The Housing Bubble

January 26, 2009 6:05 PM

Credit storms lash Hamptons real estate

The Hamptons’ residential market took another beating from a floundering economy in the final quarter of 2008, with prices and sales volumes both dropping significantly from levels in the fourth quarter of 2007, according to a report released Tuesday.

The number of sales in the posh far end of Long Island plummeted 41.3% to 257 in the fourth quarter.

“What you are seeing here is similar to parts of the city,” said Jonathan Miller, president of Miller Samuel, adding that for the last four years, with the exception of one quarter, there has been a decline in transactions. “The drop is attributable to the credit contraction and uncertainty with Wall Street in terms of unemployment and compensation.”

http://www.crainsnewyork.com/apps/pbcs.dll/article?AID=/20090127/FREE/901269949/0/information

Bernanke Risks `Very Unstable’ Bond Market as He Ponders Buying Treasuries

Federal Reserve Chairman Ben S. Bernanke and his colleagues may try once again to cure the aftermath of a bubble in one kind of asset by overheating the market for another.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aZ0bwWpcnFaM&refer=exclusive

It seems that the light at the end of the tunnel is an oncoming freight train…
http://www.boston.com/business/ticker/2009/01/mass_home_price_2.html

I don’t know who is paying for it, but I am seeing all these ads on TV reminding Tampa residents to be nice to visitors for the Super Bowl. Please do not shoot, road rage, or carjack on the visitors!

LMFAO!

Buy a house in paradise before you’re priced out! Heck, a 1000 people a day a moving to Florida!

Case Schiller down 18% YOY.

House builders and banks should be up big in the market today.

And even in the Empire State, the hits just keep on keeping on:

ROCHESTER, N.Y. (AP) — Corning Inc. said Tuesday it is cutting 3,500 jobs, or 13 percent of its payroll, as demand slumps for glass used in flat-screen televisions and computers.
The specialty glass and ceramics maker, the world’s largest maker of liquid crystal display glass, announced the cutbacks as its fourth-quarter profit plunged 65 percent to $249 million, or 16 cents a share, from $717 million, or 45 cents a share, a year earlier.

Excluding one-time items, its profit of 13 cents a share came in well below Wall Street’s forecast of 20 cents a share.

Sales fell 31 percent to $1.08 billion from $1.58 billion, below $1.16 billion in sales forecast by analysts polled by Thomson Reuters.

In December, the company withdrew all guidance for the October-December period because of volatility in the LCD market. It previously said earnings would fall below an earlier projection of 20 cents to 28 cents a share on sales between $1.1 billion and $1.2 billion

Oink oink.

Presenting The biggest piece of pork ever.

Here is a sampling of what we found:

$44 million for construction, repair and improvements at US Department of Agriculture facilties
$209 million for work on deferred maintenance at Agricultural Research Service facilities
$245 million for maintaining and modernizing the IT system of the Farm Service Agency
$175 million to buy and restore floodplain easements for flood prevention
$50 million for “Watershed Rehabilitation”
$1.1 billion for rural community facilities direct loans
$2 billion for rural business and industry guaranteed loans
$2.7 billion for rural water and waste dispoal direct loans
$22.1 billion for rural housing insurance fund loans
$2.8 billion for loans to spur rural broadband
$150 million for emergency food assistance
$50 million for regional economic development commissions
$1 billion for “Periodic Censuses and Programs”
….

(the list goes on quite a ways - 150 items, which is just a sampling of what’s in the bill)

Jan. 27 (Bloomberg) — Federal Reserve officials are considering an overhaul of their economic forecasting, aiming to make clear their objectives for growth and inflation in the aftermath of the longest recession since the 1930s.

Members of the Fed’s Open Market Committee, who start a two-day meeting in Washington today, may need to extend their predictions beyond the current three-year period, officials and Fed-watchers said. Because of the length and depth of the downturn, long-run trends may not be restored in three years.

Uncharted waters? I thought Benny boy was a great navigator and would be able to steer us through the shoals!

Fed Move to ‘Uncharted Waters’ Spurs Forecast Review…

A longer horizon for the projections may help the public and investors understand where the central bank aims to steer the economy. Pressure for a new anchor for policy is building after the Fed cut its benchmark interest rate to as low as zero percent last month, removing the traditional target.

“Interest rates are no longer what monetary policy is about,” said Frederic Mishkin, who left his post as Fed governor in August. “A much more important part of policy now is managing expectations, and, in an environment like the one we are in now, having more clarity on inflation objectives becomes critical.”

One way to do that is to lengthen central bankers’ forecast horizons, said Mishkin, who has collaborated with Fed Chairman Ben S. Bernanke on research and is a professor at Columbia Business School in New York.

So the goobernator wants to tax the small fry, imagine that. Small businesses will just start working under the table as much as possible, as many already do. Cash discounts, barter etc… Or just move the hell out of the state.

Calif. governor wants to tax golf, auto repairs…

SACRAMENTO, Calif. (AP) - Golf course owners and some of their customers are teed off at Gov. Arnold Schwarzenegger. So are veterinarians, auto mechanics and amusement park operators.

Their anger is directed at the Republican governor’s proposal to extend the state sales tax to cover more services, an idea that has surfaced in other states as they race to plug crippling budget deficits. The Center on Budget and Policy Priorities, a research clearinghouse, predicts such deficits nationwide could reach $350 billion by 2011.

In California, Schwarzenegger wants to help close a nearly $42 billion budget deficit by taxing rounds of golf, auto repairs, veterinary care, amusement park and sporting event admissions and appliance and furniture repairs.

Democratic Gov. David Paterson in New York has proposed levies on MP3 downloads, taxi rides, movies, concerts, sporting events, and personal services such as haircuts, manicures and massages.

Schwarzenegger’s fellow Republican in Utah, Gov. Jon Huntsman, has shelved a proposal to tax attorney and accounting services but promises to bring it back next year.

Service taxes in other states include levies on pet grooming, water well drilling, fur storage, massages, shoe repairs, swimming pool cleaning, taxidermy, and dating and diaper services. But that doesn’t make the groups affected by Schwarzenegger’s proposal feel any better.

“We’re old and retired. We don’t need any more taxes,” said Fred Mayers of Sacramento as he played golf recently at a public course in the state capital. “The only luxury we have is playing golf. They can’t charge us any more.”

Now that we live in the Information Age, we get the information better, faster, smarter; or do we?

From the UK Mail Online today:

After less than a week in office, Barack Obama’s approval rating plunges 15 points
By David Gardner
Last updated at 8:56 AM on 26th January 2009

Barack Obama might have been in office for less than a week, but the euphoria is beginning to wane.
The new President’s approval ratings have fallen from a stratospheric 83 per cent to a more modest - although still impressive - 68 per cent.
Washington analysts said the scale of the drop in the Gallup poll underlines the immense challenges Mr Obama faces in trying to turn round the U.S.’s battered fortunes.
He still remains vastly more popular than his predecessor George Bush - who left office with around 25 per cent approval.
Mr Obama is facing an ugly battle with Republicans over his plans to bail out the economy with $850 billion of taxpayers’ cash. Opposition leaders claim the rescue package relies too much on government spending and not enough on tax relief for families and small businesses.

An update from the Gainesville Fantasy Land:
[Keep in mind that the University is cutting its budget by at least 10%, laying off faculty and reducing admissions by 1000 per year.]

“Craig McCall, president of the Gainesville-Alachua County Association of Realtors, said that although the sales numbers are down, he expects more buyers to enter the market as interest rates remain low and demand for housing increases.

McCall said he expects more activity in the local market, fueled by the University of Florida and the local medical community.

“It’s a great time to buy. A lot of buyers are sitting on the fence, not sure of when funds from the federal bailout are going to hit Main Street,” he said. “We are seeing more buyers visiting open houses, more leads coming from the Internet, and as UF and Santa Fe (College) make their announcements of acceptance, that should help increase the buyer pool.”

Latest Case/Schiller Housing Price Index released this morning:

WASHINGTON (MarketWatch) — Home values in 20 major U.S. cities fell at a record 18.2% in the 12 months ending in November, Standard & Poor’s reported Tuesday. The Case-Shiller 20-city home price index fell 2.2% in November, with home values in all 20 cities falling at least 1%. Prices fell 3.4% in Phoenix and 3.3% in Las Vegas in November. In the past year, prices were down 33% in Phoenix, 32% in Las Vegas, and 31% in San Francisco. The best performance over the past year came in Dallas, where prices fell just 3.3%.

WTF is with the NARscum banner ad on the front page?

That expensive McMasion on the Hill sure looked Pretty.

Now, that once humble, semi-secure 30-45k J..O..B is looking one Hell of a lot Prettier.

Besides the housing, financial and job damage, there will be a lot of once high flying, damaged EGOS, out there… now “doing lunch” at Mc Donalds. A few might even be working there.

Couple anecdotes:

This weekend the wife and I went to look at a house owned by a bank. The bank wants a cash offer. I made the comment later to my wife that “cash is king”.

The place needs some work but this is the first time I’ve seen one that was really getting close to a reasonable asking price. I told the realtor we had sold our house in Jan of last year and were waiting for prices to come down substantially. She tried to feed me the line about how its different here and trotted out a recent Forbes article (which I was familiar with) listing the Little Rock/central Ar area as one of the best places to buy because we hadn’t been affected by the bubble, blah blah blah.

I told her I expected significant drops and asked her if she ever looked at the Central Ark. Realtors sales numbers, which show very substanial yoy drops in sales and explained how I believe that is a leading indicator and prices will follow. She became somber and just nodded and it then appeared she didn’t want to discuss any further, so we didn’t.

So, the wife and I recently discovered we are going to have a baby (and join the ranks of annoying parents who just KNOW their kid is so cute! ). As a result we have need to replace her sports car with something more practical and intend to pay cash.

In the “cash is king” theme, testerday my wife related a conversation she had with one of her coworkers. The coworker’s husband works at a furniture store and they are really, really slow because everyone that comes in who wants to buy is unable to get credit.

She also spoke with someone else who bought a car recently and the dealer “knocked 5k right off just because they were paying cash”.

The wife yesterday after telling me the two stories says “cash is king and I want to spend as little of our cash as possible on the vehicle”. She’s really getting it.

Reflections on Americans’ views of the euro ex ante

Martin Feldstein
26 January 2009

“…In these circumstances, it is possible that one or more countries might actually withdraw from the Eurozone. It is clear why some national political leaders – or would be leaders – might consider such an option. Doing so would allow their reinstated national central bank to choose an easier monetary policy. The national central bank could also create the currency needed to act as a lender of last resort to national commercial banks. The country’s fiscal authority would no longer be bound by the restrictions of the Stability and Growth Pact and could therefore pursue a large fiscal stimulus. The international value of the currency could adjust to make local products more competitive. A country might threaten to leave the Eurozone unless policy became more expansive. If policy did not change, it might face the difficult choice between leaving the Eurozone and losing face by backing down from its threatened action….”
http://www.voxeu.org/index.php?q=node/2867

Exit Gomer Pyle: “Don’t tell me, don’t tell me. It’s a bean, it’s a bean… Lima.”

I was surveying options for storing money the other day and noticed that US I Savings Bonds are paying 5.64% interest. What’s the catch? I know that you have to hold them for 1 year and if you hold them for less than 5 years you lose 25% of the final years interest, but that still seems to be a good deal, which makes me wonder that something must be wrong with them. Anyone know?

Not sure if this was posted the other day or not -

Builders predict more pain in 2009, big turnaround in 2010.

Let’s revisit this in 24 months, shall we?

From Bloomberg:

“The market is in stagnation,” said Paul Brennan, regional director for the Hamptons at Elliman. “If you sell in this market, it’s usually one of the three D’s: death, divorce or debt.”

Many properties are also sitting on the market because sellers haven’t yet cut their price to reflect the economy’s decline, Miller said. On average, homes sold for 15.4 percent less than their asking price, compared with 8.1 percent a year ago.

“I have never seen sellers so disconnected from the market and my rough approximation is that they are about a year behind,” said Miller. “You had seven go-go years. That’s ingrained in the markets’ psyche.”

From Crains NY:

Credit storms lash Hamptons real estate

The Hamptons’ residential market took another beating from a floundering economy in the final quarter of 2008, with prices and sales volumes both dropping significantly from levels in the fourth quarter of 2007, according to a report released Tuesday.

The number of sales in the posh far end of Long Island plummeted 41.3% to 257 in the fourth quarter.

“What you are seeing here is similar to parts of the city,” said Jonathan Miller, president of Miller Samuel, adding that for the last four years, with the exception of one quarter, there has been a decline in transactions. “The drop is attributable to the credit contraction and uncertainty with Wall Street in terms of unemployment and compensation.”

Dutch bubble update:

Dutch real estate professor Piet Eichholtz (his professorship is paid by the real estate mob), the guy who did the original research for the Herengracht index that Shiller based part of his housing research on, is arguing in Dutch NRC newspaper that homeprices in Netherlands are not overvalued at all, and will keep climbing (forever) unless rates go up to double digit territory (’extremely unlikely as rates are pretty high now’) or consumer sentiment declines strongly (’very unlikely as it is already at the bottom of the range, and the Dutch economy will recover quickly’).

Just goes to show that we have the same kind of clueless idiots teaching on Dutch universities as in the US

on another note: Dutch financial ING is already boasting on TV that they are a sure winner (again …) in the international financial arena. Even if that is going to be true (which I doubt) it is sad that they can only pull if off by passing all their loosing positions to the Dutch taxpayer. But you have to admit that the ‘Masters of the Universe’ at ING are clever rats that they can make such a lucrative arrangement with a Finance Minister who is officially a socialist …
I’m sure in the near future there will be some extremely well paid jobs for dumb socialist politicians at ING

From Yahoo

Atlanta – It’s not unusual for Jennifer Litkowiec to have problems with her husband’s off-the-wall ideas, but this one took the cake.

Hispanic gangs had seeped into the couple’s quiet corner of the working-class town of Cudahy, Wis., just south of Milwaukee, stealing garage door openers and returning later to score the contents.

So what was Jason Litkowiec’s plan? Shine a light on the night. “I finally had enough,” he says.

Against his wife’s loud protestations, the young steamfitter joined a dozen other neighborhood men and set up the Rosewood night patrol.

Armed with nothing but flashlights and cellphones, the group followed suspicious cars and even set up an impromptu sting when a neighbor left town and forgot to close his garage door. They called in police to arrest the suspects after a brief chase.

High foreclosure rates, a spike in brazen break-ins, and slashed police budgets are causing turmoil in America’s transitioning urban communities, auguring what Atlanta anticrime activist Larry Ely calls an “urban war.”

Well, the Dentist this morning told me I have elevated blood pressure for the first time. It was probably from watching Roger and Me and reading Middle Class Millionaires (horrid book–one of the co-authors wrote the entirely undistinguished Armchair Millionaire which is like The Automatic Millionaire if written by somebody with no vertu of the literary variety. Or spine or morals. moving right along) all together in one day.

Middle-Class Millionaires is a wonderful if entirely unwitting profile of Bubblonians. An entire chapter is given to a “smart growth” planned community in Rancho Mission Viejo, which they abbreviate “RMV” like the Registry of Motor Vehicles? These two seem to have mastered the art of perpetual cluelessness. I’m surprised the author blurbs didn’t talk about their real estate licenses. They also spend several paragraphs scolding the dumb, old middle class for not participating in the seminar circuit or hiring life coaches.

In this entirely scatterbrained book, they end on a note of panic, cautioning that in most field the wage spoils are going to a few superstars while others of equivalent education and ability are seeing their incomes shrink with inflation. If you don’t jump on their bandwagon, you’ll be left behind. Worse, they scold at one point, you’re an idiot for not using “millionaire intelligence” to identify new opportunities and are therefore an asshole deserving of penury. Ooookay.

Look, I may have left the RCC, but it’s hard to wring the Catholic out of me even now. Artful apologies for greed make my blood boil. The only thing that comforts me right now is the sure knowledge that some of the “saavy” investors profiled in the book are getting introduced to JT’s right now. The book makes it clear that doubling down on housing was not simply an “investment” (greed) but that it was about “lifestyle” (gluttony) and “expressing middle-class values” (envy). And sloth? Well, they pay lip service to hard work (we DESERVE 10x the pay because WE WORK SO HARD) but like any motivational speaker promise that by networking and “putting yourself in the flow of money” you can bag dozens of high paying clients without really having to work for it.

Do you know why these are deadly sins? Because they are all a laziness that begins in the mind. They are magical thinking made manifest. (”one more bon-bon won’t hurt” “I can do it tomorrow” “if I can just make the big score, I can retire”).

Whew. I feel better now. Or maybe it’s the homemade pecan pie w/ grandma’s pie crust. Next time I’ll use real lard instead of that shelf-stable crap.

Last week there was a thread about the English languange being altered. Customers are now consumers, and my favorite: taxes are now contributions.

Well now I guess IBM is not having a layoff today, thay are merely selecting workers to participate in the “current resource reduction action”. The turd who thought up that title should be slapped.

http://www.thestreet.com/story/10460001/1/ibm-cutting-more-than-2800-jobs-report.html

OT- Is there Louis Rukeyser anywhere on the horizon? or do I have to put up with Kudlow and Cramer for the duration? I really need some reasoned commentary and civil discourse. I miss Louis.

Roidy

Jan. 27 (Bloomberg) — State Farm Mutual Automobile Insurance Co., the largest property insurer in the U.S., plans to withdraw from the residential market in Florida after a request for a rate increase was denied by regulators.

“We regret the impact this will have on our customers, employees and agents,” Bloomington, Illinois-based State Farm said today in an e-mailed statement. The insurer, owned by its policyholders, cited risks from hurricanes.

Bloomberg: “There is nowhere to hide,” Roubini … said in an interview with Bloomberg Television. “We have for the first time in decades a global synchronized recession. Markets have become perfectly correlated and economies are also becoming perfectly correlated. This is not your kind of traditional minor recession.”

Roubini said the U.S. government should nationalize the biggest banks and absorb their bad holdings because losses will exceed assets, threatening to push them into bankruptcy. The banks could be privatized again in two or three years, Roubini said. The professor reiterated his previous prediction that U.S. financial losses may reach $3.6 trillion.

OUCH!

California’s top elected Democrats reject furlough plan
By Shane Goldmacher
sgoldmacher@sacbee.com
Published: Tuesday, Jan. 13, 2009 | Page 1A

All six of California’s elected statewide Democrats are refusing to implement Gov. Arnold Schwarzenegger’s plan to furlough state workers for two unpaid days each month.

Calling Schwarzenegger’s executive order “unfair,” in the words of Secretary of State Debra Bowen, and “a hardship on the backs of our employees,” as Treasurer Bill Lockyer said, the Democrats have exempted their own departments.

Last Friday, Schwarzenegger ordered all nonessential state departments to shutter their doors on the first and third Fridays every month through June 2010, saving the state an estimated $1.3 billion over the next 18 months.

Senate punches Timmeys card.

In Goldman Sachs We Trust.

WOOHOO! Perp walk!

AIG executive sentenced to 4 years in prison
Former AIG executive gets 4 years in prison for $500M fraud

Judge Christopher Droney also fined Milton $200,000.

Your TARP money at work, on Wall Street

Pfizer offered Wyeth shareholders $22.5 billion in cash — along with the $45.5 billion in Pfizer stock — and it needed to raise that money from the banks that have the capability to provide such vast sums, most of which probably came from the $700 billion Troubled Asset Relief Program, or TARP.

http://money.cnn.com/2009/01/27/news/economy/tarp.fortune/index.htm?source=yahoo_quote

Jan. 27 (Bloomberg) — When it comes to transparency, the world’s bankers won’t surrender without a fight.

Even with capitalism suffering its biggest crisis since the Great Depression — a meltdown born and nurtured in opaque markets from subprime mortgages to credit-default swaps — the bankers gathering with politicians in the Swiss resort of Davos this week may be unwilling to allow too much sunshine into the dark corners of their business.

“The financial system will kick back against transparency,” says Joseph Stiglitz, the Columbia University economist and Nobel Prize winner who’ll be in Davos.

“Those working in markets see information as power and money, so they depend on a lack of transparency for success,” says Stiglitz, who won his Nobel for research on information asymmetry — what happens when one party in a transaction has access to knowledge that others don’t.

So when one party knows that a MBS is worth less than the money it’s printed on, they do have an advantage when trying to sell said worthless paper to gov, pensions, 401k’s, ect ect.

I think a small nuc dropped directly on Davos might solve a lot of our problems.

Here´s my new theory. Before (or as) countries/economies fail they have a tendency to elect outsiders. These outsiders - Hitler (an Austrian vagabond), Stalin (from Georgia), Napoleon (a Corsican) - start out as tremendous, never-the-likes-of-which-before-seen national heroes who have huge national approval, allowing them to consolidate and then abuse phenomenal power.

Could the U.S. and Obama be in this category? Obama fits the outsider mold not so much because he´s black, but because he grew up in Hawaii and Indonesia, and his parents and step-father and apparently most of his early mentors were Communists (politely-called ¨fellow-travelers¨) or Muslims.

Now, admitedly, we have Sarkozy (Hungarian extraction) in France, Fujimori (Japanese extraction) formerly in Peru - but both of these are more mainstream inside their culture than Obama.

Anyway, just a thought, as I find an internet cafe here in this remote oupost in an obscure Latin American country. (Actually not that remote - Pable Escobar ran a global enterprise from here.)

Just in: Vanguard is closing out their Treasury mmkt funds.

Millions left homeless!!

question regarding ING (Direct):

Yesterday the Dutch government took over the income stream and full risk of ING’s US mortgage portfolio - while official ownership remains at ING. This portfolio consists of Alt-A loans. It had an official value of $ 35 billion and was on the books at ING last week for $ 22 billion (I guess a realistic writedown at the moment). The government paid ING effectively $ 28 million for it, far more than its latest book value (and I guess a lot more than normal valuation for a US Alt-A portfolio).

Our finance minister says he made one heck of a deal because up to now all payments in the portfolio are coming exactly like required, so he expects all mortgages will be fully paid off. Apparently the ‘risk’ on the portfolio was determined by four ratings agencies (the big four???) who analysed the whole portfolio by ZIP code. He says there is a 75% chance that the Dutch government will make about EUR 2 billion on the deal, and a 25% chance of a EUR 600 million loss. I cannot imagine these numbers are correct, if only because no one knows how far US home values will decline and what the longer term currency risk is.

News sources say this ‘innovative solution’ is now studied by other countries for use with other ‘illiquid’ investments. It is a trick to provide banks with money without violating the IFRS rules.
Comment anyone?

Paulson,… walking in circles throwing up daisy petals:

“Am I a genius or what?” …”Put Shrub on hold, Mr. Made-Off has sent over a bicycle courier…and get me some more daisies”

AIG Said to Pay $450 Million to Retain Swaps Staff:

http://www.bloomberg.com/apps/news?pid=20601087&sid=avGnUgGMu1q4&refer=home

Whoops, I put this in the wrong thread.

Happy Tuesday.

There is a 1-hour discussion about TARP and possible bank nationalization on On Point today with Gretchen Morgenson: onpointradio dot org

I just got a call from an associate to say they’ve been let go from a large company (who supplies my company). She was a great rep. We agreed it’s dicey out there and I wished her good luck .

Brandeis University, anticipating a budget deficit of more than $10 million over five years, voted to close its art museum and sell a collection that includes pieces by Andy Warhol and Willem de Kooning.

“These are extraordinary times,” Reinharz said in a letter yesterday to the Brandeis community. “We cannot control or fix the nation’s economic problems. We can only do what we have been entrusted to do — act responsibly with the best interests of our students and their futures foremost in mind.”

BWAHAHHAHAHHAHAHHAHAHHAHAHAHHHHHHHHHHHHHHH!!!

Wow. John Thain’s office is really ugly.

In the news: The Lupeo’s, a family of five, were found dead in their LA suburban home after father Lupeo kills his wife, children and then himself. Husband and wife had both recently been fired as medical technicians from Kaiser Permanante Health Care.

“Cecilia Yvar, 68, whose grandson often played with the Lupoes’ 5-year-old twins, said the family moved to the neighborhood four years ago. The Lupoes added a second story to their home last year, Ms. Yvar said, and landscaping to their backyard.”

So this too becomes another sad housing-related story. Lupoes probably had a decent fixed home loan acquired in 2004, then re-financed for home improvements into a variable loan with the equity gains during 2005 - 2006.

As for our friends at Kaiser Perm, how can a company fire both wage earners of a family at the same time? Lupeos apparently misrepresented their employment with Kaiser to gain some sort of child care. Certainly not a big deal in the broad scheme of things and not sure if Kaiser will come through this easily.