ‘Right now Freeman Farms is a loss, and it’s getting worse every month,’ he said.”
“His solution, in the works since January, is to get town approval to build lower-priced models on the empty lots, a possibility homebuyers who closed on their homes this year say they wish they’d known about. ‘It would have been a dealbreaker for us,’ said Megan Foster, who moved with her fiance into Freeman Farms this summer. ‘We were sold on this property because of the way it looked, being a part of the neighborhood, the whole look, and it’s all changing.’”
“She and many other Freeman Farms residents would be next door or across the street from the cheaper homes, where vacant lots now sit. They aren’t little houses - they have four to eight bedrooms and three-car garages. They also have features and architectural details which may not appear in the next houses to go in. Ceilings will be lower, windows will be smaller, and other features that were standard will be optional on the new houses, factors some fear will adversely affect already depressed home values in the neighborhood.”
“Nichols said that new models have the same square footage as homes already built in Freeman Farms, with four to eight bedrooms and three-car garages. They will have lower ceilings, and many of the features that were standard will become options, to keep the base price down. ‘We’re starting to find the price point where people are starting to buy again, and that’s about $100,000 less than what (recent buyers) paid,’ he said.”
“Nichols said he’s trying to protect home values in Freeman Farms and other partially built Fulton communities across the Valley, along with the company’s own investment, by getting the lots filled, somehow. He said Fulton Homes can’t just ride the market out a few years and hope the market for $400,000 homes will come back.”
“‘We’re looking for the light at the end of the tunnel, but we haven’t seen it yet,’ he said.”
The Arizona Republic. “Combined, there were 2,195 foreclosures in Avondale, Buckeye, Goodyear, Litchfield Park and Tolleson during the first half of 2008. That’s up from 413 during the same period last year. ‘We think of low-income people as those hit by foreclosures, but it’s really all people who extended their income, people who stretched themselves too heavily,’ said Jay Butler, director of realty studies at Arizona State University.”
“An Arizona Republic analysis shows that Tolleson and Litchfield Park led the Valley in percentage increase in home foreclosures - 665 percent and 563 percent, respectively. The demographics of the two neighboring cities differ a great deal. In Tolleson, the median-home price was $230,000 in 2007; in Litchfield Park, it was $360,740, a Republic analysis shows.”
“Meanwhile, the median household income in Tolleson was $41,600 in 2005; in Litchfield Park it was $77,200, according to a private consulting firm.”
“Larger, higher-end homes also have fallen into foreclosure as families can no longer pay their loans. Greg Marthaler, a Goodyear real-estate agent for Coldwell Banker, said the biggest factor affecting foreclosure rates in the southwest Valley is investors who bought homes in hopes of turning a quick profit.”
“‘Tolleson, especially, was very susceptible to investors coming in. They were banking on the appreciation of homes,’ Marthaler said. ‘But when the markets fell apart, a lot of them got caught holding homes that had a lot less market value than when they purchased them.’”
“Avondale and Buckeye also had foreclosure increases higher than the Maricopa County average, a combined result of investor and individual loan defaults. ‘In Goodyear, 60 to 70 percent of homes are bank-owned,’ Marthaler said. ‘I also know that, based on statistics from Coldwell Banker, close to 75 percent of the homes we sold last month - and we had a good month - were bank-owned properties. Sales are up, sure, but prices are way down.’”
The Salt Lake Tribune from Utah. “The two luxury homes that sit side by side in this neighborhood of massive ramblers aren’t supposed to be on the brink of foreclosure. But these days, they have plenty of company. As a recent tour of the Salt Lake Valley revealed, foreclosed homes are on the market all along the Wasatch Front, in all price ranges - all the way up to multimillion-dollar mansions.”
“Many, like these spacious two-story mini-mansions in Draper, were purchased at the height of the housing market boom. Their owners had built not only a dream home but a second, slightly smaller one, next door as an investment. And why not? For more than three years, homes, especially expensive ones, were flying off the listings at inflated prices, aided by a steady stream of exotic loans and too-loose lending standards. But then last summer, all that came to a screeching halt.”
“‘If the market would have just kept going up, these people would have done great,’ said Randall Wall, broker with Equity Real Estate in Salt Lake City as he walked through an unlandscaped yard littered with weeds and kids’ toys.”
“But the market locally did just the opposite, and to make matters worse for the owners of the mini-mansions in Draper, both spouses worked in the housing industry and were separating. As listing agent, Wall is trying to help the owners of the Draper homes arrange for short sales on both properties. The loan on the larger of the two homes is for more than $900,000. The property probably will sell for at least $100,000 less than that; one cash offer came in at $400,000. The second home has a $650,000 loan; it probably will sell in the $500,000 range.”
“Built in 2004, a newer two-story home in West Jordan tells the story of the Wasatch Front’s housing boom and recent fall. In July 2005, the home sold for $224,500, Wall said. In January 2006, it sold again, this time for $249,000. Yet another owner bought the home in May 2007 for $290,000. As is the case with many foreclosures, the last owner eventually ended up ‘upside down’ in the property.”
“Today, the house is listed by the bank for $269,000. ‘They’ll be lucky to get $225,000,’ Wall said. ‘There’s just a lot of properties like this for sale right now. And buyers aren’t stupid. They want a deal.’”
“On to Sandy, to a foreclosure listed for $495,000. The expansive vistas out large windows don’t disappoint. But the house is not in move-in condition by any measure. It looks as if someone bought the 3,300-square-foot, 1960s-era structure, started to gut it and walked away. There are dangling electrical wires and piping, and some walls and stairwells have been partially ripped out. The lone outbuilding next to the house - a garage? - is crumbling.”
“Wall estimates any buyer would have to put in at least $150,000 on pricey renovations. ‘This could be really nice,’ he said as he looked around. ‘You could always offer $200,000 and see what happens.’”
The Review Journal from Nevada. “The upper echelon of income earners, once regarded as somewhat immune to general economic woes, is starting to feel the pain of living in a city with the nation’s highest foreclosure rate, local luxury home brokers said. Banks and lenders bought back 87 properties valued at $1 million or more this year in Las Vegas, with 17 bank-owned homes in that price range on the current MLS, Tom Love of The Tom Love Group reported.”
“Last year there were only 18 bank repossessions of homes over $1 million. The MLS also shows 29 short sales.”
“‘We definitely see it’s spiraling into the high end of the market,’ Love said. ‘There’s some big-name people in town with (foreclosure) homes on the market. People that were not expected to be affected have been. Like they say, the bigger they are, the harder they fall.’”
“Ken Lowman, owner and broker of Luxury Homes of Las Vegas, said he’s seeing a few luxury home foreclosures, primarily homes that were purchased at the peak of the market in 2005 and 2006 and usually in the older luxury communities. In many cases they were semicustom homes that sold for $800,000 and $900,000 and then appreciated to $1.1 million and $1.2 million. Now they’ve gone back under $1 million.”
“Lowman said there were a few speculative builders who didn’t have ’staying power’ when the market shifted, leaving brand new luxury homes in foreclosure. ‘I believe the credit crunch has taken many of our luxury buyers out of the market because they can no longer get financing,’ Lowman said. ‘We also see move-up buyers out of the market because they cannot sell their present home.’”
“A custom home lot in the master-planned Southern Highlands community was recently foreclosed upon by Wells Fargo bank for $486,777, which could be an indicator of foreclosures coming in the luxury market, said housing analyst Larry Murphy.”
“He counted 2,839 new foreclosures in August, nearly triple the number from the same month a year ago.”
“Bob Reeve of Realty One Group said he doesn’t see stability until the economy absorbs the adjustable-rate mortgages that are due to reset in the next two years. ‘Owners suck up the higher payments or they walk,’ he said.”
“Outstanding adjustable-rate mortgages total about $500 billion in the United States, with about 60 percent of them in California, a recent Credit Suisse report shows. Monthly option recasts are expected to accelerate starting in April from $5 billion to a peak of about $10 billion in January 2010.”
“Bank-owned properties, or real-estate owned, are continuing to set the pace in sales as well as leading the way to the bottom in prices, Frank Nason of Residential Resources said. As of Sept. 14, REOs comprised 32 percent of total listings in Las Vegas and account for 2,200 pending sales.”
“‘It’s got to be hitting everybody,’ Nason said. ‘If they bought in ‘04, ‘05 and ‘06, they’re wondering how long it’s going to be, if it’s going to be decades before they get back to the price they paid.’”
‘Given the teetering consumer-driven economy of the past year and the past week’s financial meltdown, 2008’s fourth quarter that begins this week portends anything but ordinary for the U.S. and Northern Nevada.’
“It’s a financial Katrina spinning around, and that hurricane is affecting a great number of businesses,” said Stan Wilmoth, CEO of Reno-based Heritage Bank of Nevada. “We have a lot of fear in consumers. If they’re fearful, they will not spend.”
‘It’s textbook trickle-down effect at work: The housing slump has weakened consumers’ sense of wealth. The financial crisis has lenders reluctant to lend. The collapse of the stock markets has everyone worried about withered investments. And businesses, the pistons that power the economic engine, aren’t hiring as shown in jobless rates swelling to levels not seen in years.’
“The psychology will have an adverse effect. That’s going to hold back spending,” said Tom Cargill, economist at the University of Nevada, Reno. “It’s not going to be a very pleasant fourth quarter in Nevada, and it will reverberate all the way through 2009.”
‘The quarterly survey by Manpower Inc. shows just 7 percent of Reno-Sparks companies interviewed plan to boost their staffs in the October-December period, while 27 percent expect to trim payrolls. An additional 63 percent expect no changes, continuing a string of worsening outlooks this year.’
‘We’re not looking for much improvement in the short term. Early indications show economic stagnation through the rest of this year, including the holiday season,” said Bill Anderson, chief economist at the Nevada Department of Employment, Training and Rehabilitation.’
“We have to get people back to work, get to housing’s bottom,” Heritage’s Wilmoth said. “The guy hammering nails isn’t working anymore, and he was the guy going to restaurants and stores that are now closing.”
‘Added UNR’s Cargill, “It’s the perfect storm for consumers. It’s coming from all directions, like that little boat with those waves 70 feet above you. There’s very little you can do.”
“It’s a financial Katrina spinning around, and that hurricane is affecting a great number of businesses,” said Stan Wilmoth, CEO of Reno-based Heritage Bank of Nevada. “We have a lot of fear in consumers. If they’re fearful, they will not spend.”
Like the real Katrina, the metaphorical one has left many underwater in its wake.
Don’t worry, Professor, as with Katrina, I’m certain the government will do a bang-up job in containing the damage.
“The guy hammering nails isn’t working anymore, and he was the guy going to restaurants and stores that are now closing.”
This is exhibit one of why sustainability should be the fore most objective of those making decisions. My grandfater, a former steelworker and union member, fought against his union’s unreasonable salary and benefits demands. He argued that they would be great for a few years, but that protecting jobs meant asking for compensation that would allow competition. Now we’ve come full cricle haven’t we. Comapnies have lost sight of sustainability and it is killing them from all angles.
“The guy hammering nails isn’t working anymore, and he was the guy going to restaurants and stores that are now closing.”
This tells you why this 700 billion dollar bailout will be a total failure. Unemployment is rising they need to use this money to create jobs. Instead the middle class will get hit by job losses, inflation, and higher taxes due to this bailout.
“The guy hammering nails isn’t working anymore,”
He went home to Mexico.
My son needed a dress shirt and some new soccer cleats. Both Kohls and Dicks Sporting Goods were ghost towns earlier today. Got a pretty good deal on the shoes.
“……textbook trickle-down effect at work…..”
Actually, what is coming into play is what I’ve been calling the “Trickle-Up Effect”
Meaning, that the past thirty years of the high rollers and PTB, like leeches, have siphoned off all the money generated by the middle and upper middle class (in productivity gains, and by shifting the tax and medical burdens to the middle class), and are now surprised that the parasite has killed the host.
There used to be a purpose to Wall Street, for generating capital and investing it in (hopefully) productive endeavors. The problems started then they found out that there was more money to be made by shuffling around money, just for the sake of shuffling around money.
I went to Academy Sports today, ended up buying a pair of Academy brand jeans for $4.98.
A year ago I would have bought two pairs.
“We have a lot of fear in consumers…
WE.
Don’t have a mouse in my pocket.
NOT a consumer!
I’m a citizen, ya fracken criterdats!
AND!!!
We have a community, some of us –
Frackers!
And!!!
You do not rule the world.
My point–
WE WILL REBUILD, frackers.
Rant off,
Leigh
“A custom home lot in the master-planned Southern Highlands community was recently foreclosed upon by Wells Fargo bank for $486,777, which could be an indicator of foreclosures coming in the luxury market, said housing analyst Larry Murphy.”
=========================================
You of the faithful out there, clinging to hopes that the Orwell’s Fargo’s and worse of Major League Banking aren’t waste-deep in bad loans, better re-think the situation…
We laugh about people that are buying houses right now. Most everybody is buying 1 home.
The Brahmins of Banking are buying them by the thousands @ 2005-2006 double-plus-good-pricing…
Aside from the McCains of the world, most of the rest of us only need one home to live in.
BTW, what does everyone think about the judgment skills of a real estate investor in the current climate who does not even know how many houses he owns? Just wondering…
What if he doesn’t care about a lot of houses. What if he never asked his wife about how many houses? The guy is obviously not a real estate investor.
You and I do not know how many houses we own either.
LOL - I think we own 1/2 the mortgaged houses in the United States and soon all of the foreclosed one.
While I don’t support McCain’s economic policies, it should be pointed out that his wife manages their family finances, not him. I’m sure she’s very aware of how many homes their family owns. Obviously, he leaves all the finances up to her, esp. she’s inherited/invested way more money than he’ll ever hope to.
http://www.theonion.com/content/video/mccain_s_economic_plan_for_nation
Went toWal Mart at 2PM in West End of San Fernando Valley on Sat
to pick up refill on drug presciption. It was a morgue. It was errie.
I walked into and out of a very large, one of the top money producers for Wal mart, and it was like an out of body experience.
I’ve never seen an empty WalMart out here. Other places, sure, but never WalMart. Of course, that doesn’t mean they are meeting their sales targets.
Just got back from a stroll around Union Square in San Francisco. Hit a lot of the stores and have to say most of them looked to be at about half capacity. H&M, which is normally jam packed with a huge wait at the registers had no wait. Not a single person waiting to make a purchase. Spooked my wife a bit, she was waiting for the zombies to start popping out or something.
Tourist season is over, so that accounts for a lot of it, but for a Sunday it was kind of eerie. Even the Muni/Bart was fairly empty.
“But these days, they have plenty of company. As a recent tour of the Salt Lake Valley revealed, foreclosed homes are on the market all along the Wasatch Front, in all price ranges - all the way up to multimillion-dollar mansions.”
Does anyone know yet whether the rescue plan includes a means to rescue owners of multimillion-dollar mansions who are facing foreclosure?
Just wondering…
I’m starting to see a bunch of foreclosure activity in the upscale housing of the central california coast. Some defaults and foreclosures are cropping up in the $2-3 million range, and quite a few in the $1 million range if they were sold in the peak years. Next spring and summer are going to by ugly.
“Outstanding adjustable-rate mortgages total about $500 billion in the United States, with about 60 percent of them in California, a recent Credit Suisse report shows. Monthly option recasts are expected to accelerate starting in April from $5 billion to a peak of about $10 billion in January 2010.”
Will part of the $700 bn go towards rewriting these contracts so they never adjust? This could make bets that looked irrationally dumb circa 2005 appear rational and very smart through the lens of the rear view mirror.
Is it too early to note that the Wall Street fraudential plan to profit by encouraging consumers to do things that by objective standards appear financially stupid may have backfired?
My suspicion is this is how its going to go down.
1.) Banks sell MBS assets to Feds at marked to fantasy ( maturity)
2.) Banks get recapitolized
3.) Fed slices and dices the mortgages creating now MBS’s with the best tranches sold first.
4.) Newly recapitalized banks buy the new MBS’s at pennies on the dollar the worst tranches are given away as parts of the deal.
6.) Banks now turn into foreclosure machines foreclosing on these loans that they are now in like 10 cents on the dollar or lower. Given they paid nothing for the houses they make money on every transaction.
7.) Banks offer loans for these foreclosures but under fairly strict terms 20-30% down even as the houses sell for 50-70% less than peak prices.
8.) Banks continue to sell future non-preforming loans to the Government buying them back at a cheaper price basically packaging up them up then buying them back. These loans are then foreclosed once bought back for a profit.
As you can see now that the government eats the losses the banks can profitably wash loans and foreclose on them. This loan washing will continue for years and works even as housing prices fall through the coming depression. The government is acting to sweep up all the bad loans take a loss and resale back to the banks at pennies on the dollar making foreclosures a profitable business.
This ends when housing prices and downpayment requirements and rental rates reach a balance. This is probably 1990-1980 pricing levels or even lower.
This is exactly what I envision. Fed buys the paper at current discount (60% to 80% original price), and sells them back TO THE SAME GROUP OF INSTITUTIONS at 10% to 20% of the original price.
Such a deal will certainly have its intended effect- recapitalizing the banks. But the huge new level of Federal debt will only be able to be paid off through massive, long-term inflation.
“But the huge new level of Federal debt will only be able to be paid off through massive, long-term inflation.”
And there you have the rescue plan’s Achilles’ heel. If you and I are smart enough to see this, what about the bond market? The resulting shrinkage of the supply of loanable funds, as financiers demand an inflation risk premium for purchasing long term debt, creates a Catch-22 situation between the choices of higher interest rates or a continuation of the liquidity shortage, regardless of how much additional liquidity is supplied at below-market interest rates.
The money has got to go somewhere. Banks won’t just keep the cash and wait - they’ll get nothing and may even be paying interest on it. If they aren’t going to loan it out without interest rates that make sense in an inflationary environment, more and more I’m thinking it’ll get stuck into the stock market and/or commodities. My guess is the stock market. I think those congress critters are counting on it going into the stock market because that’s the barometer that J6P looks at.
Also, what kind of man goes down on his knee like Paulson did? What kind of leader is that - even if it was a joke? More tin foil stuff: maybe the Chinese told him what they’d do to him if he wasn’t successful and he really was desperate.
My guess is that the financial institutions will, once recapitalized, go back to aggressive lending to try and make up losses and create transactions fees. Cycle, rinse, repeat. This is the real danger in bailing out these jokers. Not to mention the political pressure to get more people into mortgages, in a foolish effort to support prices. We could see a decade of high foreclosure rates as a result.
I think that this is most likely. A foreclosure rampage could incite some unrest. Plus the banks will still want prices to go up, not down. If the flipping frenzy restarts they will make out like bandits.
Traditional Austrian economists like to point out that government intervention in economics always do far more harm than good.
The main harm I see here is from the attempt to keep irresponsible people in houses they certainly would not otherwise afford.
Repurcussions? Destroyed neighborhoods. This is really what the socialists were pushing for in their HUD, Fair Housing, and other acronymed commie organizations: The prevention of stable upscale neighborhoods by moving in people who did not earn the right to be there.
A year ago I was not assuming the government was going to prop up this real estate slide. I gave it 2012 for the bottom to reach. The bailout and any help to those whose option ARMS reset the next few years will only prolong the destruction of neighborhoods.
This is the goal - forced multiculturalism (it began with integration of schools). Only the rich socialists (Madonna, Streisand, John Kerry, Penny Pritzker - the billionaire socialist behind Obama’s campaign) can live among their kind.
7.) Banks offer loans for these foreclosures but under fairly strict terms 20-30% down even as the houses sell for 50-70% less than peak prices.
There is no reason for banks to require more than the FHA 3%. To require such a down payment would limit the pool of potential buyers. Less properties sold + less loans made == less bonuses at the end of the year.
Besides, if they were to go bust by making bad loans, they now know that the tax payers will step in and buy these bad loans from them again.
Will part of the $700 bn go towards rewriting these contracts so they never adjust?
I pray to everyone’s imaginary friend that no penny will go toward this.
Hundreds of years of contract law thrown out to reward irreponsible specuvestors at the expense of responsible savers. The gall! Millions of renters paying to keep the undeserved afloat.
For the Professor:
From Muir:
re: REDC auction in FL
From Sunday’s Bits and Buckets and for everyone’s enjoyment.
Was posted pretty late, did not know if anyone had read it.
-
Muir:“Went to the REDC auction yesterday. Boy, could I make people’s blood boil if I recounted what I saw.”
-
Prof: “Please do tell! Inquiring minds want to know…”
-
answer:
And, if not to someone as generous as you, then to whom would I tell?
Let’s see! Carnival anyone? Loud blaring music from dozens of massive speakers, hundreds of people, the auctioneers in tuxes. Their helpers also in tuxes but they carried whistles which they would excitedly use as they jumped up and made furious hand motions. One BIG screen with the property currently under auction. Two other screens with the number IDs of the previous properties that were either sold or “sold subject to seller confirmation.” Those two screens with the previous properties were important according to one of the auctioneers, because previous properties could come back on the block if no contract was written up (and many did.) More on that in a second.
Before I forget, you needed $5,000 in cash or cashiers check to bid. I learned of the auction just Friday, went to the bank (REGIONS) and asked for $5,000 cash. It took 3 (THREE tellers’ drawers to round up that much cash!
And, AND, hold on… wait for it… WAIT… they would not have more cash until Tuesday when their delivery arrives!
end of first part (got steamed up and need coffee)
-
Now, if your bid “won,” then, one of a number of girls (they were all constantly clapping) came and escorted you to a waiting area. From what I could see, they verified that you were a registered bidder and that you at least knew what property you had bid on. After they had in that area a number of such people they were then escorted to an area behind a screen were loan officers were waiting. YES! Loan officers. Hence, why properties would be recycled back to the block! Some properties were cash only; derelict, roofing problems with water intrusion, and you still had bidding.
Some people did have a lot of cash and came with their own brokers (more on that later)
part 3 if this post shows up.
What kept coming to my mind as I witnessed this was “sheeple” a word I never use. But yet, they did look like sheep. Although all the auctioneers and their helpers were men, these escorts were women, I thought about that even in the midst of all the whistles going off and the constant loud hammering over many speakers “Do I have 90? 90? 90? 85 90!…” Why women as escorts? Less threatening?
This was not a “no reserve” auction; hence the “sold” and “sold subject to confirmation” the auctioneers made a %5 commission over the bid price which becomes the purchase sale price.
This guy with his broker started talking to me. His mistake. I look like I have a lot of money, 3 year old Sperry top-siders, no socks and instead of the mandatory in Palm Beach Bermuda shorts and brand name top, I wore faded jeans and long sleeved dress shirt rolled up with my prescription sunglasses. He told me of the 400K condo he bought a little while back at a steal from the high 600s and paid cash for and how the rental on that property is down to $2000 from $2800 (ouch, figure at least $600 HOA and $400-600 towards taxes. Guy is sure that Real Estate will rebound in 2-3 years and will be double what he paid for it. He left worried after speaking with me, sort of glassy look in his eyes.
I was going to bid 15K for a condo, after an hour of looking I decided it was not worth my time and left my bid for 15K written in the back of my bidder card as a back-up bid for the property with my number.
I do not expect a call.
My take on the event.
Crisis? What crisis? As the auctioneer said at the beginning of the auction just before the first property came on the block, with the bail-out imminent, and low interest rates… “now is the time to buy!”
“‘It’s got to be hitting everybody,’ Nason said. ‘If they bought in ‘04, ‘05 and ‘06, they’re wondering how long it’s going to be, if it’s going to be decades before they get back to the price they paid.’”
Is this current crisis, crisis!!! going to speed things up? Or is it just going to be a very long process of re-arranging assets? I am not expressing this well, but hopefully my question is decipherable…
“Is this current crisis, crisis!!! going to speed things up?”
Those who shout fire! in crowded theaters need to beware of the law of unintended consequences. Perhaps the timing of the WaMu collapse was coincidental, and perhaps not.
The FDIC controlled the timing of WaMu’s collapse to coincide with the bailout negotiations, in order to “prove” that there really is a crisis.
You have to be kidding!
BIM is a pill.
“The FDIC controlled the timing of WaMu’s collapse to coincide with the bailout negotiations, in order to “prove” that there really is a crisis.”
Do you really believe that our government is that organized?
The talking heads today are saying that the bail-out will put a floor under declining house prices. How is that possible?
There is a floor on housing prices - 80x-100x monthly rent in stable rental markets. This bailout won’t change that.
It’s wishful thinking. Without the loose lending standards of a few years ago, incomes simply don’t support the prices.
This announcement is part of the Cargo Cult Investor Encouragement program.
If you want to figure out how likely the announcement is to pan out, here are a couple of ways to think about it:
1) Go back and reread some news stories from early in 2007 about plans to put a floor under housing prices. Nonetheless, housing prices have subsequently dropped by perhaps the largest amount on record in some parts of the country. If there were a way to put a floor under prices, wouldn’t it have already been implemented?
2) As a well-known real estate economist pointed out a while back, all real estate is local — i.e., demand is determined by what local end-users can afford. Unless we go to a fully planned economy where it is illegal to keep building, the market incentive is to continue building homes until prices drop to a level where supply and demand equilibrate. What is likely to happen if prices are artificially propped up to a level above the market clearing equilibrium price?
“What is likely to happen if prices are artificially propped up to a level above the market clearing equilibrium price?”
The same as if they didn’t, just longer, deeper, and harder.
It isn’t. Prices will fall to market levels. At best the bailout will leave the banks with some capital after all the losses on foreclosures, but the houses will fall to market levels regardless.
The talking heads today are saying that the bail-out will put a floor under declining house prices. How is that possible?
Note they do not follow up their predictions with any rationale. Prices will continue to fall. Neighborhoods are destroyed. There is no promise that people can live comfortably with their own kind anymore (professionals have to hobnob with burger flippers). We professionals who are out of real estate are saying that we may as well rent in large apartment complexes - we will be living among burger flippers anyway. And at least we could scatter if the apartment community goes downhill.
Welcome to the real multiculturalsm - propping up mortgages for burger flippers (liars about income) among professionals.
They aren’t little houses - they have four to eight bedrooms and three-car garages. They also have features and architectural details which may not appear in the next houses to go in. Ceilings will be lower, windows will be smaller, and other features that were standard will be optional on the new houses, factors some fear will adversely affect already depressed home values in the neighborhood.”
And there you have it my friends. A peek inside the average American’s brain. We are on the edge of total economic collapse and somebody is stressing out that a neighboring house will have lower ceilings and less ornate window trimmings.
The illusion of control becomes more and more important when the ship is sinking.
I was looking at neighborhoods in Vegas on realtor.com. Most of the subdivisions in the gated communities I am interested in have houses that are way too large (4 to 7 bedrooms, 3 baths, 3 car garages). They are grotesque! I can use something between 1200 and 1500 square feet. No more than that. Too much to take care of.
I see lots of 2 story houses in Gilbert that look just as grotesque. For one, I don’t like 2 story. Gilbert seems to have a lot of them.
Since there is a nice Salt Lake area part here, does anyone up there know anything about the McMansions built on the Widowmaker hill above Point of the Mountain at the south of the valley in either Sandy/Draper? I always that was a mudslide area and was shellshocked a few years ago and saw million dollar McMansions up there. I get feedback that houses are sliding off foundations, and a lot of problems. I would love confirmation. A child could have looked at that and figured it was a disaster waiting to happen. I left SLC years ago.
Poin de Moun, ah, fond memories of picking up a truckload of plants there at the prison’s nursery for landscaping and seeing the houses on the Bench. The Wasatch Fault runs through there, a good enough reason not to buy those ugly POS McMansions all in a row on the edge of disaster.
And I once thought Utahans might be more sensible than Californians, being all into nonperishable foodstuffs and beehives and industriousness and all.
Californication. Your population probably consists of a large amount of ex-californians just like Nevada and Arizona. All three states will never be the same again. Sad as it is to say.
“‘If the market would have just kept going up, these people would have done great,’ said Randall Wall, broker with Equity Real Estate in Salt Lake City as he walked through an unlandscaped yard littered with weeds and kids’ toys.”
“But the market locally did just the opposite, and to make matters worse for the owners of the mini-mansions in Draper, both spouses worked in the housing industry and were separating. ”
If, if, if. The good news is that high energy prices will reverse globalization, so a lot of manufacturing and other jobs will be coming back eventually. For example, labor makes up a very small percentage of the price of steel. China was buying raw materials in South America, shipping them back to China, making the steel, and then shipping the steel to North America. Because of energy costs, U.S. firms can produce it much cheaper. China’s low labor cost doesn’t overcome the energy cost. Same with a lot of goods.
One of my business contacts sells machinery (vacuum pumps) manufactured in China. He says the advantage has dropped below 2:1, and with the hidden costs, it isn’t such a good deal any longer. By hidden costs he says he means having to have your feet in China, to constantly fight the quality issues, &etc. Two years ago, I couldn’t say anything negative about manufacturing in China, without getting slapped.
Are we in the thrid inning yet?
I bet the companies importing powered milk from China are not saving any money any more.
I expect to hear of those McMansion at Point of the Mountain in Salt Lake area to really come down in a mudslide. Might be the best solution for those that had the foresight to buy insurance that would cover it. Probably less than 1% of the fools that bought those? LDS church stuff irrevelant in this issue. I am sure enough fools that bought there, whether or not members of the predominant religion in the area.
Humans are equal-opportunity fools, regardless of religious beliefs. (Maybe excepting some, such as the Shakers.)
Here are four “interesting” features of the ‘bipartisan’ bill
1. Banks can now legally have 0% reserves.
2. Suspension of upcoming mark-to-market rules.
3. Compensation will only be capped for the ‘top’ 3 executives of an assisted corporation.
4. Oversight will be provided by Bernanke, Cox and another guy.
Have we I think I require an early drink now..
Have we me need one too.
My original comment was going to be ” Have we as a nation lost all sense of reality, economic systems run on trust. Trust is hard to gain and very easy to lose.”
But then I replaced it with a sentence that summed up my feelings more succintely
Posting from my iPhone.. Ignore the typos and incompletes erasures of sentences.
Prof, I think you’ve had one too many already.
I am not a believer in conspiracy theories, various economic models or that sort of stuff, but I cannot help asking myself-
Has the current US government (and many other west European governments) lost ‘the mandate of heavens’? They are unlikely to be fulfill most of the important promises they have made to their populations. They have lost legitimacy.. This has been an ongoing process, but I think that the last 3 weeks have started an irreversible and hard to hide cascade of events.
Just received an email that B of A, on Oct 1, is going to reduced credit card available credit lines by 10 to 1 for any credit scores below 750.. Oach!!! In other words a $35,000 available credit line will be reduced to $3,500. This has not been verified, but this is exactly what AMEX did to my Open Card just last week. They reduced the $24,000 credit line to $4000. And that is with no deliquencies on any of my accounts with AMEX or any other credit cards.
If this is truly the case (not accussing you of lying, just the email) as I have a BOA card with a limit somewhere aroung yours, then WOW!
Years ago I had a BOA card with such a limit, and had the limit reduced to below my balance. I gave them a good reason at the time, I think.
My point being, they immediately called the excess, whacked me with overlimit fees, raised my interest rate to 29.9% (because I was overlimit) and all that. I had been a customer of theirs for 20 yrs. TOO BAD! Read the fine print they said.
I have an aversion to such instruments since then.
I use it purely as a cash substitute. Pay it in full every month.
There is no substitute for cash.
This fits well with the observation that banks are only loaning money to folks who don’t need to borrow.
As the credit tightening intensifies so does the demand for cash.
This massive bailout bill means one thing for me. I will never again vote for either party at any level of government. This is outrageous.
Dems and Pubs are dead to me.
The Big Draft of the Bill is done ,but they are trying to get enough of
both parties to vote so no party can say they were the supporter of the Bill ,in other words the Politicians want Political cover . The Bill Itself ,
to sum it up ,Its lipstick on a pig ,its the Paulson Plan , in convoluted language with disclaimers and lawyer trick of wording . In fact the plan gives Paulson more power . The oversight for the bill is a
committee of Paulson ,BB, Cox ,and the Head of F&F . Does anybody want to laugh . They must think the public is stupid .
This bailout just goes to show where the real power in this country resides, Wall Street. the dc crowd is just wall street’s “bitche’s.” It look like to me that the pols “got down on their knees” to wall street.
“Sales at Fulton Homes’ Freeman Farms project, at Ocotillo and Greenfield roads, have ground to a halt as buyers find credit has dried up for the $400,000-plus homes that the builder has been trying to sell there since 2006.”
No, I think what’s dried up is the supply of buyers who actually qualify for $400,000+ homes under conventional lending standards. Can’t imagine there are all that many households earning $125,000+, but I could be wrong -);
Yea, and many of the housholds that do have 125K+ a year have better things to spend their money on than a big mortgage. I would be uncomfortable with any more than a 130k mortgage. More than that would cramp my lifesyle too much. I have better things to do with my time and my money than impress the neighbors with either my car or my house. K
Just stating my view ….Representative John Boehner (R) from Ohio is opposing bill in current form and Brad Sherman (D)from California is
opposing the bill in current form . This is causing problem with saying that
both sides are supporting the bill because of the numbers ,even if they could pass it .
Could you imagine the founding fathers trying to draft the Constitution being bothered by news people and Wall Street wanting to get the bill passed in a hurry before the Asian markets open. Why don’t they give a
50 billion dollar injection tomorrow so it can buy them another day to right a better bill .
“Why don’t they give a 50 billion dollar injection tomorrow so it can buy them another day to right a better bill”
i think it was timed this way so they can dodge responsibility when it fails and there is a need for more $ to be thrown into the black hole.
I think it was timed this way in order to put the next president in
financial hock without being able to do a darn thing.
I think the Bush/Repub plan is working just fine. (sarcasm in full tilt)
Wow. Have been looking at RVs in Colorado, and there are some real deals, I’m talking 75% and more off. If one thought gas was going to ever be reasonable again, or if one just wanted one to live in on a piece of land or something, this is starting to look like some real deals.
Same observation here. I am looking for a modest trailer for one of my kids. Seeing top quality for very low price. I think it will get worser, or betterer, depending on how you look at it.
“Same observation here. I am looking for a modest trailer for one of my kids. Seeing top quality for very low price. I think it will get worser, or betterer, depending on how you look at it.”
I remember a live TV interview with a huge woman in a Hunter’s Point project (south SF) where garbage was literally being dropped out of the windows, and ‘da-man wasn’t picking it up fast enough to please the tenants. She said, “Dis place be loaded wit mices!”
Good to see the high end go down as well. That’s where the real loss of money is going to come from, not the guy in the hood who got a subprime loan. On a side note, looks like Wall Street is going to get its extortion money. If anyone votes for ANY incumbent from now until the cows come home, they deserve the government they get.
“Good to see the high end go down as well. That’s where the real loss of money is going to come from…”
Our local RE rag from the Safeway newspaper stand is just loaded with high-end housing, which I assume are the various business owners in the area. These places all have acreage meaning a septic tank, water well with RO system, lawn tractor, etc., in other words, high maintenance living. No doubt about it, these folks have had a premonition. This is very telling, IMHO.
What irritates me about this bailout bill is that the constituents are against it in droves (400 to 1 against, last I heard) and if they won’t listen to this then they won’t listen to anything. It seems rather hopeless.
I sold my interest in my house to my ex-husband recently and I’m waiting until the prices drop enough that I can just pay cash for a modest house in a reasonably nice area. For now I rent and continue to save as much as I possibly can.
More eye popping items:
From the NY Times
Citigroup and Wells Fargo Said to Be Bidding for Wachovia
“The bill would allow the bank or any bidder that takes over Wachovia to sell its weakest assets to the government. Still, any sale of Wachovia’s assets would require it to take enormous write-downs.”
Are ya telling me the write downs Wachovia has already taken are say 1/10 of reality? !!!
What about the rest of the dept-holders?
http://www.nytimes.com/2008/09/29/business/29bank.html
Bailout
A breakthrough came Saturday night, with the addition of a requirement sought by centrist Democrats and Republicans to ensure that the government be paid back by companies that got help. The president would have to tell Congress after five years how he planned to recoup the losses.
BS
I thought the warrants were BS, at the very least the gov should get stock. This nebulus statement that hte president would have to tell congress after 5 years how he planned on recouping hte cost is BS. Time to call my congressmen again.
measton …I’m just so ashamed of the Bill they wrote that just kissed the taxpayers off . The fat cats lobbyist must of got to them .