You Had To Be ‘On Something’ Not To See A Bubble
Some homebuilder news is out. “The Florida home builder said preliminary home-building revenue for the first quarter was flat from the year-ago period and warned it expects to post a loss for the first quarter.”
“Standard Pacific Corp., an Irvine-based homebuilder reported record earnings during the first three months of the year, but forecast that demand for housing will slow this year.”
“Stephen J. Scarborough, CEO stated, ‘our unit orders were down 8% year over year reflecting a number of factors including (1) decreased affordability and increased loan qualification issues in markets that have experienced significant price appreciation, (2) increasing supply in the resale market, and (3) aggressive use of incentives by many of our competitors to reduce inventory levels and to stimulate demand resulting in a general uncertainty relative to value in the marketplace.”
“The Company’s cancellation rate for the 2006 first quarter was 24%, up from the year earlier rate of 17%. The Company’s cancellation rate was generally higher year over year in California, Florida and Arizona, ranging from approximately 20% in Arizona to 30% in California.”
“Analyst Greg Gieber on Friday lent his voice to Wall Street’s chorus of bearish calls on the homebuilding sector this earnings season as declining orders highlight the cooling housing market. ‘Over the past several weeks, we have felt increasingly uncomfortable with our investment ratings on select homebuilders given the current environment in the housing industry which we think will only get worse before it gets better,’ Gieber wrote.”
“‘Contrary to what some may believe, it is our opinion that the current inventory correction in the housing market is far from having run its course,’ the respected analyst said.”
And from the builders conference. “‘After topping out in the third quarter of last year, it is pretty clear that the housing sector is in a period of transition. Sales and starts are trending lower toward more sustainable levels,’ said NAHB Chief Economist David Seiders. ‘Hopefully, most of this decline will be due to investors and speculators stepping out of the market. What we don’t want to see is investors dumping homes on the market,’ said Seiders.”
“Addressing a question that has generated endless speculation in recent years, Thomas Lawler, a housing and mortgage market consultant who worked for Fannie Mae for 22 years, said ‘Was there a national bubble? Nationwide, no, but in some regions, absolutely.’”
“Lawler noted that in some areas, ‘all of the signs of a bubble were present: a surge in speculative investing; a surge in innovative financing; easy credit and loose underwriting; home inspection waivers; and home purchases sight unseen. You had to be ‘on something’ not to see a bubble in some areas,’ he said.”
I am pretty sure the top managers at the big Wall Street home builders could see the bubble, given the massive number of stock shares they have sold off since last summer.
You had to be ‘on something’ not to see a bubble in some areas,’ he said.”
_________________________
The following people were on something (forgive my spelling):
David Learah
Leslie Appleton-Young
All of my friends
My local realtors and mortgage brokers
Blinded by greed!
Here is the best possible explanation of “Blinded by Greed”.
A cat is sitting on the side walk when she eyes a bird across the street. Her heart begins to race and fer mouth begins to water. She goes into a trance and prepares to attack. With caution to the wind, she lunges full speed ahead with intense focus only on her reward.
Unfortunately, there was a car heading down the same street, and although they tried to stop in time, it was out of their hands at that point. The cat died.
fer=her must use spell check!
Is this the dead cat bounce everone has been talking about?
Don’t forget Suzanne.
Everyone was on GREED.
“Everyone was on GREED.”
******
Perhaps not everyone in SF, but very many no doubt.
GREED for everyone!
Actually, I suspect that FEAR was at least as big a factor. There were alot of people afraid that if they didn’t buy now, they would never get a chance. I’m not without some small degree of sympathy. Of course my great FEAR was that I might become upside down and be foreclosed on. That’s what happened to my college roommate a few years after graduation. This meant that I continued to rent for several years after I should have been looking at buying, slowly saving up enough that I could actually put down enough of a downpayment that I never needed mortgage insurance. OTOH, if I’d had an interest rate crystal ball, I would have bought a nicer house. Who could have predicted that within 4 years of buying I would be able to refinance from a 7.625% 30yr fixed to a 4.875% 15 year fixed? You rolls your dice…
That “something” these people were on was greed and money for nothing. These people also didn’t have the intelligence to counter this “something” and they’ll end being burned badly in the end.
Of course, the government will figure out some way to bail these people out. To this I say, to those who take financial risks they sure seem ready to take the rewards but they never want to deal with the negative consequences that are always very present with get rich quick schemes.
I have always questioned the notion of a government bailout. Maybe, only maybe for a few of the largest systems players, but the average joe will get little if any relief. This unraveling will be too big, take too long and involve far too much capital loss. The government will be attentive to more global concerns.
I’m inclined to agree. There isn’t enough actual wealth to steal, now or even from future generations, to bail out all the idiots.
Sure there is. But the rich have it, and they’re not letting go of it.
Any “bailout” will be of the big guys at the expense of the little guys.
The bailout is already happening, you just don’t notice. What I see in Europe is this: all the stupid home buyers of the last 10 years (around that time housing started to get overvalued here) have been bailed out by inflation from the central banks. Not inflation of the kind that lifts wages, but inflation of the kind that keeps home prices increasing (faster than CPI) despite all the other bad things in the economy.
In my country the price runup was +500-1000% over the last 15 years; we need a minus 85% correction to get back to the trendline. If that really happens, yes - then all the stupid buyers would be in trouble.
But I don’t think -85% is realistic, because that would for sure take the whole economy, the banks and the government with it - and in that case those who are waiting to buy will loose all the money they have in the bank. The stupid buyers have nothing to loose and a lot to gain, even if things go wrong they can probably stay in their home (and maybe rent instead of pay the mortgage).
Question: if the Fed were to actively cause “hidden” inflation (inflation unmeasured or mismeasured by the CPI) by increasing the money supply, would the dollar (eventually) fall relative to other currencies? Would this be one of the signs of an “inflate away home prices” apocalypse? Would gold prices going through the roof be another sign? Would interest rates go through the roof if/when people caught on?
This is already happening, and for that reason. The CPI intentionally understates actual inflation by probably three or four percent at least due to a wide variety of trickery. Here is a good explanation.
Another question: If the Fed instigated “inflation that doesn’t lift wages”, that wouldn’t ’solve’ the affordability problem, would it? Wouldn’t homes still be unaffordable to anyone (in the US) that doesn’t already own property?
Part of the reason is that the introduction of the Eastern European, Chinese and Indian populations into the global work force has created an intense deflationary undertow which the central banks of the advanced industrialized countries — the US FRB in particular — have had to counter with massive liquidity injections to keep overall price levels from plummeting. Since they can’t prevent that liquidity from flowing into the housing market — and perhaps much of it has to flow there if it is to have the desired effect — it has created the bubbles we see.
Because overall world productivity is rising so rapidly, the money supply must rise in parallel in order to keep the overall price level constant or slightly rising. Between 1800 and 1900, when the basic money supply could expand only at the rate gold was mined, prices fell about 50%. Had there not been large increases in the gold stock and advances in finance, the productivity increases of that century would have driven them down even more. The effects of the falling price levels on those who had borrowed were severe, and a major force in politics. (Note that the terms inflation and deflation, strictly speaking, refer to changes in the money supply rather than to price levels — prices will fall even with a rising money supply if productivty is rising faster.)
Because modern society cannot cope well with falling prices, the central banks consider it very important to keep the money supply expanding in proportion to increases in productivity.
“Addressing a question that has generated endless speculation in recent years, Thomas Lawler, a housing and mortgage market consultant who worked for Fannie Mae for 22 years, said ‘Was there a national bubble? Nationwide, no, but in some regions, absolutely.’”
The national bubble clearly shows up in the Census data on the USA mean and median housing prices which was posted here a day or two back. I graphed this data, which clearly shows the YOY mean and median increase for the entire country was above 13% as of early 2004, before begin a steady downtrend that culminates in a sudden steep drop to negative YOY levels as of March 2006 (can’t wait to see the April numbers!).
Which raises the question of what level of change in national and international home prices would convince the naysayers that the bubble was quite a bit more than a bit of widely-scattered local froth?
Corrections:
- “beginning” not “begin”
- “new home sales prices” (but used home prices follow new home sales prices with a lag)
‘Was there a national bubble? Nationwide, no, but in some regions, absolutely.’”
I took the time to look at every city in California to see if there were any forgotten areas left. I couldn’t find one city,town, etc. that hadn’t seen a huge jump in prices for houses no matter how small or far off the beaten path they were. Lack of jobs or amenities made no difference. I suspect both coasts investors have infiltrated inward indeed causing a nationwide bubble.
Again, I’ll mention Trona, CA. Still room for speculation there!
http://www.polarinertia.com/may04/trona01.htm
They’re not making any more land in Trona either
That’s where Hedges (sheriff of SLO county) should ship the beaners and homeless.
“After topping out in the third quarter of last year, it is pretty clear that the housing sector is in a period of transition.”
Always these feel good terms ‘transition’, ‘adjustment’ etc., how about being a little more honest and just admit the floor is about to fall out?
if the market was left to its own, housing would be dead by now.
But you never know what Bernanke and his friends will do to prop up the housing market; they know that the US economy can’t live without it, so … I think it is too early to say that the bottom is about to fall out.
I wouldn’t be surprised to see home prices do relatively well in the US in the next year or so (except for some pockets with a high percentage of speculators). It has been like that in Europe for some years now and all the people who were predicting a crash years ago (I tended to be one of them) have been proven wrong, thanks to an endless stream of easy money from the ECB.
Money can buy the bubble a lot of time.
Here’s my problem with that stance — the easy money is now causing REAL inflation problems. Gold at $650+ and a new high today. Oil breaking $70. Gas at $3. Copper at an all-time high. Zinc at an all-time high. Silver at a multi-decade high. The TIPS-nominal 10-year yield spread at its highest in a year and climbing.
Then, you’ve got airlines hiking airfares. Shippers are hiking shipping rates. Hotels are charging more for rooms. Utility bills are rising. The list goes on and on. Even the total-BS CPI numbers are showing signs of stress, with the beloved core rate up the most in a year last month.
Add to that the fact the dollar is now plunging in the wake of “Gentle Ben’s” latest ridiculous talk about “well-contained” inflation and I think you’re getting close to a breaking point. The bond vigilantes may FINALLY wake up and take long rates up (heck, they already are). So even if the Fed pauses, it may NOT help housing. At least, that’s my two cents.
It is definitely a conundrum. Either way you look at it housing loses. The FED can fight inflation and preserve the dollar at the expense of a severe downturn in housing, or he can pause and then cut rates at the first sign of a collapsing housing market which will tank the dollar and send bond yields through the roof which will further erode housing. There are severe consequences of going too far in either direction. IMO housing is beyond saving, once momentum shifts in the other direction the FED doesn’t have enough ammo to stop it. Not saying we are apples to apples but the Bank of Japan took interest rates to zero and flooded its economy with liquidity and people still did not borrow for 15 years.
IMHO the Fed might create a 2 tier fed fund structure 1) higher rates bond holders thus for consumers and 2) Subsidized Business loans at a lower rate to stimulate business expansion. This might keep the value of the dollar from collapsing and allow businesses to grow. I do not think this would work, but I have noticed commercial loans are a lot easier to get this year than 4 years ago.
Bottom line: The Federal Reserve cannot force anyone to buy anything, much less predict what they’ll buy. Thus, there is no way to “prop up” housing. Lowering interest rates could conceivably just create a new bubble in another asset class.
Furthermore, merely “propping up” the housing market would still cause problems, as savings-poor households need rising prices to keep the current consumption binge going via refi’s and HELOCs.
To keep home prices rising would require increasing demand. With a record number of Americans holding mortgages (69%) and the banks scraping the bottom of the barrel with liar loans and illegal imigrants, demand has all but been exhausted.
Southern Calif Edison Rates have gone up twice this year. Wait ’till those air conditioners kick in and these McMantions cost hundreds to COOL.
The bond vigilantes may FINALLY wake up and take long rates up (heck, they already are).
Yep, the yield curve is definitely not inverted any more. The 30-year rate is up a quarter point this month and the 10-year is up more than an eighth. I say there are many reasons to believe that it’s just getting started.
I’ll be very interested to see what happens to the long end when (as is almost certain) the Fed. goes to 5% in a couple of weeks.
Unlike the last 15 rises, I suspect we might see everything immediately go up by close to 25BP, which would flow straight through to fixed mortgage rates as well as ARM’s.
That couldn’t be good for May/June RE sales.
On fox news. Sheppard Smith about 30 minutes into it had a bit about Denver having highest foreclosures in nation.
‘Hopefully, most of this decline will be due to investors and speculators stepping out of the market. What we don’t want to see is investors dumping homes on the market,’ said Seiders.’
If an ‘investor’ is running at negative cash flow, he/she IS a speculator, by definition. And the HB’s are whistling past the grave yard with these 20-30% cancellation rates that could turn into 40-50% overnight.
And, if the specrr’s start to fold the real buyer (occupant) may have a change of heart thinking prices may fall thereby coumpounding the problem…
occupants are speculators too…they generally bought more than they could easily afford, and they’ll try to dump and run too.
agree…
investors “stepping out of the market”, is that like when Bugs Bunny steps off the crashing plane right before it hits the ground?
Spot on, bruddah!
It’s exactly like that. Sounds nice and painless but it doesn’t really work that way.
on fox news cable during sheppard smith hour at about 30 minute mark had a piece on denver or colorado having highest foreclosures in nation.
Wondering what the average increase in listings are for May. I seem to remember a post that displayed a huge jump due to timing of the fall school season. anyone?
I just heard some sad news. Suzanne was arrested last night on multiple narcotics charges. It comes as a huge shock to her family and friends that she was on something. Even while doing all this research, it was never apparent that Suzanne had a problem. Please pray that she pulls through.
Problem?
Suzanne was merely doing business on the side to make ends meet. If it weren’t for the media and the bubble bloggers and the negative-ninny buyers, Suzanne would still be able to make the payments on her 5000 sf. starter castle and her Escalade.
Don’t you understand? After doing ALL that homework and research to become a Realtor(tm), Suzanne DESERVES her lifestyle.
But I thought that there IS no bubble according to Greenspan, Bernanke, Learah, Bush, and the entire Fed.
I wonder what color the sky is in their world.
DOWN GRADES POSTED ON TOLL BROTHERS AND BEAZER HOMES THIS AFTERNOON
=DJ UPDATE: AG Edwards Downgrades Builders On Slowing Market
04/28/2006
Dow Jones News Services
(Copyright © 2006 Dow Jones & Company, Inc.)
By John Spence
A.G. Edwards analyst Greg Gieber on Friday lent his voice to Wall Street’s chorus of bearish calls on the homebuilding sector this earnings season as declining orders highlight the cooling housing market.
“Over the past several weeks, we have felt increasingly uncomfortable with our investment ratings on select homebuilders given the current environment in the housing industry which we think will only get worse before it gets better,” Gieber wrote in a research note.
Concluding that there were too many buy ratings, he explained the new-home-order data coming out of the sector this earnings period “heightened our worries enough that we circled back and reexamined our builder assumptions and in some cases our earnings models.”
As a result, Gieber cut shares of Lennar Corp. (LEN) and Pulte Homes Inc. (PHM) to hold from buy, and lowered Toll Brothers Inc. (TOL) and Beazer Home USA Inc. (BZH) to sell from hold.
Gieber said his revised view on Toll, which targets the high-end luxury market, has changed due to concern about a correction for more expensive homes and about the stock’s valuation. He forecasts net orders to fall 19% in 2006.
“Contrary to what some may believe, it is our opinion that the current inventory correction in the housing market is far from having run its course,” the analyst said.
He’s also grown more pessimistic on Beazer shares after the company earlier this week said it swung to a quarterly profit but lowered its earnings outlook and posted a 19% order decline from the year-earlier quarter.
Gieber pegged his 2006 earnings estimate for Beazer at $9.80 a share, while the average forecast is $10.40 a share, according to an analyst survey compiled by Thomson First Call.
Meanwhile, Pulte was cut to hold as the analyst said the company “is not one of the homebuilding names in which we would add incremental investment dollars given our discomfort with a highly uncertain near-term housing outlook.”
He emphasized he wasn’t recommending selling shares, pointing to the strength of its Del Webb retirement-home operations.
Pulte earlier this week backed its 2006 earnings target, but on the company’s conference call to discuss quarterly earnings, some analysts were skeptical about whether the company would hit its goals.
Finally, A.G. Edwards lowered Lennar to hold from buy, but the analyst expressed some optimism on the outlook for the homebuilder:
“Lennar is a well-managed builder that has several gems in its California land bank, which should, in time, reward very handsomely those who stay with the stock.”
Yet he also cautioned that the company’s drive in California may not build enough steam to boost the company’s performance until 2008.
“Until then, Lennar has (the) risk of languishing, facing the same problems that afflict other public builders,” Gieber concluded.
-John Spence; 415-439-6456; AskNewswires@dowjones.com
(END) Dow Jones Newswires
04-28-06 1336ET
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being a contrarian, all these downgraders from WallStreet for the builders and public confessions from realtors etc. about a seriously slowing market make me a bit nervous ;-(
You gotta love how these six-figure genuises on Wall Street, with all their fancy models and access to company officials on conference calls got it so wrong. These stocks are down 30%, 40%, even 50% from their highs, and now, they downgrade ‘em? What a bunch of idiots.
Another example of screw the individual investor. All these people are in cahoots, and always a year behind the actual facts. We are in for some very difficult times my friends.
That is why I left Merrill Lynch as I had to do all of my own research to stay alive. Everything I touched of the analyisis
turned to sh__ __.
umm… of course. The stock market is a combination of a slowly rising tide(over the longterm population growth and productivity improvements lead to a market which goes up a percentage point or two more than inflation when averaged over a large number of stocks and a long period of time.) and a great big parimutual betting parlor. (some stocks go up, some go down but the market in equities is quite efficient at finding a price that is very responsive to changes in demand) If you’re using the same tool as everyone else to “pick winners,” the increasing demand from everyone else who would be trying to buy the same stock would very quickly raise the price to a point where the stock would be “overpriced,” according to the analysis that indicated that it was a good purchase.
“All these downgrades”? They’re just getting started. Recall the tech bubble; analysts would “reiterate” their Strong Buys every couple of weeks for months and months, and every time the stock would jump another five percent.
A great proportion of most of the stocks of the homebuilders is locked up pretty good by institutional investors. Despite what we see pricewise on a daily basis, some of these stocks are damn near illiquid in practical terms. Gonna take a lot of downgrades to get the big boys to start throwing their stocks out the window.
“Centex Corp. started the trouble shortly after Wednesday’s closing bell when the company said that it took a 14 cents a share tax write-off on land that has fallen in value.”
If you ask me that statement was the shot heard around the world this week. Did you notice how the HB’s did not bounce today. It’s the “land has fallen in value” part that sent shock waves through the investment community.
Now you have A.G. Edwards point blank stating
“Contrary to what some may believe, it is our opinion that the current inventory correction in the housing market is far from having run its course,”
HB’s were down in the past few days and more importantly down on large volume. Institutions are running for the door. I am very intrigued that the honest realtors and anaylist are surprised at how fast this thing is unravelling. To me that signals there is significant momentum behind this.
This week was indeed pivotal IMO for the HB’s. On Tuesday, the Existing Home Sales report was up 0.3% — statistical noise — but that was used as the excuse to sell the HB stocks (because this strength suggested that FOMC would raise interest rates more). When news that you’re doing better is used as the excuse to sell your stock, then it’s a new ballgame.
What I want to know is… were guys like Lawler saying this six months ago and the media just wasn’t reporting it, or was Lawler slinging the BS just like David Liarrhea back then, and is only changing his tune now and pretending like it was “obvious” to him all along?
There’s a lot of ass-covering going on, starting now, that’s for sure.
‘Was there a national bubble? Nationwide, no, but in some regions, absolutely.’
Even if prices in a region did not rise enough to meet this writer’s definition of a bubble, isn’t it likely that a lot of people in that region jeopardized their equity by taking out or switching to toxic loans in this period? If prices fall precipitously in an area, I’d think the neighboring areas will suffer some fallout and that very little of the country, if any, will sail through this with no hit to their valuations.
Not nationwide, just in some areas, like:
The northeast
The west coast
The midwest
The mountain states
Florida
I heard that Des Moines, Iowa, didn’t have a housing bubble; therefore, it’s not a “nationwide” bubble.
Des Moines has an affordability bubble due to WMD, it is hard to make a mortgage payment on Walmart’s $7.50/hr wage.
I agree. I’ve never understood why “It’s not happening nationwide” is any kind of logical defense. It’s like saying that flooding and hurricanes don’t happen nationwide, so please pay no attention to New Orleans and Florida, no matter how much destruction takes place.
The whole “nationwide” meme has nothing to do with whether individual homeowers are hosed. It is attempting to answer the question; “Are the banks, GSEs etc. in trouble, or have they been able to save themselves by spreading their risk in different markets. The problem is, the “How much trouble are the banks in?” question has little to do with “What percentage of people have risky mortgages?” and everything to do with “What percentage of money has been lent out in risky mortgages?” It seems that some of the expensive areas are among the bubbliest. After all, if prices in the Borough of Manhattan go down 20%, it really doesn’t matter to banks if Manhattan Kansas goes up 20%, their
Flat revenues AND a loss? Last year they were using $100 bills as shredded insulation because they were swimming in it. My BS detector just swung hard to the right and buried itself in the Realtor® setting.
NoVA inventory continues to skyrocket. Anther 250 active listings since yesterday. Inventory now sits at 17,900. Inventory as of this date last year: 3,278
Get this: Loudoun County inventory alone is now over 4,000 (vs. 912 a year ago). That means that the inventory just in Loudoun County alone (which is much smaller than Fairfax County) is now roughly 30% higher than the inventory across all four counties of Northern Virginia was one year ago.
I noticed that the % of reductions keeps growing. In Ashburn, (Loudoun County) where there are 1065 listings, 422 are reduced or almost 40%.
I have family and friends all over N. VA. My newlywed niece and nephew plunked down 300K for a condo in Ashburn a few weeks before their wedding in July. Her mother was wringing her hands about them not “throwing their money away on rent”.
Too bad they couldn’t wait 2-3years. They probably would have been able to buy their place for $150 - $180k or a decent house for $300k
It’s too bad. They now have a $300K mortgage on an apartment - one that they could probably rent much cheaper. It’s funny - five years ago, $300K was a good sum of money even for an established family. Newlyweds woudn’t have dreamed of spending this much; especially on a condo.
The bride is about 25. She had lived with her folks and managed to save up 30K — I am sure that went toward the down payment. The condo fees are so high, too. But all the other teachers were bragging about the tens of thousands they’d “made” by buying their condos and they felt like they were being left out. At the time, 300K was about the lowest for even a small condo. Now they’re quickly crashing down into the 2’s. I really feel sorry for them because I think the world of them, and if I were 25 (and I’m only 35), I would likely have done the same. It was sheer panic mode.
I feel sorry for them too. It was difficult for us to resist getting swept up in the frenzy ourselves. It was only the fact that we’ve seen a housing downturn before that helped us keep our sense of perspective.
Holy Toledo! What a huge increase, much more than we are seeing so far in SF Bay Area.
Those numbers point to a big tumble ahead for RE in NoVA and should have other areas scared too.
only 4 months into 2006 and look how wrong the “Real experts” were.
http://tinyurl.com/zzq7d
Mo Money — glad you saved or found this article. I hope to see similar posted regularly in the coming year or two. Positive reinforcement for the steadfast legion of Ben’s Bears.
I was thinking about e-mailing the headline to the author and asking about what the “real experts” are saying now?
Latest numbers from Miami housing tracker
Trend 04/28/2006 1 month 3 month 6 month 7 month
Median Price $395,900 -0.8% -0.8% -3.4% -4.6%
Inventory 31,926 +7.6% +34.5% +94.4% +117.9%
Wow prices dropped around $20,000 and the inventory is up 94% in 6 months. No bubble here folks…….
Consumer Reports and PMI mortgage Co both have indices correlating the income in various regions to the cost of houses there. I think other companies do similar assessments. In essence, these studies compare average home prices in various metro areas to see if they’re out of whack with incomes there, based on traditional income to price multipliers. Think of pre-qualifying for a mortgage with your own personal income, except these indices try to pre-qualify the “average” person in town to buy the “average” house there.
The indices I’ve seen track home price inflation using the House Price Index from a federal agency called OFHEO, the Office of Federal Housing Enterprise Oversight:
http://www.ofheo.gov/media/pdf/4q05hpi.pdf
As I read it, OFHEO computes HPI by tracking repeat sales of a given APN. In other words, they keep records every time a specific parcel sells from one month or year to the next. When each parcel sells, their program looks back in time to compare the price the last previous time when that same exact parcel sold before. The percentage of increase or decrease for all sales in the area is then averaged to determine the change in the HPI there. It’s an amazing concept when you think of the sophisticated record keeping and correlation. Can anyone confirm this understanding of the HPI methodology? The notes in the OFHEO reports are not a model of clarity.
Here’s my concern with the OFHEO index as I read it. I gather that the HPI does NOT include homes purchased with Jumbo loans. Doesn’t that skew the bottom line and understate the house price inflation in transitional regions where many homes have jumped up recently from relative affordability (I said relative) to flat out exorbitant? That is, what if a large number of buyers are using Jumbo loans in a given town even though those same house were purchased with conforming loans the last time they changed hands? I realize that the Jumbo loan limits have increased, but have they kept pace?
If many homes have sold with conforming loans before, but Jumbo loans in the recent wildfire, then does the inflation for those specific homes just drop off the radar? Are the inflated prices for those transitional homes just trees falling in the forest? Bottom line, I wonder if the OFHEO index understates average house price inflation in these regions that have experienced fastest growth with many sales crossing over the Conforming/Jumbo threshold. For example, Sacramento – a red hot region – started out much more reasonable before the recent run up but has become very pricey. Is the official HPI there understated? Are there any real experts who can comment? Or am I just confused?
I, too, have looked at that data, and have exactly the same concerns about how accurately it represents reality. It’s rather disconcerting how little good data is available to the general public, and how deeply flawed some of what is available is. A journalist looking at that OFHEO data without the time and/or wit to see its shortcomings could easily be mislead.
cancellation question
what kind of deposit do they take ?
even 15% cancellation seems high- just buy on whimsy w $$ ?? how much down
3% likely the max in California…LALAW may know if its different for new construction but I don’t think so…
This is Tom Lawler. I’d get the presentation at NAHB that went along with the quote!
You sir, are part of the problem. How dare you not accept some responsibility for the greatest bubble in the history of the world. Absolutely disgusting and a disgrace for not doing the work of the people. Instead just keeping your job like Nazis
You are Tom Lawler formerly of Fannie Mae?
So how rotten is that core anyways?
Also, I’d like to hear your opinion here: looking at total integrated mortgage debt in America, what percentage of that sum would you say is in “bubble” areas?
A mildly dissenting voice here — if this really is Tom Lawler, we certainly won’t encourage him to reply if we insult him. Polite debate is, I believe, the only way to learn more from his side of the street, at least on this blog.
Well Chip, please direct me to his musings and warnings to the American people over the last few years regarding this enormous bubble. People need honest and ethical people to direct them in their affairs.
Tom:
Please post a link to it then. I would like to see the .PPT
Passions get a bit heated in here but I promise a smackdown for dumb comments that prevent a lively debate.
Why isn’t Franklin Raines in jail? He signed off on financials after Sarbanes Oxley. If you are A CEO and your name is on the financials that are doctored, you should go to the Big House. Smackdown indeed. FNM is rotten to the core. And who worked for FNM.
Same reason that kenny lay isn’t takin it nightly from his new boyfriend Bubba (and bubba’s friends).
Some quotes (allegedly) from/about Tom Lawler:
“Fannie Mae’s expertly crafted Flip Chart of Doom by Thomas Lawler puts into pictures some of the more worrisome aspects of the housing bubble, and it shares some housing bubble trivia along the way. For convenience (or sheer laziness), we’ll divide the “pro bubble” arguments into the following categories:
Above average housing price increases Deteriorating credit standards Unusual investor interest Disregard for poor cash flow returns, focus on appreciation…”
http://www.gold-eagle.com/gold_digest_05/consensus072905.html
“Thomas Lawler, senior vice president for risk policy at Fannie Mae, sees strong prospects for housing busts in some areas of the country as lenders have relaxed terms for home loans. “The probability of such an event occurring has risen sharply in certain parts of the country,” he said recently.”
http://gawain.membrane.com/bucks_county_real_estate/real_estate_speculation.html
Both of these quotes seem to be from early 2005. There are more, but you get the idea. He’s one of us. I think I’ve seen the username here before…IF it’s really him.
If you really are Tom Lawler, thank you for posting here, and for your warnings about the bubble. Your input is greatly appreciated!
I posted more before, but this is additional evidence that Tom Lawler has been warning about a bubble for quite some time:
“Last Update: 2:10 PM ET June 20, 2005
WASHINGTON (MarketWatch) - The possibility of a housing bust has “risen sharply in certain parts” of the U.S., thanks to a number of conditions including easier lending standards, a Fannie Mae executive said.
In a presentation prepared for a National Association of Home Builders meeting May 5, Fannie Mae’s (FNM: news, chart, profile) Thomas Lawler said housing-market conditions in many areas mirror past conditions that preceded regional housing busts. Lawler is senior vice president for risk policy at the housing-finance giant.”
http://www.libertypost.org/cgi-bin/readart.cgi?ArtNum=99125
Warning since the summer of 2005. Two years late, but better late than never. CYA. Why can’t FNM complete their financials. Who advised FNM to take on their risk over the last 5 years? Perhaps a senior vp of risk management.
I’m quite sure he was warning even before that. If you Google his name and Fannie Mae, you will find numerous links. I just posted the most recent/applicable links.
BTW, what happened at FNM is much bigger and more complex than most of us can imagine. Best not to blame anyone here. It this really is Tom Lawler, we stand to benefit greatly from his participation here.
Holden Lewis from Bankrate.com used to post here. I think he stopped because of the flaming. It (flaming excellent sources) is detrimental to those of us who want to learn more.
BTW, here’s the link to the presentation, as suggested by Tom.
http://www.nahb.org/generic.aspx?genericContentID=31952
I concur with Chip’s post. If we intend to have reasoned, intelligent dialogue with “insiders,” we need to behave in a courteous, professional manner. This is not the place for name-calling and thoughtless blaming. We need to check facts before posting. Both Chip and I have been on this blog for a while and we’ve seen very intelligent, informative posters lose interest because of the insults and schoolyard tactics. Please be courteous when addressing other posters.
In no way did I mean to say that Tom was a Nazi. Only, to say, no one can be in the thick of all these problems and then carry on as though it is just part of the job. Please accept my apologies. Am sure Tom is a good guy and just trying to do the best he can. Very difficult times for us all.
Agree totally.
Over at Patrick they’ve got a Florida Realtor posting. He copped a few flames at first, but the regulars have fallen into line to defend him, as his posts appear to be pretty honest.
The more we get genuine ‘views from the trenches’, the more valuable this blog becomes.
CA Renter:
Very Nice work finding it.
Tom Lawler: Great work and how was the presentation received in that particular room?
Am sorry some of you find my statements objectionable. However, as an old duffer, I can not understand how senior executives and politicians lose there ethical and moral compasses. I was brought up to believe that the higher you went up the ladder the higher the bar. If I sound cranky, I am, on this particular subject anyway. Otherwise am really easy going and do not care about a lot nonsense in life.
I hear what you’re saying, but there are too many issues about collegial responsibility to go into on this blog. That said, you are quite correct about the requirements for senior executives and politicians being flouted these days. Maybe it’s because times have been too good for too long.
To pick a couple of examples; I think the Skilling/Lay ‘defense’ is truly disgraceful, and if it was David Lareah rather than Tom Lawler posting I’d be tempted to have a swing myself.
I prefer to think that Lay and Skilling copied the Ebbers defense.
We all know how well that worked out for Ebbers. I think it was 20 years.
Thanks ajh. Am horrified by their defense. Truly sorry to demean this blog. The cost of all this nonsense and deceit to “WE THE PEOPLE” has me very worried. Perhaps I should have said thank you Tom for your service at FNM. Thanks to risk management techniques we will only be on the hook for 10 or 20 billion dollars as opposed to 100 billion. I am looking at the bright side.
Peter,
Thank you for your kind posts. This bubble, and its implications, have many of us worried; I would assume most of the regulars on this blog are VERY worried. There will, no doubt, be very tough times ahead and we will all pay for this mess, one way or another. Hopefully, with the very bright minds on this blog, we can work to avoid being the worst of this bubble’s victims. I think that is the goal of many here.
I wish you the very best, and enjoy having your input here as well. I just want to see as many perspectives as possible, and we can only do that if all reasoned, intelligent posters feel welcome to voice their opinions and observations. We can’t learn anything if we’re only singing to the choir all day.
Good luck to all!
Thank you, I appreciate your kindness. Sorry to have created such a stir.
Peter
Tom: All these people want to talk to you. I will not comment any longer. Please return and enlighten these folks as to how all this happened. Godspeed to all.