Bits Bucket And Craigslist Finds For June 22, 2006
Post off-topic ideas and Craigslist finds here!
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
Location:Northern Arizona, United States
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Inventory in Phoenix is through the roof:
http://tinyurl.com/qqdez
David
http://bubblemeter.blogspot.com
long island inventory also growing daily by at least 100+:
32,761 today; will we see 50k by year’s end?
http://tinyurl.com/zqw9s
HI from Phoenix
I am planning a Phoenix housing bubble party on July 9th. Anyone who wants to attend can e-mail me at kbarrett(at)CSKauto.com Those of you who have already responded will get an e-mail from me with the location information.
beter to make in vegas esier to fly in more bars hotels and killer brunch
Las Vegas would be the perfect place!
I’ve thought about this as well, and think Vegas would be a great place for the “official” Ben’s blog party.
I think AZ golfer is just doing an informal get-together in July. No reason more of us can’t do the same. Seems like a lot of us are in the same areas (FL, CA, NV, etc).
David Lereah’s Changing tune.
http://tinyurl.com/jdgdk
David
http://bubblemeter.blogspot.com
GDW reports May operationals.
http://biz.yahoo.com/bw/060620/20060620005387.html?.v=1
Notice how steadily rates are passed on to their borrowers, tick, tick:
Feb: 6.60
March: 6.71
April 6.82
May: 6.93
Notice how rapidly their cost of funds rises:
Feb: 4.01
March: 4.14
April 4.27
May: 4.40
very little deposit growth:
Feb: 61,056
March: 61,583
April: 61,063
May: 61,650
forced to borrow more from other sources:
Feb: 54,796
March: 55,461
April: 56,399
May: 56,239
Yield spread contracting:
Feb: 2.57%
March: 2.55
April: 2.53
May: 2.51
GDW and their borrowers are being sandpapered.
Go to GlobeXplorer:
http://tinyurl.com/rh6la
Type in Wittmann, AZ. And tell me that land they bought is worth 55K/acre. There is no infrastructure, no town to speak of(pop. 3000), and undeveloped land everywhere. What am I missing?
Interesting here in Salinas: RE agents are still trying to put a face on there are no declining prices and property is hot,hot,hot. RE ads tell a different story for someone paying attention. In the for sales are a lot of homes listed as sold, but these same ’solds’ have been in the paper for at least a month. Then they list the pendings, something that wasn’t done in the heat of the bidding wars.
Yesterday when I was downtown I noticed that two of the bigger mortgage offices (size of operation) had commercial space available signs out front and one has definitely cut their office space by half and the other looks like it might be closing shop soon.
When I went for a walk last evening I saw houses that were now vacant and more people were out walking; I think they are people out checking out the ‘for sale signs’ in their neighborhood. More signs are starting to sprout up.
And lastly, I am seeing fly-by-night mortgage companies appearing out of nowhere. No fancy signs, just poster painted windows advertising cheap mortgages, etc. Looks like something you’d fine in East LA. Anyone else seeing this in their area?
A lot of those “fly by night” mortgage operations are mortgage brokers who were either laid off or frustrated with working for a big lender. I know a bunch of people who left (or were let go) from big lenders. Since big lenders are steering clear of the no-document, I/O, option payment loans or other exotic loan products (out of fear of a class action lawsuit or government settlement like Ameriquest) they have created an opportunity for former brokers who are stupid enough to offer these products. what they don’t see in the near future is when people start defaulting on their loans and loosing their homes its not their fault… The class action lawsuits will start and the mortgage brokers will get sued for preditory lending & using high pressure sales tactics to push people into un-affordable loans, or they will just sue them for lying about interest rates or other tricks brokers use to sucker you into a bad loan.
Pretty hard to sue the broker. Everything is fully disclosed in the documentation that is being signed throughout the process. Now, I’m not going to sit here and tell you that deception in not being employed. Loan officers will make a million promises and dress up a pig to look like a prom queen, which leads to the borrowers just zinging though the paperwork, signing without even looking. One of the things that LO’s have played on is that, in this mania, people have been soo eager to get a home at any cost that they would willingly sign away their firstborn. But, the bottom line is that the paperwork fully discloses the terms of the loan, and in court it’s the signed documentation that will hold up, not a he-said-she-said.
Trust me, I’m not defending my industry. What I’ve seen and could tell you over the last few years sickens me. Greed prevails, and ethics are thrown out the window. There was a time I could feel good about being a mortgage broker. That time has passed. The last few years has ruined our industry.
Wow. I am really sorry. Hopefully, there will come a time when you can again feel good about your work. Sounds like it is not a good time for the thoughtful and consciencious.
I have to admit that I have bad feelings about lenders right now. We went to a group that has a good reputation locally, and I should feel grateful for the time the staff put in talking to us about their products, but the thing I mostly remember is how they were pushing an IO option arm on us, which seemed crazy at the time, and even more so after I did some research (we decided is was not a good time to buy, and we are waiting out the market). Guess I had naive, “It’s a Wonderful Life” type feelings around local lending institutions going into the thing. Now I tend to feel that they are stupid at best. I feel the same way about local realtors, which is a shame, because they are mostly just normal people trying to do their job, I am sure.
Your delusional, thats wishful thinking
Agreed. Now, do I think that these some of these guys should be sued? Hell yes! I think the deception employed by some in my industry is criminal. But, the documentation always fully discloses the terms of the deal, and that is what will hold up in court. Most want to trust who they’re working with and will zing through the paperwork. Big mistake. Also, deceptive LO’s have played on the fact that people have been so eager to get into a home at any cost, that they would be willing to sign away their first born. But the bottom line is that they signed the bottomline.
Again, what I’ve seen in my industry does indeed sicken me. Greed prevails, and ethics are thrown out the window.
Well they recently had a story in the Palm Beach Post about mortgage brokers and how 5% of brokers who were licensed last year have criminal backgrounds, many of them had been charged with fraud in one way or another in the past.
That’s the licensing states fault. They need stricter requirements and background checks. Here in California you have a snowball’s chance in hell of getting a RE license if you have any sort of theft or fraud in your background. Ex-convict murderes have a better chance.
LOL! Just before I turned 21 I was busted for underage drinking. Several weeks later I applied for law school, and I was so worried about my “record” that I met with the Dean of Admissions to express my concern. He said “Don’t worry son. We don’t care about the drunks. It’s the liars we want to keep out.”
Not only that but when the MBS holder excercises their reach-back provision on those marginal loans, the broker will rapidly run out of money and go out of business and personal BK.
That realtor trick you noticed on the “pending” being posted well after the property is sold is something that has been going on here for some time. Realtors know that when people go through these slew of listings and see no “pending” or “sold” that it doesn’t look good. I see pendings listed on our local MLS that were there from last summer. Now, either there in the longest escrow I’ve ever heard of, or deception is being employed.
Another one that is commented on this blog is the trick of pulling the listing and re-listing as new. What I find funny, though, is that realtors are lousy at playing this game of deception. For example, if I’m re-listing a property as new, I’m surely going to post new picks that at least sort of match current climate conditions. Something is fishy when you see a new listing and the pics have snow in the front yard. Hmmmmm. Could it be that this was listed last winter? Ya think!
Also remember that many of these deals are falling apart when even bogus appraisals are nowhere near as high as current asking prices. The game is breaking down.
nnvmtgbrkr-
A lot of that pending nonsense is just sheer laziness on the agents part. In L.A. you’ll get fined for that so it’s not as bad. I say this because I have done it myself and know a lot of folks who do.
So what’s up with the perpetual “SOLD” signs that sit on properties for a year or more. Does that mean they’re duking it out in court?
I don’t know about a sold sign sitting for a year or more that seems to be extreme unless it’s a large commercial project. In regards to the Sfr for a couple weks or the aforementioned commercial project. It’s just marketing bottomline.
Shame on you for having to admit that, but kudos to you for admitting that.
The game has been good or great. It’s drying up. Where from here? I’m even at a loss for questions (rare for me)!
I like this one:
http://washingtondc.craigslist.org/mld/rfs/172585233.html
Liars, or dreamers?!
APPRAISER SAYS “WITH NEW CARPET AND APPLIANCES AND PAINT, EASY SELL FOR $450,000 OR RENT IT OUT AND SELL IN 8 MONTHS FOR $520,000.”
Right, so the “appraiser” figures that the house would appreciate in 8 months by… how much?? That works out to an annual appreciation rate of almost 25% per year. Fools!
And let’s not forget that if you fix a place up and then rent it out just to “ride some price appreciation”, you can bet you won’t get it back in 8 months in the pristine condition you started with.
But the point is probably moot, since if they needed action by the 20th, the house might already be gone to the bank, saving some bigger fool from buying that thing based on that ridiculous ad. Good.
Well when you can’t sell the house in 8 months for a 25% profit, is this seller or the appraiser going to buy it back from you for a 25% increase?
So you want to own a house in Minn? Read on: “More than 200 wealthy Minnesotans signed a full-page ad that appears in the Star Tribune today asking the state to raise $2 billion for various initiatives by increasing the state’s tax burden for high-salary earners.”
And just what is a high-salary earner? Anyone making more than $45,000 per year.
I know she’s nasty, but Ann Coulter insists that wealthy people who say they want higher taxes or the government to do away with tax breaks for the wealthy are simply trying to show off how wealthy they are (”WE can afford higher taxes”). It’s the modern equivalent of the ’80s Yuppies wearing designer (or worse, faux designer) labels and casually mentioning their “six-figure” and “seven-figure” incomes. Tacky. Minnie Pearl of the Grand Ole Opry used to wear hats with the price tags still attached, but it was supposed to be funny. Showing off is showing off, not matter how it’s done.
There is a key difference between buying a fancy car, or wearing a hat with the price tag still on it, on the one hand, and supporting higher taxes for wealthy people, on the other. The latter can be done by wealthy people who *don’t* usually go around publicly shouting that they don’t mind paying higher taxes for a society with a more equitable division of wealth.
There are such people out there who quietly support the end of welfare for the wealthy.
Ann Coulter is nasty, and, further, she is just a hack for the wealthy people who don’t want an end to their tax breaks. So she tries to go around saying that all people who are willing to sacrifice are just show-offs. Maybe some of those people are indeed showing off. Other’s are not, however.
I would rather see the wealthy sacrifice Ann Coulter.
I disagree. I’ve noticed the wealthy people who are loudest about not needing tax breaks are those in the 10 million and above bracket, so I believe her interpretation of the evidence may be correct.
Yes, she is merciless and opinionated, but sometimes she’s also funny and insightful. I would not call her a hack, since her writing skills are impressive. She is the former editor of a law-review journal.
I don’t know about welfare for the wealthy. If you are referring to subsidies for corporations, yes, I agree they should be stopped immediately, If you are refering to tax cuts for individuals, I believe in a flat income tax, so that everyone pays the same percentage (as we do locally or regionally with property and sale taxes). In the news item reported by Salinasron above, the 200 wealthy Minnesotans who signed the ad sound like show-offs, not humanitarians. How would anybody know they were wealthy, if they didn’t say so in the ad?
Ann Coulter has a mental deficiency where the color gray is not part of her perceptual process. I also find it funny that the party of the Christian right and soccer Moms sends out someone like her to represent them (us). She possesses the personality traits most conservative/ soccer Moms try like heck to eliminate from their 7 year olds. She’s on the same level as Michael Moore as far as believability…a cartoon character of political making.
Yea, nothing like paying for a war YOU voted for. Who should pay for the things that a country WANTS? Answer: those that are asking for them.
I’ve never voted for any war. I’m not a Republican or Democrat, and I can’t stand party politics. But, when “wealthy” people take out an ad proclaiming how wealthy they are, and asking for higher taxes on anybody making 45k or more a year (did they pick this figure out of Minnie Pearl’s hat?), I think newspaper readers have an obligation to be suspicious.
when “wealthy” people take out an ad proclaiming how wealthy they are, and asking for higher taxes on anybody making 45k or more a year (did they pick this figure out of Minnie Pearl’s hat?), I think newspaper readers have an obligation to be suspicious.
You might be on to something there Incredulous. Last night the local Syracuse news was talking about a billboard supposedly errected by local businesses supporting DestinyUSA (a giant mall expansion meant to re-ignite growth in the central NY area). The newsstation noted the sponsorship info was a bit vague so they started making phone calls to see who paid for the billboard. Seems it was a quite a mystery as none of our larger, more prominent businesspeope seemed to know.
Do I just do the i again? Seems I’m not sure how to shut this off…Ben, anyone care to train the newbie?
“The new money should be used to improve educational opportunities, provide affordable health care and fund transportation needs. …The current proposal that would make those earning more than $275,000 pay the state an additional 2 cents in taxes for every dollar earned. That would be an additional $6,000 in taxes for someone earning $300,000. State taxes for anyone making less than $45,000 would not increase and the rates would vary for everyone in between.”
Sounds good to me, because most folks earn well under $100K here, so the tax for most people wouldn’t be that much. Plus, I support progressive taxation.
One consensus we have here is that our roads desperately need improvement, and we’ve no money for it. We’re the fifth most congested metropolitan area in the nation. Most of our freeway infrastructure is only two-lane. Even businesses here are telling the Republican administration that we need to improve our roads if we want to retain and attract more businesses. Somebody’s got to pay for it, and the burden should primarily fall on us.
Thanks for clearing that up.
Here in Florida we have so many developers, I think they should pick up all the costs for infrastructure upgrades. Our streets are falling apart, everything floods every time it rains, and it’s all getting worse by the day. Our politicians encourage people to move here, so maybe we should be taxing them (the politicians) for helping to create the problem.
I don’t believe in progressive taxation. I don’t think that a person who earns more should have to pay more in property taxes for the same property than a person who earns less, and I don’t think sales taxes should be adjusted from person to person according to income. If our legislators would get rid of all the tax loopholes and play fair, and stop throwing money away to buy votes, this country would be rolling in bucks. No matter how high politicians raise taxes, they make sure they spend every cent and then some. They’re as bad as the idiots buying outrageous houses they can’t afford, thinking that somehow the future will take care of their debts.
Also, how come almost nobody today will mention contraception as a logical solution to the problem of crowding? Our economy is completely dependent on an ever expanding worker/consumer base that will eventually destroy everything (if something doesn’t intervene). Contraception is non-violent, doesn’t have a victim (embryo or fetus) as with abortion, is not expensive, and if done correctly, is generally safe. We can’t build our way out of massive overpopulation, and all the roads in America can’t handle an unlimited number of vehicles.
probly’ they don’t talk about contraception cause–
1– you’re in Fla. Don’t know, but might guess that the poop, er pope, has a comment or two on that, relevant to a significant portion of the state.
2– Contraception’s not the problem. Much like ipods, plasma TV’s, etc, it’s imports. http://tinyurl.com/3lvgw
The U.S. Conference of Mayors WANTS illegal immigrants–as many as possible, as provided for by the Senate’s so called immigration reform (read “amnesty”) bill. Here is a resolution the mayors recently passed:
Resolution No.38
IN SUPPORT OF BORDER SECURITY AND
COMPREHENSIVE IMMIGRATION REFORM
1. WHEREAS, the United States of America was founded by
immigrants who traveled from around the world seeking
a better life for themselves and their families; and
2. WHEREAS, immigrants have made enormous contributions
to our nation’s economic, cultural, and political
life, and these contributions have been recognized and
honored throughout our history and across the
political spectrum; and
3. WHEREAS, undocumented workers fill key roles in our
city’s and state’s economy by paying taxes, including
contributions to Social Security that they cannot
receive back, raising families, and contributing to
our schools, churches, neighborhoods and communities;
and
4. WHEREAS, legislation in Congress seeks to criminalize
the presence of these very same undocumented workers;
and
5. WHEREAS, our national immigration system should uphold
our basic values of family, economic opportunity, and
fairness; and
6. WHEREAS, the current national immigration system,
which separates families, reduces the effectiveness of
national security programs, contributes to labor
abuses and results in deaths on the United States
border, must be reformed to provide undocumented
immigrants a path for citizenship, reunification of
families, strengthening of security at our nation’s
borders, and a safe and orderly process for enabling
willing immigrant workers to fill essential jobs in
our economy; and
7. WHEREAS, a viable guest worker program is warranted to
address the labor and employment needs of our nation’s
economy; and
8. WHEREAS, by restoring order to our immigration system,
such reform will make our nation more secure as well
as meet our labor needs and uphold our basic values as
a nation; and
9. WHEREAS, the need for common-sense and humane
immigration reform is recognized by President Bush and
members of both major political parties, and is
supported by the leaders of business, organized labor,
and faith communities; and
10. WHEREAS, members of the United States Senate have
forged a tentative agreement that would go a long way
toward comprehensive immigration reform that addresses
the nation’s needs for security and employment, while
also providing a path to citizenship for undocumented
immigrants,
11. NOW, THEREFORE, BE IT RESOLVED that The United States
Conference of Mayors urges the President of the United
States and the United States Congress to approve and
sign comprehensive immigration reform legislation that
strengthens our nation’s border security, includes a
fair and efficient guest worker program, and provides
a path to citizenship for the millions of undocumented
people who live and work in the United States; and
12. BE IT FURTHER RESOLVED that The United States
Conference of Mayors opposes efforts to criminalize
undocumented workers for their presence in the United
States; and
13. BE IT FURTHER RESOLVED that The United States
Conference of Mayors restates our opposition to
efforts in the United States Congress to impose an
unfunded federal mandate on local governments by
requiring local governments, without reimbursement or
training, to enforce immigration violations that are
by their nature a Federal responsibility or by
reducing local government’s Federal grants in an
attempt to coerce them into enforcing Federal
immigration laws.
Projected Cost: Unknown
I keep trying to tell people, HERE http://www.eagleforum.org/column/2005/july05/05-07-13.html is the reason why immigration reform that shuts down the border is getting no traction from the white house. Only one representative (tancredo from CO) has asked the administration to fully explain the legislation, with no forthcoming explanation as of today. We are talking subversion of the constitution but no one seems to care.
Since when did a person making 45K a year become wealthy? I don’t get it.
They had to define “wealthy” down to raise enough money. Newspeak 101.
It’s nice to see our infamous former govenor of New Jersey bought at the peak of the market……
http://tinyurl.com/h7qjc
I guess he’s never been to this site
Eight bedrooms?
What sort of entertaining are they planning doing at this house?
I don’t think you want to know
doesn’t that guy have a wife and kids?
So did Vito…
One broker tellls the truth in Vegas
“A slowdown in the housing market is rippling through Las Vegas, with layoffs by home builders, mortgage and title companies and other real estate-related occupations. But some observers suggest the slowdown’s scope and depth may not be not as far- reaching as national economists have predicted.
Some of the sales numbers are down, traffic is down.
This is still a strong market. We’ve got strong growth and a great job market. It’s just going to take a little time to correct.”
http://realtytimes.com/rtmcrcond/Nevada~Las_Vegas~deborahzupancic
Simmssays….weird jewlery (enema bags?)
http://www.americaninventorspot.com
(today.reuters.com/investing/financeArticle.aspx?type=bondsNews&storyID=2006-06-20T201030Z_01_N20446298_RTRIDST_0_FINANCIAL-HOUSING-ABS.XML)
“ABS subprime mortgage market tested by slowdown”
“The bigger risk to home equity is the economic environment. It doesn’t matter if home prices are slowing as long as that borrower is employed,” said Rui Pereira, managing director of residential mortgage-backed securities at Fitch Ratings. “They may no longer have the ability to take out equity from their homes, but as long as they’re employed, they have the ability to pay off that mortgage.”…..”Many of these subprime borrowers rely on overtime, and if they have a sudden cutback from 15 hours to five, then that can be a problem,” Castro said……Late last year, hedge funds betting on a housing slowdown in 2006 caused spreads on bottom-tier issues to blow out dramatically as they sought protection in the credit default swaps market. At current levels, BBB-minus issues are trading right around their narrowest levels prior to the sell-off.
and one more. Methinks he doth protest too much: I’m moving! Really, I promise! I’m moving! I’m not like all those other flippers selling condos in this building, I’m really moving!
FWIW, this building is brand spankin’ new and there are at least 6 other condos in that building on craigs list alone.
http://washingtondc.craigslist.org/nva/rfs/173886630.html
Guess he (she) doesn’t have to move that bad…those barstools have been for sale for at least 107 days. Check out the pictures at AX5557538.
And at least one unit (seems to be about the same size) in that buliding is for sale at $299k. AX6064447. Opps. I don’t think they’re going to get $338k.
(The owner has reduced the price 4 times, starting at $375k. Looks like he/she is just chasing the market down. Now they’ve got to come down to at least $299k)
Ziprealty lists 26 units for sale at that address. (3101 Hampton Drive)
Guess he (she) doesn’t have to move that bad…those barstools have been for sale for at least 107 days. Check out the pictures at AX5557538.
And at least one unit (seems to be about the same size) in that buliding is for sale at $299k. AX6064447. Opps. I don’t they they are going to get $339k.
(The owner has reduced the price 4 times, starting at $375k. Looks like he/she is just chasing the market down. Now they’ve got to come down to at least $299k)
Ziprealty lists 26 units for sale at that address. (3101 Hampton Drive)
and then there’s this poster child for speculative development…
http://washingtondc.craigslist.org/nva/rfs/172207230.html
probably worked his tail off just to get it ready for summer selling season after buying it in January. after 6 months of labor and materials he’s only asking enough to cover costs + a little profit, not too greedy. unfortunately he PAID $530k for the original POS.
Is it just me, or in the photo next to the nice fireplace, didn’t he seem to be just a little too self-satsfied?
Looks like members of congress have joined the Automatic Millionaire club:
http://www.msnbc.msn.com/id/13470718/
Wasn’t he a high school teacher before he entered congress?
In 2002, Hastert was driving to a parade in Sycamore, Ill., when he saw a post-and-beam house he fell in love with, according to Dallas C. Ingemunson, a longtime friend and ally of Hastert’s
awww…
San Diego inventory is now at 22,250, steadily creeping up by about 50 to 100 homes a day.
San Diego inventory creep is a slow-erupting volcano. Soon the market will be buried in McMansions, high-rise condos, and condo conversions…
No. Can’t be. In my networking group this morning the realtor said “There Is NO Housing Bubble.” And she talked about what a great time it was to “free” up equity and buy another home for investment in order to “double you wealth.” I mean, she’s couldn’t be wrong could she?
“David L”
Not stupid — just a prostitute willing to sell his credentials and intellectual integrity.
Hampton Roads inventory continues to grow. Sure, it’s no Phoenix, but it’s something.
http://www.benengebreth.org/housingtracker/location/Virginia/Norfolk/
Has Dustin Diamond (aka Screech) lose his house yet? I was wondering how he got himself into such a stupid position. Updates?
http://www.getdshirts.com/the_story.php
I’m Dustin Diamond and you probably remember me from the hit TV show Saved By The Bell. After the show ended I decided to leave Sunny Cailfornia for the midwest. My shitty credit meant that getting a loan for a house would be tough. I began looking and finally purchsed one on a land contract. I was thrilled! Now I call Wisconsin my home.
During the past years the land around me has developed for the better and my property value went way up. Now that the house is worth a lot more they want it back. Knowing my credit is bad, getting a straight mortgage would take some time. I received a letter stating that I had 30 days to pay $250,000.00 or get out. I was not thrilled
He had bad credit, so he didn’t qualify for a loan. So he bought one using a land contract. With a land contract, title is retained by the seller until the buyer has fulfilled the contract. Usually the contract between the seller and buyer includes conditions that the buyer must meet, or risk having the contract declared void. If the contract is void, the seller usually gets to retain the payments made and the property, too.
A typical condition is that the monthly payment must be made on or before a certain date. If the buyer is late on even one payment, the seller has the option to declare the contract void, keep all the payments, evict the buyer, and sell the property to someone else.
In this case, the value of the property he was buying increased substantially since he’d signed the contract, thus giving the seller a huge motivation to exercise any option to declare the contract void. I expect Dustin made a late payment or violated some other provision, and no matter how minor, that’s all the seller needs to boot him. So the violation occurred and the seller sent Dustin the letter giving him one last chance to make good (knowing it was highly unlikely): pay in full in 30 days or get out. Well, that’s the risk of land contracts.
One of my former bosses used to know a guy who made a lot of money playing this game. He’d advertise his property, sign a contract with a buyer, then just wait for them to violate some section of the contract. When they invariably did, he repoed the land, kept their money, and put the property back on the market.
On the other hand, if the buyer and seller like and trust each other, this can be a good way for people to get into a house and establish a payment history to help them eventually qualify for a mortgage. I’ve had neighbors contract with other neighbors’ kids, and it worked out beautifully for both parties.
Homebuilders/Construction
Builders Still No Bargains
By Nicholas Yulico
TheStreet.com Staff Reporter
6/22/2006 10:44 AM EDT
URL: http://www.thestreet.com/p/stocks/homebuilders/10293049.html
Value hunters, beware: Homebuilders may be cheap, but you need to be comfortable with two years of potentially rocky fundamentals.
The super-bear case calls for some builders to see a 50% to 90% drop in earnings from now until 2008, as higher land expenses crush margins.
Such doomsday numbers come from Bank of America analyst Daniel Oppenheim, who has been one of the most bearish homebuilder analysts of the past year.
For instance, Oppenheim projects that KB Home (KBH:NYSE) , which he rates neutral, will earn $1.15 a share in 2008. Last week, the company reduced its guidance for 2006, saying it should post earnings of $10 a share for the year.
KB’s stock trades around $45, which appears cheap at 4.5 times this year’s projected earnings. But if Oppenheim is to be believed about 2008, then the stock is trading at 39 times his estimates for that year. (He expects EPS to fall to $4.50 in 2007.)
Oppenheim’s pessimism stems from his belief that builders’ margins will deteriorate significantly from the double whammy of home-price erosion and higher land costs that will be expensed over the next few years.
Most builders have yet to acknowledge this issue, Oppenheim says.
When a public builder purchases land, it typically capitalizes the cost on its balance sheet, but most of the cost doesn’t get expensed on the income statement until houses that are located on that land are sold. From 2003 to 2005, the housing boom resulted in ballooning housing prices (a good thing for builders) but also lofty land prices (not such a good thing). During this time, builders bought a significant amount of land at high prices, although it’s not easy to tell how much because such investments are usually not broken out in financial filings.
Over the next few years, builders will use much of their newly purchased land for new housing communities. At that point, this pricey land gets expensed and margins will deteriorate at builders, Oppenheim says.
Oppenheim expects KB Home’s revenue to be $10.5 billion in 2008, down from $10.8 billion this year (he projects $10 billion in 2007). But he expects the builder’s 2008 operating margin to drop to 1%, down from 12% this year and 14% in 2005.
Such a scenario is playing out at most builders, he says. He rates Toll Brothers (TOL:NYSE) a sell and expects the builder’s EPS to decline from $4.65 this year to $3.29 in 2007, and to $2.31 in 2008. For Pulte (PHM:NYSE) , Oppenheim expects 2006 earnings of $4.50 a share, with a drop to $3.30 in 2007 and $2.50 in 2008.
Of course, not everyone is so gloomy.
“There is much consternation on the Street regarding future costs, particularly land, in a flat pricing environment. We believe that consternation has led to too much pessimism on margins,” wrote Susquehanna Financial Group analyst Stephen East in a recent research note. He expects KB’s earnings to increase slightly to $10.16 in 2007, and he rates the stock a buy. (Both Bank of America and Susquehanna Financial have provided investment banking services to KB Home.)
“Land cost pressures will likely be the greatest this year, and then start easing — not accelerating — sequentially,” East says. “Furthermore, one can expect all builders to lean heavily on subcontractors for cost reductions. Remember, all costs are fixed in the short run and variable in the long run.”
East doesn’t yet have estimates for 2008 but says that as long as the economy doesn’t fall into a recession, homebuilders should have a decent year.
But he admits that all forecasts might be premature at this point. “I don’t think anybody, including the builders themselves, has any good idea as to what 2007 looks like.”
On its earnings call last week, KB Home management was asked about whether this year or future years would see the biggest margin impact from land expenses. Jeffrey Mezger, the company’s chief financial officer, said this year is “probably the largest year for land going up.” Finished lot costs will rise 20% at the company this year, he said, and 7% housing price increases are needed to cover such land costs. “That’s coming down significantly next year,” he added.
The company didn’t respond to a call seeking more information. Like most builders, KB Home doesn’t specifically break out how much land it purchased in recent years.
East believes KB Home’s management that this year is likely to be the worst in terms of the impact from land expenses. One reason he cites is that the average age of KB Home’s owned land is two years or less, by his estimate. Since 2004 and 2005 represented the biggest year-over-year jumps in land prices, such lots are just now hitting the company’s income statement.
“I think once we get into ‘08, that situation moderates pretty meaningfully for most builders,” East says.
“as higher land expenses crush margins”
It’s the inventory deflation that will crush them, stupid! They bought high, and will sell low.
This little ditty came in over at another chat room but I thought it worthy of review by some of our more knowledgeable posters here so I’ll post it. It was anonymous,FYI.
just talked with a good friend that has been a realtor
for 30 years. Along with her real estate business, she
handled foreclosures during that time.
She told me that she had been hired recently as a
“mortgage consultant” to assist with foreclosures.
The assistance is to see to it that the real estate
DOES NOT end up listed as a foreclosure. That means
perhaps forgiving 3 months of back payment or if
the party is in dire straits, a SHORT SALE, basically
selling the property. Upon the sale, the difference in
the mortgage will be forgiven with the original owner.
(will have to pay taxes on the forgiven debt)
I asked her if this was unusual for the market to have the
mortgage companies handle it in this manner. She
responded with “highly unusual”. Any comments on this
would be appreciated.
Where is this.
I don’t know. That was the entirety of the post. There were some other posts that were commenting on what kind of games the banks might be playing but nothing with regard to location. Sorry. The post itself came from lemetropolecafe, a gold & silver site.
Yea, that sounds like fiction.
This falls into fairytales dumb Americans believe.
This guy needs to add to rumors of huge workout departments at mtg brokers that are going to bail out FBs.
http://www.mtgprofessor.com/A%20-%20Scams/mortgage_fraud_and_belief_in_a_good_fairy.htm
I will only comment that the original poster was not trying to whip up any controversy surrounding real estate. He was posting to a very obscure forum that deals in metals. In my opinion he was just asking an opinion about what he was told by a friend, not trying to start a rumor. Most folks on that forum are doom & gloomers (defined by the idea that the dollar is toast and a depression is likely) so they certainly don’t support the RE industry, as a general observation. It sounds from the responses to date that what he heard is unlikely to be happening, that is what I wanted to hear. Thanks to all who responded.
IMHO, I don’t see why this won’t happen. If things are looking as bad as they seem, it would be in a lender’s best interest to avoid foreclosures if at all possible. I still don’t think these measures will be able to stop the trainwreck, just postpone it a bit. At some point, lenders want their money back.
What I’m worried about is a govt “fix” where there is a new loan rolled out (or a 50-year FRM with a 15-yr I/O option or such), subsidized by the govt which will be offered en mass to FBs. If the “doom and gloom” many of us predict here is a real possibility, the PTB have ample reason to bail out as many people as possible. I hope not, though, as it would set a very, very bad precedent and prevent new buyers from entering the market without also taking on unbearable debt. Best thing would be to let the chips fall where they may, and rebuild from the ground up, IMHO.
This property in Queen Creek has been on the market for several months. reduced 125K
QUEEN CREEK, BY OWNER
4 Bed / 3 Bath, 2169 Sq. Ft.
$224,500 or Best Reasonable Offer (Listed on MLS for $349,500)
Inspection Sat. - Sun. 10-5 (June 10 - June 11)
House will be sold Sunday Night to HIGHEST BIDDER
(480)678-8854
Description:
Brand New, Completed March of 2006. Never lived in.
18′ vaulted ceilings
Upgraded tile and carpet throughout
Golf community
Walking distance to new elementary school
Stunning mountain views
Call for more info (480)678-8854
I have been following this property. The Craigslist ads are getting more despirate. If you go onto Craigslist and type in reduced, the listings are increasing about 20 a day. Right now 657. Tomorrow it will be 675 and so on. There are alot of duplicate ads so its hard to tell how many properties are reduced, but its alot.
Caution ; Because listing is on the MLS and FOR SALE by owner ,watch out for a crook trying to take some good faith deposit money and run on a vacant house .
Someone should show up Sunday and bid ten bucks: you all could enjoy stunning mountain views at your phoenix party
you can come to your own conclusion about ziprealty, but they currently have the Phoenix inventory as of 10:35AM at 49,999.
Bubble Markets Inventory Tracking
CNBC is really bashing the housing industry today (Thursday). A couple of housing bears were on before the market opened, saying that the bust could by itself lead to a nationwide recession, right now (2 PM EST) they’re doing a “roundtable” on the mess, and tonite at 8 PM EST / 5 PM EST they’re doing another hour. Man this is really something today.
Treasury nominee to sell Goldman stock
Henry Paulson will dispose of his approximately $500 million stake in order to prevent possible conflicts of interest.
“In a financial disclosure form filed with the Office of Government Ethics, Paulson disclosed the bulk of his assets was in Goldman Sachs stock and private equity investments, along with a $1 million to $5 million investment in a hedge fund run by a former Goldman Sachs partner, The Wall Street Journal reported”
http://tinyurl.com/h45nx
Interesting in that the Economist has a slightly different perspective.
Hank Paulson
Riddle solved
Jun 15th 2006 | NEW YORK
From The Economist print edition
Why it pays to become America’s treasury secretary
“Profits at Goldman and on Wall Street as a whole are at record levels. In a notoriously cyclical industry, the risk that they might fall is clear. And the stockmarket has been queasy of late.
Becoming treasury secretary, however, allows Mr Paulson to sell his shares without penalty or embarrassment. Sale is required by law: no loss of faith there. And his new job is covered by Section 2634 of the Federal Ethics Laws, a blessing for every plutocrat fortunate enough to secure temporary employment with the executive branch. Under this provision, intended to ensure that taxes do not deter capable people from accepting government jobs, Mr Paulson is able to exchange his holdings in Goldman for various widely diversified investments.”
http://tinyurl.com/f8gse
Keep the floodgates of liquidity open.
Wow! Small wonder there is a fairly steady traffic back and forth between Goldman and Washington. It must be nice to cash out at the top.
Regarding the homebuilder stocks: Dips buying opportunity, or bear trap?
Pay attention to those real-time red numbers while you decide…
http://tinyurl.com/mphb6
‘With orders falling from last year and an ugly spring largely in the books, many analysts have issued across-the-board downgrades on the sector, scaling back both their earnings estimates and target prices on the shares.
“Much like lemmings going over a cliff into the sea, sell-side analysts appear to be in a race to the bottom,” said Susquehanna Financial Group analyst Stephen East.
With the traditional spring-selling season a “much bigger flop than virtually anybody had imaged,” he commented, the speed of the cooling process “surprised even the more bearish industry watchers.”‘
As Mark Hulbert would be quick to point out, so many bearish industry watchers send a strong contrarian signal that now is a great time to buy!
Check out that tectonic shift in bond yields from 6mos to 30yrs. If this was an earthquake, the ground would have just shifted about 15 feet.
http://www.bloomberg.com/markets/rates/index.html
Red number alert. The only green numbers on the page indicate the bond market is also in crash mode.
http://www.marketwatch.com/tools/marketsummary/default.asp?siteid=mktw
It must be tough to lean into the wind when it is blowing at hurricane strength.
Homoaner - very nice description of the land sale definition regarding Dustin Diamond. That was one thing I had never heard of. Now it makes perfect why the seller would want to evict him and keep the runup value himself (herself).
http://tinyurl.com/rwkr7
Here is a listing I found today. How about $54,900 for a “picnic area”? This isn’t as good as the island, but I thought it was funny. This is from northern Wisconsin. One day I’d like to own a vacation/retirement home there, but it has gotten too expensive now. I sometimes troll the listings out of curiosity, and found this.
I agree with you Kathy! I looked at a small farm in the UP in 1995 ~850 acres with an 80 acre lake. Price $175,000. Last fall in the same area, 5 acres with a view of Superior was $125,000/ 2 acres on Superior 250K. Maybe with Global warming, Lake Superior will be swimmable. If you do not enjoy isolation and outdoors 200 inches of snow from Sept thru May can be depressing.
My childhood memories of Lake Superior were frigid! Now it seems to be much warmer. Of course, our childhood memories are exaggerated, but there seems to be a noticeable difference already.
yup. Closer to the poles, the more dramatic the change. Remember to go see Glacier National Park now. While they still have glaciers ( est 2010).
I noticed at one bank that a 30 yr fixed w/0 points hit 7% this morning, (up an 1/8 from yesterday).
I believe that the higher rates (esp. over 7% will significantly contribute to significantly lower prices.
Here are my questions, I am looking for opinions, because we all know rates are impossisble to accurately predict…
How high will they be in 3 months? 6 months?
When will the effect be REALLY evident and impossible to refute (by anyone, anywhere)? {i.e. total capitulation} (less the 3 - 6 months) or (much longer..12+ months)?
My dart throw is that you’ll only see +1/4 3mo out & flat to 6mo (remember, elections!). At the same time, though you’re gonna get a slow tightening of credit requirements (FAR too slow). Double POW.
30-yr fixed mortgage rates have reverted to 2002 levels (not that anyone in the bubble zones ever uses 30-yr fixed mortgages anymore). 1-yr ARM rates have reverted to 2001 levels. According to a study out of the New York Fed, mortgage interest rates are a fundamental factor which supported the high housing prices of recent years. So now that mortgage rates have reverted to levels of several years ago, I guess that means that market values have reverted to those levels as well?
The effect of the 1-Year ARM rate going up YOY from 4.23% to 5.75% would be a 26% loss in the home price a buyer could afford with the same monthly payment today versus 1 year ago*. And this is before factoring in all the other extraordinary reasons for the final bubble runup — subprime lending run amock, appraisal fraud, spike in speculative demand, irrational exuberance about double-digit future rates of price appreciation, inventory correction, builder construction blowout, etc.
*For example, a buyer 1 year ago could have bought a $1m home with a 1-year ARM whose initial monthly payment was
4.23% X $1m / 12 = $3525/month.
The same initial monthly payment today would only be sufficient to use a 1-year ARM to buy a home which costs
12 X $3525 / 5.75% = $735,652.
I know there are details I have omitted, but I believe the rough magnitude of lost market value is correct from a fundamental financial asset valuation standpoint. Small wonder used home inventories are piling up…
———————————————————————-
MORTGAGES
Mortgage rates up again
By Amy Hoak, MarketWatch
Last Update: 2:23 PM ET Jun 22, 2006
CHICAGO (MarketWatch) — Mortgage rates headed northward again for the week ending June 22, with 1-year ARMs just lower than they were in early August 2001, according to Freddie Mac’s weekly survey, released Thursday.
Expectations that the Federal Reserve will continue its string of rate hikes are causing mortgage rates to move upward, Freddie Mac’s chief economist said.
Rates for the 30-year fixed-rate mortgage moved to 6.71%, up from 6.63% last week and from 5.57% a year ago. The 30-year rate is at its highest level since May 31, 2002, when it averaged 6.76%.
The 15-year fixed-rate jumped up as well, hitting 6.36%, up from last week’s 6.25% and 5.16% a year ago. The rate has not been higher since May 17, 2002, when it averaged 6.37%.
Also up this week were 5-year Treasury-indexed hybrid adjustable-rate mortgages, which averaged 6.32%, up from 6.23% last week and 5.05% a year ago. The rate is at its highest level since Freddie Mac started tracking it on January 6, 2005.
The average for 1-year Treasury-indexed ARMs was 5.75% this week, up from last week’s 5.66% average and its 4.23% average a year ago. The last time the 1-year ARM was higher: August 3, 2001, when it hit 5.77%.
http://tinyurl.com/syhr8
..ok..
good, we are on the same page..now, is it really just a matter of taking out financial calc and doing the math? is it “instant”? or do we just have to sit and wait for the pages of the calendar to flip by, before the effects are deeply rooted and the opportunities bloom…
The latter, at least until FBs have to sell because of the accumulated crush of negative cash flow or ARMs resetting, coupled with the realization that last year’s prices will not ever return. The time it takes to move from the denial stage of the grieving process to the bargaining stage is better left for psychologists to answer — I can only cite evidence from previous cycles suggesting that four years is a typical period for prices to get most of the way to the bottom, and then there can be many more years where they stay at a seemingly-permanently low plateau, as everyone knows at that point what a dumb investment real estate turned out to be.
I like psych reference.
I suspect, it will happen sooner than later, but not overnight..just guessing…
I say this, because I think the information flow is much more rapid than during the last bust.
Also, I suspect (total guesswork, of course) that many of the older ‘boomers’ will attempt to grab some cash to supplement the IRA, 401k, etc., rather than wait for it to “come back” and the echo boomers don’t have the $$$ to buy out their parents age group..I feel that this will result in even more pressure on prices. Again, just a guess.
BTW - I live in the Northeast, in an area where the WWII and Boomer generations are the majority.
Have to go now..remember refinance early and refinance often (a little humor there)
Asset value moves inversely with interest rates if all other factors are held constant and asset value is more sensitive at the long end of the yield curve. No argument about your above calculation.
The only problem is the time frame for realization of the 26% price correction which is dependent upon information, transaction volume, transaction costs, and Joe Sixpack. It takes time for the correction to work through an illiquid market absent an overwhelming “shock” to the market (which upcoming ARM resets may very well deliver).
On a macro level the declines are definitely coming for a number of reasons, one of which GS you present above, but on any specific or individual property it could be a long wait until it worksbefore until all re market participants “catch a clue”.
The third para was suppose to have been deleted from my comment above. Its nonsense.
GS, you are amazing! You obviously do not have a day job. That is why you can take so much time to dedicate yourself to this blog. We are worthy! No bowing down, but much appreciation to you, Ben, Cote, TXChick57, NNVwhatever, SalinasRon, MRIncomestream, and many, many others!
I am taking a year or so off from work because I can. This education may be worth far more than my foregone salary, especially after taxes.
What a cheap education! Free for the GFs, but they will be pissed at us if we refer them to this blog, as some of us on the blog have tried. Maybe a weekend thread about how to approach family and friends in this market with the new realism without raising their defenses. Difficult, huh? We love them, so we are obligated to, are we not??
Philosophically, I love (black humor) FB stories,
but I wonder if telling our loved potential FBs such stories will make us more suspect, more real, or somewhere in between.
This comment relates to yesterday’s postings about tax cuts under the Alan Greenspan discussion.
If you look back at the history of tax cuts and government spending, you will find the government actually increases spending at the same time tax cuts are in effect. This has been borne out time and time again. The idea that tax cuts starve government is untrue, on the contrary, it actually makes government seem “cheaper”, and since people are paying less for the same services, they demand more of the cheaper services. Of course, repayment of this government spending is just begin deferred to some future time.
Our economic boom over the last few years was not the result of tax cuts, but was partially a result of tax cuts combined with massive governent increases in spending. More government spending yields more government employment and more employment in government funded industries, which in turn yields expansion in the economy. Unfortunately, this current prosperity is merely borrowed prosperity from the future.
I’m all for tax cuts, but the real kind based on less government spending and the government operating with little or no deficit. But, as we all know smaller government is good, as long as its not my community which will have to suffer cuts in services.
Remember Laura Billings, the columnist who complained about homebuyer’s rising expectations in an article a few weeks ago? She got soundly spanked here for that, and I’m beginning to suspect she’s been reading this blog. Here’s her latest column:
Time to get our financial house in order
Laura Billings
St. Paul Pioneer Press
June is National Homeownership Month, an occasion that prompted President Bush to sign a proclamation meant to “encourage more Americans to consider the benefits of owning their own home.”
We could really use the encouragement.
According to all the real estate reports, potential homebuyers can’t bring themselves to pull the trigger, convinced that the bottom of the market could go even lower once we get into the summer doldrums. Sellers, no longer assured of making a killing, keep lowering their prices and their hopes. The rest of us spend our summer weekends mowing, weeding, painting, scraping and wondering what it was we did for fun back when we were renters.
Five years ago, there was really no need to instruct Americans on the benefits of homeownership, which seemed like a no-brainer. Low interest rates and fast-rising prices meant you could move into a three-bedroom colonial and convert it into an ATM, perfect for pulling out cash for anything else you needed. In the past five years, Americans have taken out $2 trillion in equity on their homes, via loans, refinancing and sales, virtually free money that seemed like it would never come to an end.
But then the market on the coasts went soft, the word “bubble” began rising to the surface and, suddenly, that 2,000-square-foot ATM has turned back into a house again. Just a roof and some windows and a basement that leaks a little — a nice place to call home, but hardly a shelter from every storm.
So maybe it’s time to get the rest of our house in order, financially speaking.
While some of the most e-mailed newspaper stories this year have centered on the real estate market (when to fire your agent, how to know if your market is overpriced, how the magic of feng shui will bring buyers right to your red door), more troubling financial stories seem hardly to have captured our attention.
Among them, that more than 600 American companies have defaulted on their pension promises to their employees in the last five years, and many more have frozen payments. Or that only 19 percent of U.S. workers still receive private pension plans, compared with 40 percent in the 1980s.
The rise of 401(k)s seem unlikely to fill the gap. According to Boston College’s Center for Retirement Research, Americans ages 55 to 64 have saved a median $60,000, including both 401(k) and IRA balances — not a lot to live on, and not much time ahead to salt it away.
Other forms of savings aren’t compounding, either. Last year, Americans posted a negative savings rate of 0.5 percent, according to the U.S. Commerce Department’s Bureau of Economic Analysis. We haven’t seen that since the Great Depression. The idea of actually putting money away for the future instead of spending it on something fun seems sooo 20 years ago. That was when our savings rate was at 11 percent.
One of my neighbors, who bought back when houses could still be had in the five digits, threw a party to celebrate the date of the closing, 25 years before. This fact has led to some speculation among the newer kids on the block about what kind of return they had received on that investment. The phrase “sitting on a gold mine” has come up more than once.
When the housing market was red hot, most of us focused on the “gold mine” aspects of owning a home. Maybe now we’re realizing that the “sitting” part is just as important.
http://www.twincities.com/mld/twincities/news/columnists/14872759.htm
The bubble made the front page of Yahoo this morning…!
http://news.yahoo.com/s/nm/20060622/us_nm/economy_housing_usa_dc