The Housing Bubble

Petition signatures of the day:

Realtors are flopping properties to their friends.They are not presenting highest bids to banks. In fact asking money upfront to present. Its criminal, somebody help.

Restricting inventory, a form of market manipulation, will help maintain pricing in the short-term. In the longer term, prices will reset to fundamentals based on incomes. Distorting the markets will have longer term negative consequences.

As Ram it down your throat Emanuel sez…Never let a “crisis” go to waste.

Medvedev sees chance for new world order
St Petersburg

Dmitry Medvedev, the Russian president, said Moscow was bidding to help lead efforts to build a new world economic order after the old system collapsed in the global financial crisis.

Opening Russia’s annual economic forum in St Petersburg where hundreds of global chief executives have flocked, Mr Medvedev said the renewed interest in Russia this year was a sign of a changing world in which the institutions of the western-dominated world order had had their day amid thousands of corporate defaults and the threat of sovereign defaults.

“What had seemed untouchable has collapsed. The bubbles that created the illusion of flourishing economies have burst,” Mr Medvedev said. “For Russia this situation is a challenge and an opportunity. We are living in a unique time. And we should use it to build a modern, flourishing and strong Russia … which will be a co-founder of the new world economic order and a full participant in the collective political leadership of the post-crisis world.”

BP Admits That - If It Tries to Cap the Leak - the Whole Well May Blow

As previously noted, oil industry expert Rob Cavner said that BP must “keep the well flowing to minimize oil and gas going out into the formation on the side”:

This has just been confirmed by BP.

Specifically, BP’s Chief Operating Officer Doug Suttles told CNN last Thursday that BP’s data indicates that BP can’t cap the leaking oil, or it might cause the well casing to blow out:
Suttles denies that there is evidence that the well casing has already blown out beneath the sea floor.

But many experts - including experts working for BP - say that there is damage beneath the sea floor. Indeed, Matt Simmons told Bloomberg today that America’s top research vessel - the Thomas Jefferson - found that the well casing is gone, and can no longer even be seen on the sea floor, having been destroyed:

Lawyer is $61M in debt
Ex-highway commissioner Goodstein files bankruptcy
The Post and Courier June 19, 2010

Straining under the weight of at least $61 million in debts, former state highway commissioner Arnold S. Goodstein has filed for personal bankruptcy.

The Summerville lawyer, who was once head of one of the region’s largest local home-building businesses, owes much of the money to banks that made loans for land he planned to develop throughout the Charleston area, according to court records.

Some of the troubled real estate projects he had been involved with are partially completed subdivisions. Also, some tracts have been taken over by lenders through foreclosure lawsuits.

Goodstein, a 66-year-old former state senator who has a stretch of Interstate 26 named after him, estimated the value of his personal assets at less than $10 million, according to a filing with the U.S. Bankruptcy Court.

“The likelihood he’s going to be able to repay (all claims) is pretty remote,” said Columbia attorney Geoffrey Levy, who represents Goodstein.

http://www.postandcourier.com/news/2010/jun/19/lawyer-is-61m-in-debt/

Looks like we’ll just need to print a little faster, like maybe warp factor 5. I’m given her all she’s got captain.

“This year, the [Social Security] system will pay out more benefits than it receives…accumulated revenue will slowly start to shrink, as outlays start to exceed revenue…[and] by law, Social Security cannot pay out more than its balance in any given year.”

One of these days young workers are going to look at that big chunk from their paychecks marked “FICA” and say “What’s the point of paying this tax? I won’t see a dime of it when I’m old.”

Bankers: BP seeks $1B loan each from 7 banks

LONDON - BP PLC, battling to plug a gushing oil well under the Gulf of Mexico, is seeking loans of $1 billion from each of seven banks to raise up to $7 billion, banking sources told Thomson Reuters LPC on Friday.

BP is raising capital for a $20 billion clean-up fund, said a different senior banker in the United States, referring to the escrow account that U.S. President Barack Obama demanded the company set up to handle damage claims.

BP has asked its main lenders to put a series of coordinated 1-year standby bilateral loans in place, one source said. This type of loan is made by individual banks to a company and are not syndicated.

Big Brother————–

Senators propose granting president emergency Internet power

A new U.S. Senate bill would grant the president far-reaching emergency powers to seize control of or even shut down portions of the Internet.

The legislation announced Thursday says that companies such as broadband providers, search engines, or software firms that the government selects “shall immediately comply with any emergency measure or action developed” by the Department of Homeland Security. Anyone failing to comply would be fined.

That emergency authority would allow the federal government to “preserve those networks and assets and our country and protect our people,” Joe Lieberman, the primary sponsor of the measure and the chairman of the Homeland Security committee, told reporters on Thursday. Lieberman is an independent senator from Connecticut who caucuses with the Democrats.

And another news cycle comes and goes. Anyone else notice how Goldman Sucks has faded back into happy (for them) anonymity?

If I loose my job when the school shuts down, I wonder if I could be a WS Analyst. I mean all I need to do is to put on the Happy Face.

Roidy
P.S. Of course I quit smoking that stuff when I turned 23.

http://news.yahoo.com/s/ap/20100619/ap_on_bi_ge/us_chinese_drywall_7

A Miami couple has been awarded $2.4 million in damages in the first (but by no means last) lawsuit over noxious Chinese drywall that turned their $1.6 million “dream home” into a nightmare. This will open the floodgates for similar litigation from tens of thousands, if not hundreds of thousands, of other homeowners stuck with this toxic crap.

Sounds like Ocean Beach is turning into South Berkeley. Nothing about this story surprises me, especially given the dim prospects for even highly-qualified young people entering the labor force for the first time.

For reference, Ocean Beach is a San Diego community south of Mission Beach and La Jolla, and north of Point Loma and the San Diego Harbor.

O.B.’s homeless fight
Controversial bumper stickers target new type of transient

By John Wilkens, UNION-TRIBUNE STAFF WRITER

Friday, June 18, 2010 at 9:59 p.m.

A sticker at the South Coast Longboards surf shop in Ocean Beach urges people not to feed the homeless. Aimed to thwart what some call aggressive panhandling, the stickers have sparked controversy.

Charlie Neuman

A sticker at the South Coast Longboards surf shop in Ocean Beach urges people not to feed the homeless. Aimed to thwart what some call aggressive panhandling, the stickers have sparked controversy.

Ocean Beach has always had a thing for bumper stickers. “Coexist” is a popular one. “Shut Your Mouth and Open Your Mind” is another. And there’s this classic in counterculture bravado: “U.S. Out of O.B.”

Now, a new sticker is raising eyebrows and tempers along the community’s main commercial drag, Newport Avenue, causing some to wonder what’s happening to the scruffy town’s legendary “live and let live” vibe.

“Welcome to Ocean Beach,” the sticker reads. “Please Don’t Feed Our Bums.”

A homeless controversy in O.B.? Yes, and it started, of all places, in a head shop.

That would be The Black, which has been around for 40 years and sells much more than “tobacco” paraphernalia these days. Ken Anderson, an employee there, got together with a friend a few weeks ago and came up with the idea for the stickers, which he had printed and now sells in the store.

Anderson said he’s fed up with what he characterizes as a new strain of transient — young, able-bodied, rude and aggressive. These are panhandlers, he said, who travel in groups with pit bulls and knives on their belts and don’t ask for spare change so much as demand it.

“They have no respect for O.B. or for the people who live here,” said Anderson, 42, a 19-year resident.

He talked of friends who have been held up by machete-wielding street people, of merchants whose awning-covered doorways have been turned into trash cans and toilets. He said transients call him “a sellout” for having a job.

“The homeless guys who have been here a long time know us and we know them and they do their best not to bother people,” Anderson said. “These young kids aren’t like that. They don’t want to work. They just want to coast.”

Transients known as “travelers” move from city to city in groups, and for them homelessness is more of a lifestyle than a circumstance, said David Surwilo, the San Diego Police Department’s community relations officer in Ocean Beach. Some have credit cards and cell phones, he said.

“People in Ocean Beach are getting frustrated,” he said. “The sticker is their way of saying, ‘Let’s stop these people from parasiting off the community.’ ”
…

BP Oil Spill: As Pay Czar Promises Money, Workers Turned Away From BP Claims Center
Feinberg Says Money is on the Way; Coast Guard Defends Spill Response, Saying Regulations Got in the Way

Kenneth Feinberg arrived at the Louisiana State Capitol today in Baton Rouge with a mandate from President Obama — get the money flowing to the people of the Gulf.
Louisiana Governor Jindal frustrated over decision-making red tape.

Millions of dollars worth of claims have been filed by businesses and people who’ve lost their livelihoods because of the BP oil spill, but 60 days into the crisis, lawmakers say the company has paid only 12 percent of them.

Feinberg promised that will soon change and encouraged workers to file their claims. President Obama this week named Feinberg as his “pay czar” for BP’s oil spill escrow account.

“We’ll decide who will get paid,” he promised, saying “we’re going to get them paid immediately.

Regulators shut down Nevada bank, making for 83rd bank failure this year in US

WASHINGTON (AP) — Regulators on Friday shut down a Nevada bank, raising to 83 the number of U.S. bank failures this year.

The Federal Deposit Insurance Corp. took over Nevada Security Bank, based in Reno, with $480.3 million in assets and $479.8 million in deposits. Umpqua Bank, based in Roseburg, Ore., agreed to assume the assets and deposits of the failed bank.

The failure of Nevada Security Bank is expected to cost the deposit insurance fund $80.9 million.

In addition, the FDIC and Umpqua Bank agreed to share losses on $368.2 million of Nevada Security Bank’s loans and other assets.

Obama Parkway To Alleviate Traffic In Orlando.
3-Mile Roadway To Link Area In Orange Co.

ORLANDO, Fla. — The city of Orlando broke ground Friday morning on a new roadway project expected to bring plenty of jobs to Central Florida.

The project is named after the president.

Mayor Buddy Dyer will be on hand for ground breaking of the President Barack Obama Parkway Extension Project.

The 3.3-mile stretch will link what was formerly Pine Hills Road and Mission Road in Orange County.

It’s expected to relieve traffic from some of Orlando’s most congested roads.

Medicare Payment Cuts to be Implemented Despite Senate Action.

In Late Senate Vote, Democrats Promise Six-Month “Doc Fix” Extension Won’t Add to Deficit.

Doctors who treat Medicare patients will be subject to a 21.3 percent cut in their payments — at least for now — despite a last-minute effort by the Senate to delay the cuts.
In his weekly address, the president asks Congress to act on Medicare measure.

The Senate today passed a six-month extension of the so-called Medicare “doc fix” after Democrats agreed to a Republican requirement that the extension not add to the deficit. The Senate’s late action only gets the bill a third of the way into law. The measure has to be voted on by the House of Representatives and then signed by President Obama, and until then, the Centers for Medicare and Medicaid have to pay doctors the reduced rates.

“We have to pay under the current law and the current law is the -21.3 percent,” a spokesperson for CMS told ABCNews.com. Until both the Senate and the House pass “the bill and the president signs it, the changes are not effective. So we can’t pay under that until the bill becomes law and there is no change in what we are paying.”

This applies to the U.S. and a dozen other countries.

Economy may never recover from banking crisis, warns OBR
Francis Elliott, Gráinne Gilmore

The economy, more damaged by the banking crisis than previously admitted, will grow more weakly and may never fully recover, the new Office for Budget Responsibility (OBR) said yesterday.

The conclusion adds billions of pounds to the total that George Osborne must find if he is to restore the public finances to health.

Public sector workers were warned yesterday that taxpayers could no longer afford their “unreformed, gold-plated pension pots” as the Lib-Con coalition Government used the first OBR forecasts to step up efforts to prepare voters for next week’s Budget.

Growth is forecast at 2.6 per cent next year and 2.8 per cent in 2012, far below Alistair Darling’s predictions for 3.25 and 3.5 per cent respectively. This leaves Britain’s structural deficit — which is impervious to the economic cycle — bigger than feared over the next five years. It will hit 8.8 per cent of GDP, or £123.7 billion this year, compared with Mr Darling’s forecast of 8.4 per cent of GDP. By 2014-15 it will have fallen only to 2.8 per cent of GDP, the budget office said, rather than the 2.5 per cent anticipated by Labour.

It will never cease to amaze me how gullible some people are, easy targets.

The New Poor. Peddling Relief, Firms Put Debtors in a Deeper Hole.

PALM BEACH, Fla. — For the companies that promise relief to Americans confronting swelling credit card balances, these are days of lucrative opportunity.

So lucrative, that an industry trade association, the United States Organizations for Bankruptcy Alternatives, recently convened here, in the oceanfront confines of the Four Seasons Resort, to forge deals and plot strategy.

At a well-lubricated evening reception, a steel drum band played Bob Marley songs as hostesses in skimpy dresses draped leis around the necks of arriving entrepreneurs, some with deep tans.

http://www.nytimes.com/2010/06/19/business/economy/19debt.html?ref=business

I haven’t been inside a movie theater in more than 15 years, so that puts me in the minority.

‘Toy Story 3′ lives up to its buzz with $41M opening day, aims for $100M weekend. June 19, 2010

LOS ANGELES (AP) — “Toy Story 3″ has become the favorite plaything for moviegoers as the animated sequel heads to a $100-million-plus opening weekend.

The latest hit from Disney’s Pixar Animation took in $41 million in its first day Friday, according to studio estimates.

That puts “Toy Story 3″ on track to join “Shrek 2″ and “Shrek the Third” as the only animated films to top $100 million in their debut weekends.

The Russian oil guy that said last week, they will need to nuke it to stop it, may be right. This problem is no where near being solved.

BP oil disaster: How much oil is left? (AP)

BP oil disaster: The underwater oil field still holds 94 to 97 percent of its oil, meaning that it could keep gushing for another two to four years.

BP CEO Tony Hayward says the reservoir that feeds the gushing well in the Gulf of Mexico probably still holds about 2 billion gallons of oil.

Appearing before a House subcommittee, Hayward estimated that the reservoir tapped by the out-of-control well holds at least 50 million barrels of oil. At 42 gallons per barrel, that’s 2.1 billion gallons.

According to government estimates of daily flow figures, anywhere from 73.5 million to 126 million gallons gushed from the breached wellhead — whether into the water or captured.

That means the reservoir likely holds 94 to 97 percent of its oil. At the current flow rate, it would take from two to nearly four years for all the oil to leak from the field if it can’t be stopped.

Unwed Daughters in Greece Catch ‘Time Bomb’ in Pension Overhaul

(Bloomberg) — Sophia Constantinidou works as a teacher in a private school in Athens. She also has a more lucrative job: remaining unmarried.

The 52-year-old gets 400 euros ($496) a month from the Greek government, part of her late mother’s state pension. Under the current system, Constantinidou qualifies to receive the payment for life as the only surviving child of a deceased civil servant, provided she doesn’t tie the knot.

“It’s not that I didn’t want to get married,” Constantinidou, whose mother died 20 years ago, said in an interview. “But after I turned 40, I realized I wouldn’t be getting married and that thankfully I had this.”

As the European Union, International Monetary Fund and bond investors scrutinize debt-ridden Greece, they need look no further than the pension system for a prime example of how the country is living beyond its means. Greek pensioners on average live on 96 percent of the salary they had when they worked, more than twice the proportion of earnings as Germans, according to the Organization for Economic Cooperation and Development.

Greece “is a classic case of entitlements granted by short-sighted governments that didn’t bother to secure financing sources,” said Miranda Xafa, a former director at the IMF and now a senior investment strategist at Geneva-based IJPartners. “The political benefit of pension entitlements granted is immediate, but the cost will be incurred later.”

Dingle-Barry sez…

Obama says GOP making life harder for the jobless.

WASHINGTON (AP) — President Barack Obama on Saturday pinned blame on Republicans for making life harder for the unemployed and for those who could lose their jobs without new federal intervention. He did so even as he sought to distance himself from the “dreary and familiar politics” of Washington.

Capping a week in which the administration scored a victory — a $20 billion fund to be paid by BP for the victims of the Gulf of Mexico oil spill — Obama reserved his radio and Internet address to focus on the work that didn’t get done.

His main concern was the rejection of a bill in the Senate that would have provided more money for the long-term unemployed, aid for strapped state governments and the renewal of popular tax breaks for businesses and individuals.

“If this obstruction continues, unemployed Americans will see their benefits stop,” Obama said. “Teachers and firefighters will lose their jobs. Families will pay more for their first home. All we ask for is a simple up or down vote. That’s what the American people deserve.”

I just spoke to a women living in California who invested her nest egg in two Commercial properties near Syracuse NY. One is a 29,891 sq ft. The tenant DHL has left the building and did not renew their 5 year lease. The tax bill for the property is 60K. She mentioned she also has a mortgage, maintains the property around 50 degrees in the winter months and in 07 the town required an updated sprinkler system. The cost for the sprinkler system was above 70K. The building has new heating and air conditioning system. Now add the bill for snow plowing and this landlady carrying cost is well over 100K per year. She is in her golden years and said she is almost bankrupt. The building is one of the best in the area. Her price to rent the building to us is 50 cents a square foot per month. It is a nice building. I think we will wait and offer her less than half the asking price. I can remember the cost to rent a 75,000 square ft building in Elizabeth NJ in 1988 was 0.25 cents per square ft. The rental prices have come down.

We just leased another office in a very prestigious building that includes heating, air conditioning, nightly janitorial service included, indoor parking, freshly painted with 3 large offices. Now with a drum roll please the total cost to us (are you all sitting down) is $2400 per year. The leasing manager mentioned that “The chance for them to rent this office space was if a guy gets hit on the head with an apple and then walks into his office looking for a commercial space could he have gotten market rent. He took what we offered. I was SHOCKED when they accepted my crazy offer. It shows Cash is king.

Its time to squeeze our current landlord and show them who’s the boss.

Wow, democracy in action!

Vote system that elected NY Hispanic could expand.
The Associated Press

PORT CHESTER, N.Y. — The court-ordered election that allowed residents of one New York town to flip the lever six times for one candidate - and produced a Hispanic winner - could expand to other towns where minorities complain their voices aren’t being heard.

But first, interested parties will want to take a look at the exit surveys.

The unusual election was imposed on Port Chester after a federal judge determined that Hispanics were being treated unfairly.

The 2010 Census is expected to show large increases in Latino populations and lawsuits alleging discrimination are likely to increase, said Rob Richie, executive director of FairVote, a nonprofit election research and reform group.

“The country’s been changing in a lot of places, with minority growth in exurbs and commuter cities, and there will be a realization that those minorities can’t elect candidates of choice,” Richie said.

Simple fix, just spank the hell out of the taxpayers and rise taxes.

California tax collections fall almost $5B
Sacramento Business Journal

The California State Board of Equalization collected about $4.7 billion less in 2008-09 than the previous fiscal year, a decline of 8.9 percent, the agency reported Friday.

The Board of Equalization collected $48.4 billion in revenue in taxes and fees that support state and local government services, including health care, education and transportation. The state’s share of those collections, a news release said, totaled $36.7 billion, nearly 35 percent of all state revenue for the fiscal year.

By Hao Li | June 18, 2010 4:47 PM EDT
Shadow inventory to put pressure on home prices

Properties emerging from foreclosures that are likely to be reintroduced to the housing market, or “shadow inventory,” will put downward pressure on real estate prices for the next few years.

Richard DeKaser, president of Woodley Park Research in Washington, explained that foreclosed properties go back to the lenders, who can then have the choice of selling them back to the market.

The lenders are managing this reintroduction of foreclosed properties “judiciously,” said DeKaser.

“[Lenders] are not dumping them as quickly as they come in. They are trying to move the properties in a manner that maximizes value.”

Many lenders are attempting to realize rental income from foreclosed properties while they wait for prices to rebound. As soon as prices do rise, lenders sell their properties.

Thus, DeKaser expects this glut of inventories – ready to be unloaded whenever prices rise – to prevent real estate prices from meaningfully appreciating over the next few years.

DeKaser – using data from the Mortgage Bankers Association and the Commerce Department – roughly estimates the current backlog of inventories at 1 million units. This figure could potentially increase in the near future if new foreclosures pile up faster than expected.

Even if assuming that the rate of new filings for foreclosure has hit its peak, DeKaser estimates that it will take around three years for the market to bring the glut of inventories to “less onerous levels.” For inventories to return to “normal levels,” it may take 5 years or more.

Gary Shilling of A. Gary Schilling & Co. said in a Tech Ticker interview that he expects housing prices to fall 20 percent over the next three years.

Shilling’s thesis is that there is simply a glut of supply in the market, citing shadow inventory as one contributing factor. He estimates that overall, the real estate market is currently burdened with 2.1 million units in excess of “normal working levels.”

Shilling concluded his bearish thesis by saying that since the 1890s, housing prices have been essentially flat when one accounts for the larger physical size of homes and general inflation.
…

“The combination of rising delinquencies, higher foreclosures, more housing inventories, increasing interest rates on many mortgages and greatly reduced availability of mortgages due to limited liquidity is creating what we call a near-perfect storm for housing.”

Kerry Killinger, CEO Washington Mutual, September 10, 2007

WSJ Blogs
Developments
Real estate news and analysis from The Wall Street Journal

* June 17, 2010, 9:55 AM ET

Shadow Problem: Home Price Declines May Land in Cities That Largely Avoided Them

By Nick Timiraos

Housing markets that have escaped the brunt of home-price downturns may not be home free.

A new report shows that the “shadow inventory” of homes, with delinquent mortgages that have yet to go through the foreclosure process, is growing fastest in areas that have so far avoided the biggest home-price declines, according to a report by ratings agency Standard & Poor’s.

Mortgage companies could be forced to reduce their prices on these foreclosued homes as they work through that supply, and as more of those homes sell, that could continue to put pressure on prices. At the top of the list: the New York City area, where at the current rate it would take 103 months to clear the shadow inventory of loans that are more than 90 days delinquent or in foreclosure. That’s nearly 3.5 times the national average.

“The big problem of course in the New York metro area is that we have not had the re-pricing that the West Coast has had,” says Daniel Alpert, managing partner at Westwood Capital LLC, an investment fund. “This is very similar to what happened in the early 90s where the crisis moved regionally from one area to another.”

After the New York region, Miami has the largest backlog with a 62-month supply. But unlike New York, Miami’s shadow inventory has fallen from its March 2008 peak of 129 months. New York’s backlog has held at more than 100 months since early 2008.

Indeed, cities that avoided the worst of the housing downturn so far—and which have seen fewer distressed sales—are now seeing a bigger increase in shadow inventory, as prices adjust in some of those late-to-the-party markets. Phoenix and Las Vegas, which have had the sharpest price corrections, also have among the lowest levels of shadow supply, at 18.5 and 21.4 months, respectively.

The biggest increase in shadow inventory came in Dallas, which had a 43-month supply, up from 19 months in September 2008. Other cities with big increases in recent months include Atlanta, Boston, Denver and Charlotte. Shadow inventory has remained elevated, but hasn’t increased much, in both Seattle and Portland.

Nationally, foreclosure timelines have swelled over the past two years as lenders deal with rising piles of delinquent loans and as they are under pressure to modify those loans and avoid foreclosures. But so-called “judicial” states that require banks to get a court order in order to foreclose, including New York, New Jersey and Florida, have seen foreclosure timelines grow even larger.

WSJ Blogs
Developments
Real estate news and analysis from The Wall Street Journal

* June 16, 2010, 11:16 AM ET

Home-Buyer Psychology Changes, Fuels Rental Market

By Dawn Wotapka

As the housing downturn drags on and on, (today comes news that starts dove 17% in May) the apartment sector is picking up. As I write in today’s Journal, some of the nation’s largest apartment-building landlords are reporting an end to rent declines.

The main reason is demand: The first four months of this year saw the strongest apartment demand in a decade. “It’s a much more bullish sign than anticipated,” Hessam Nadji, managing director of Marcus & Millichap, tells Developments.

With layoffs no longer dominating the headlines those who have kept their jobs or who found new ones are more likely to ink leases. Renters who bunked with roommates during the crash - and are probably tired of them by now - are striking out on their own, while others are upgrading from that bargain-priced unit to one with amenities. Meanwhile, the jobs market doesn’t look that great. The newly employed may be hesitant to commit to a 30-year-fixed mortgage, no matter how low rates are.

Plus, now that the first-time home-buyer tax credit is history, fewer renters are exiting for homeownership, companies report. Some tenants are even sticking around by choice, aware they don’t have to worry about their home’s plunging value or fear owing more than their house is worth. They can “wait out the turbulence in the single-family market,” says Jeffrey Friedman, chief executive of Associated Estates Realty Corp., an Ohio-based apartment landlord.

David Neithercut, chief executive of Equity Residential, the nation’s largest landlord, has noticed this “psychology change” in consumers.

There is “a change in one’s thought process about the benefits or wisdom of owning a single-family home,” he said at a recent industry conference. “There is no one in this room who doesn’t know someone who is upside down in a house or whose parents can’t sell the home to move to Florida or … know someone who can’t sell their house and move to another community to take a new job opportunity.”

WSJ Blogs
Developments
Real estate news and analysis from The Wall Street Journal

* June 16, 2010, 6:22 PM ET

Delisting Fannie, Freddie: Clearing the Path for Change

By Nick Timiraos

Developments has spilled plenty of ink about what’s going to happen to Fannie Mae and Freddie Mac in the future, but we haven’t focused much on the fact that these companies still have shareholders and are still traded on the New York Stock Exchange.

One reason for the oversight: The companies’ stock probably isn’t worth anything.

The move should remove lingering doubts about whether these are independent companies that have any residual value. Yes, they’re still going to be registered with the Securities and Exchange Commission. And yes, they’re still going to be traded over-the-counter at the NYSE.

But the Federal Housing Finance Agency decided it wasn’t worth taking the steps necessary to avoid the delisting—by submitting a plan to bring the share price above $1—because it wasn’t clear that such a plan would work, or that it would even be in the interest of shareholders and the government to do so.

Many analysts for months have maintained that the companies’ shares aren’t worth anything because Fannie and Freddie have run up such spectacular losses as a result of the housing bust. To become profitable again, the companies would have to stop losing money and pay back the $145 billion that they’ve taken in government aid just to get back to a break-even point. From there they’d have to recapitalize themselves before shareholders could see any gains.

Given that the companies’ circumstances haven’t changed much, “it somewhat raises the question why it wasn’t done earlier,” says Jim Vogel, an analyst at FTN Financial.
…

Authorities reveal mortgage fraud crackdown, 485 arrests.

WASHINGTON (Reuters) - U.S. authorities have charged 1,215 people in hundreds of mortgage fraud cases that resulted in estimated losses of $2.3 billion, top Obama administration officials said on Thursday, unveiling a crackdown after the housing market collapse.

The administration has been under pressure to root out mortgage fraud and improve oversight of the housing market after the housing bubble touched off a global economic slide and led to a cascade of home foreclosures in the United States.

Over the last three-and-a-half months, authorities have made 485 arrests in the fraud cases, obtained 336 individual convictions and recovered more than $147 million, the Justice Department said.

Since nobody stays in a home long enough to pay off a 30-year mortgage any more, this is simply a scam device to inflate home prices and give Megabank, Inc a rationale for charging an interest rate in excess of what is appropriate for a five-year loan. The extended example I posted here a couple of days back demonstrates that after five years, a large share of mortgage payments (e.g. 76 percent in the scenario I explored) go to the bank as interest, while only a small share (24 percent in my example) go to paying off principle. Many who bought in 2006 will discover that more than 100% of their principle payments have been negated by declines in housing market value.

Most financial innovations are best interpreted as scams to help Megabank, Inc separate American Main Street households from their wealth; the 30-year mortgage is a fine example of this.

WSJ Blogs
Developments
Real estate news and analysis from The Wall Street Journal

* June 14, 2010, 12:54 PM ET

Radical Ideas From a Federal Housing Bureaucrat

By James R. Hagerty

As the chief economist of the Federal Housing Finance Agency, Patrick Lawler is usually confined in his public remarks to discussing such matters as the seasonal adjustment of home-price indexes. So I wasn’t expecting much excitement when Mr. Lawler rose to speak last week during a panel discussion at a housing-policy conference hosted by the Federal Reserve Bank of Cleveland.

It turns out, however, that Mr. Lawler has been quietly pondering some radical notions about how the U.S. might reorder its housing policies–insights acquired during more than 20 years as a regulator and Senate banking committee staff economist.

Allotted only about 10 minutes to share his vision, Mr. Lawler–who is no relation to Tom Lawler, another provocative housing economist we often quote–first made the obligatory statement that he was expressing his own views and not those of his federal agency. Yeah, right, I thought, and reached for my triple espresso.

But then Mr. Lawler launched a frontal assault on the most sacred element in U.S. housing-policy dogma: the 30-year fixed-rate mortgage loan, providing the right to refinance at any time, with no prepayment penalty. If more members of the audience had been fully awake at this moment, I feel sure that their gasps would have been audible.

Now, Americans are very attached to their 30-year fixed-rate freely prepayable mortgages. They like not having to fuss about the possibility of 28% interest rates in 2032, even though most of us will move or die long before then. They love to refinance every time rates drop and then brag to their neighbors about how much they are saving per month.

What they don’t stop to realize often enough is that they are paying a very large price for that privilege– twice.

In the first place, mortgage rates are higher than they otherwise would be. That’s because lenders and mortgage investors must build in protection for the risk that we will prepay and stick them with a lower yield than they were anticipating. Mr. Lawler estimates that Americans pay at least an extra 0.25 to 0.50 percentage point in rates because of this option to prepay without penalty. They also pay another premium-–sometimes a percentage point or two–for having a long-term fixed rate. Over 30 years, that translates into some real money, but no one ever mentions that when bragging to the neighbor.
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“Help! I’m shrinking, I’m shrinking…”

WSJ Blogs
Developments
Real estate news and analysis from The Wall Street Journal

* June 14, 2010, 5:58 PM ET

New Homes Getting Smaller…Smaller

By Dawn Wotapka

America’s love affair with McMansions continues to wane: The size of new single-family homes completed last year dipped to an average 2,438 square feet, according to the National Association of Home Builders trade group, which analyzed Census data.

The downsizing ends an expansion that spanned nearly three decades: The average home sized peaked at 2,521 square feet in 2007. It came in flat in 2008 and fell in 2009 as builders built smaller, less ornate homes priced lower to compete with foreclosures.

More of these smaller homes are single story. Last year, the share of single-family homes with one story increased to 47%. As America’s passion for supersized showpieces dragged on, the proportion of one-story homes had declined for more than three decades, hitting a low of 43% in 2006 and 2007.

The new generation of homes has fewer bedrooms: Just 34% of last year’s homes had four or more bedrooms. Between 2005 and 2009 - years that include the building boom - the proportion of homes with three bedrooms jumped from 49% to 53%.

Fewer bedrooms means fewer bathrooms. The percentage of homes with three or more bathrooms came in at 24% last year, down from a peak of 28% in both 2007 and 2008.

Home sizes have fallen before, but this time the change might stick around for some time.

“We also saw a decline in the size of new homes when the economy lapsed into recession in the early 1980s,” says David Crowe, the NAHB’s chief economist. “The decline of the early 1980s turned out to be temporary, but this time the decline is related to phenomena such as an increased share of first-time home buyers, a desire to keep energy costs down, smaller amounts of equity in existing homes to roll into the next home, tighter credit standards and less focus on the investment component of buying a home.”
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Is anyone interested in a San Diego luxury home in the $4m+ price range? There are currently 267 of them on the MLS (at least on RedFin dot com’s version thereof) with an average list price of $8.4m and an aggregate value according to sellers’ list prices north of $2.24 billion. Too bad there is such an overhang of multi-million dollar properties with few millionaires around to buy them.

Reality is hard, but fantasy is easy — even a three-year-old can do it!

* ESSAY
* JUNE 19, 2010

The Benefits of the Bust
The financial crisis is leading to a new model of capitalism; the inadequacy of modern economics

By ANATOLE KALETSKY

An economist, a chemist and a physicist are marooned on a desert island. Their only food is a can of beans, but they have no can opener. What are they to do? The physicist says: “Let’s try and focus the tropical sun onto the lid—it might melt a hole.” “No,” says the chemist. “We should first pour saltwater on the lid—maybe that will rust it.” The economist interrupts: “You’re wasting time with all these complicated ideas. Let’s just assume a can opener.”

This little joke, a favorite among economists, tells us more about the causes and consequences of the 2007-09 crisis than any number of ministerial speeches, Wall Street research reports and central bank monographs. The propensity of modern economic theory for unjustified and oversimplified assumptions allowed politicians, regulators and bankers to create for themselves the imaginary world of market fundamentalist ideology, in which financial stability is automatic, involuntary unemployment is impossible and efficient, omniscient markets can solve all economic problems, if only the government will stand aside.

In the new economy emerging from the financial crisis, the self-serving assumptions of efficient, self-stabilizing markets have been discredited, but something will have to be put in their place. Since the 18th century, each transformation of the capitalist system has coincided with a transformed understanding of economics—Smith and Ricardo from 1780 to 1820; the marginalist revolution of Mill, Jevons and Walras in the 1870s; Keynes in the 1930s; and Friedman in the 1970s. The new model of capitalism will also have to build on new economic concepts—and the events that followed the collapse of Lehman Brothers must surely provoke a revolution in economic thought.

The greatest embarrassment for academic economics in the 2007-2009 crisis was not the failure to predict the crisis but the failure to provide any useful guidance for politicians and central bankers after the crisis struck. The failure of analysis was much more damning than the failure of prediction because economics has never seriously claimed to be a predictive science. Keynes never published an economic forecast, and neither did Hayek, Ricardo, or Adam Smith. What economics did claim to offer was a set of analytical tools to explain reality and suggest sensible responses to unexpected events. It was in this respect that contemporary economics revealed its inadequacy.

Although the academic recommendations from the Left and the Right differed in almost every particular, including on stimulus spending, they had one striking feature in common—a detachment from reality that made them completely useless for all practical purposes.
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Adapted from “Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis” by Anatole Kaletsky, to be published Sunday by Public Affairs, a member of the Perseus Books Group. Copyright © 2010 by Anatole Kaletsky.

This disconnected dunce is out at a regatta while Barry plays golf.

Gulf residents outraged by BP CEO’s yacht outing.

VENICE, La. (AP) - Just when it seemed Gulf residents couldn’t get any more outraged about the massive oil spill fouling their coastline, word came Saturday that BP’s CEO was taking time off to attend a glitzy yacht race in England.

Tony Hayward’s latest public relations gaffe didn’t sit well with people in the U.S. who have seen their livelihoods ruined by the massive two-month oil spill.

“Man, that ain’t right. None of us can even go out fishing, and he’s at the yacht races,” said Bobby Pitre, 33, who runs a tattoo shop in Larose, La. “I wish we could get a day off from the oil, too.”

As social networking sites like Twitter and Facebook lit up with anger, BP spokespeople rushed to defend Hayward, who has drawn withering criticism as the public face of his company’s halting efforts to stop the worst oil spill in U.S. history.

Robert Wine, a BP spokesman at the company’s Houston headquarters, said it’s the first break Hayward has had since the Deepwater Horizon rig exploded April 20, killing 11 workers and setting off the undersea gusher.

Huge Tax Error Costs $5 Million

HAUPPAUGE, N.Y. - Long Island officials say a mammoth error in a single state tax return is costing Suffolk County $5 million in sales tax revenue.

County budget officials said the taxpayer listed that $10 million in sales tax was owed on out-of-state Internet purchases.

The county’s chief budget aide, Connie Corso, said the taxpayer had meant to write $1,000.

County budget aides say the $10 million figure should have raised a red flag because the taxpayer would have had to spend $116 million in purchases.

The state Department of Taxation and Finance said it could not immediately comment on how the mistake was overlooked and how it was discovered.

The error reduced first-quarter tax receipts by nearly half.

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