Back To 2004 and 2005: Thinking About It Isn’t An Option
The News Press reports from Florida. “‘Hitting on all cylinders’ is how Naples-area real estate pros described their market’s 2015 performance at Friday’s NapLes Area Board of Realtors year-end wrap. 2014 and 2015 were near-record years in almost every category, according to Downing Frye realtor Mike Hughes. ‘It’s unusual to get two great years in a row. It made me flash back to 2004 and 2005,’ Hughes said. A word of advice to low-end home buyers: number of days on the market are getting vanishingly close to zero. ‘Low-end buyers need to be prepped to move quickly. Thinking about it isn’t an option,’ Hughes said.”
“But the surprise of the year was land. ‘Someone once said, ‘Under all is the land.’ It is so true in Naples,’ said appraiser Cindy Carroll. ‘Recovery has been taking place in the underlying land value,’ she concluded. Even in Golden Gate city, where lots in the recession sold for 7 cents on the dollar, vacant land is listing for $80,000, at or above pre-recession prices.”
ABC 7 News on California. “The U.S. stock market isn’t the only part of the economy affected by the slide in Chinese markets. The U.S. stock market has followed suit and the ripples are starting to hit the Bay Area real estate market. ‘The Chinese economy has seen quite sharp drops in the stock market as well as general economic activity,’ said Ralph McLaughlin, the chief economist for Trulia. McLaughlin says hits from China are down nearly 50 percent so far this year. ‘What we see is quite a decrease in the number of Chinese home seekers looking for homes on Trulia in San Francisco,’ said McLaughlin.”
“Mortgage broker John Holmgren says some of his local clients, who are relying on their stock portfolios for a down payment on a house are having second thoughts. ‘We have a lot of clients, who are from the tech sector and they had stock options they were about to exercise that were in the money that would allow them to cash in and make a down payment. Now, not so much,’ explained Holmgren.”
The Herald Mail in Maryland. “The number of properties that received a foreclosure filing in Washington County was 39 percent higher than the previous month and 24 percent higher than the same time last year, according to RealtyTrac. Jeff Matthews, president-elect of Pen-Mar Association of Realtors in Washington County, said homeowners find themselves in foreclosure for a number of reasons. ‘Part of the problem is interest rates,’ Matthews said. ‘Adjustable interest rates have creeped up on them. And, life happens. A loss of a job can have an effect.’”
“As a result of the nation’s mortgage crisis in 2008 and 2009, when foreclosures peaked around the country, lenders have been forced to work with delinquent homeowners to help them stay in their homes. Yet Washington County Circuit Court still processed 536 new foreclosure filings in 2015. ‘It still amazes me that many mortgages are in trouble,’ Circuit Court Clerk Dennis Weaver said. ‘It has to affect the housing market.’”
The Roanoke Times in Virginia. “Foreclosures in the Roanoke area rose by more than 38 percent in 2015 from the previous year, according to RealtyTrac. Lenders are still working through foreclosure procedures even years after houses were vacated. Roanoke Realtor Bonnie Hall, who deals almost exclusively with foreclosed properties, said a lot of the new properties are so-called shadow inventory — properties that stalled in foreclosure and have not been sold, or homes that banks delayed putting on the market until conditions improved. She said she had more foreclosure properties sent to her this winter than she has seen in the last five or six years and doesn’t expect it to slow down any time soon.”
“Many of the properties were vacated during the recession but are just now hitting the market. Kit Hale, a broker at MKB properties in Roanoke, said 2015 showed a drop in the foreclosure properties sold and, ‘with an improving market, I do not believe that shadow inventory is so pent up as to saturate our market in 2016.’ ‘While I’m sure some REO companies are holding inventory until the market improves, I do not believe it is a significant number,’ he said. ‘Over the last five years, there has been an unbalanced inventory as it relates to demand. In other words, we have been in a sustained buyers’ market due to REO properties and company relocations.’”
The Casa Grande Dispatch in Arizona. “After years of serving as an unofficial monument to the housing collapse, a long-standing cluster of vacant homes south of the railroad tracks in Maricopa was demolished last month. Santa Rosa Crossing sprang up from Hallcraft Homes in 2004-05, with the builder constructing several homes before the market began to go bad, forcing the development into bankruptcy. Realtor Brian Petersheim started working the real estate scene in Maricopa in 2006, with a specialty in new and spec home sales. ‘Every time I would go by, it would be locked up or nobody would be there,’ Petersheim said. ‘After doing this for about six months, I noticed the trailer was all of a sudden locked up.’”
“Martin Scribner, director of development services for the city of Maricopa, said 29 homes were built to be offered to buyers before the bottom fell out. ‘Basically these houses have sat empty for 10 years, and they never were lived in,’ Scribner said. Scribner described the properties as having been ‘pretty much wrecked.’ When asked why it has taken so long to tear down the vacant homes, he said that was a good question. ‘In the past, when everything collapsed, it wasn’t really a priority,’ he said. ‘There was so much going on, so many empty houses. Yeah, it was a blight.’”
KGW in Oregon. “Stars of the HGTV show Flip or Flop are speaking out about their canceled appearance in Portland late last year. In an article posted on the real estate site Zillow Porchlight, Christina El Moussa talked about the controversy that surrounded the couple’s scheduled seminar, which promised to teach the ins and outs of buying, renovating and selling houses.”
“El Moussa wrote: ‘You might have heard that we cancelled the Success Path training tour through Oregon and Washington, as was reported in The Oregonian, due to a vocal group who somehow linked us to the issue of affordable housing. We are very accustomed to being on the receiving end of people’s opinions. My hairstyles, my mothering, and my interior design choices in flip houses — all are discussed. Rent affordability is not a local issue. All across America, and abroad, it is a serious topic worthy of discussion. There is no simple solution to such a complex and sensitive situation. When demand exceeds supply there is tension.’”
“Mortgage broker John Holmgren says some of his local clients, who are relying on their stock portfolios for a down payment on a house are having second thoughts.”
Hmmm … the high values of ever-growing stock portfolios allows thousands of prospective home buyers to believe they are rich enough to buy pricey houses so that is what they commit themselves to doing, they commit themselves to buying pricey houses.
Note: They do not actually buy pricey houses, they COMMIT themselves to buying pricey houses - buying pricey houses one monthly payment at a time. Doing this allows them to hang on to their ever-growing stock portfolios AND, at the same time, living in pricey houses - they get to enjoy the best of both worlds.
But if their ever-growing stock portfolios ever stop growing … then what? What happens to the prices of the pricey houses, the pricey houses that are directly related to pricey stock portfolios?
It’s all about price, isn’t it? The price of stocks allows one to feel he is rich, rich enough to commit himself to buying a high-priced house which, in turn, pushes up the price of the the house even further. And these prices, THE thing that determines whether one is rich or not is something that is set by Mr. Market - a Mr. Market that is composed of complete strangers who (whom?) as a group may have totally lost its mind which, as Charles McKay stated, frequently happens.
Lots of thin air here, IMHO.
‘In local-currency terms, the Shanghai Composite is down almost 17 percent this year, far underperforming the MSCI World Index’s 7.5 percent retreat.’
“At the current distressed valuations in the H-share market, we think investors may have priced in meaningful probability of a hard-landing scenario in China and/or sizable renminbi depreciation,” writes Deutsche Bank Chief China Equity Strategist Yuliang Chang, referring to stocks listed on the Hong Kong Stock Exchange.’
‘Valuations are extremely depressed, he notes, observing that the MSCI China’s 12-month forward price-to-book ratio, excluding American Depositary Receipts, currently sits at one times book—meaning investors are valuing the companies as just the stated sum of their assets.’
‘That’s a lower valuation than it was during the financial crisis in October 2008, the European sovereign debt crisis in October 2011, or China’s interbank crunch of June 2013.’
“one times book”
Just possibly it is known that the “book” is bogus. What’s the true value of an idle factory, or the “book” on loans that will never be repaid?
“Some County Govts Not Even Paying Wages, Borrowing To Meet Pension Obligations”
http://www.chinastocks.net/pension-funds-shrinking-in-21-provinces-some-county-govts-not-even-paying-wages-borrowing-to-meet-pension-obligations/
Even if wages are not being paid, they are probably still going up 10%, eh Dan?
“The number of properties that received a foreclosure filing in Washington County was 39 percent higher than the previous month and 24 percent higher than the same time last year”
“The Roanoke Times in Virginia. “Foreclosures in the Roanoke area rose by more than 38 percent in 2015 from the previous year”
It seems the glut of unprocessed foreclosures is the dirty little secret that has been kept from no one.
If prices really start to go into a nosedive, what will happen to all the shadow inventory? Will it continue to be kept from the market, or will it all be unleashed in one fell swoop?
If OPEC were in the REO business, I think I’d already know the answer…
Remember how this term came to light:
‘The revelations in Neil Barofsky’s new book — Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street – are…disturbing. Barofsky was the Special Inspector General of the Troubled Asset Relief Program (TARP), put in charge to monitor how the hundreds of billions of taxpayer dollars were spent.’
‘According to Barofsky, the Home Affordable Modification Program (HAMP) did not have a goal of keeping struggling families and children in their homes. It’s real goal, according to U.S. Treasury Secretary Tim Geithner, was to “foam the runway” for the banks.’
‘Here’s an excerpt from the book: “For a good chunk of our allotted meeting time, Elizabeth Warren grilled Geithner about HAMP, barraging him with questions about how the program was going to start helping home owners. In defense of the program, Geithner finally blurted out, ‘We estimate that they can handle ten million foreclosures, over time,’ referring to the banks. ‘This program will help foam the runway for them.’
“A lightbulb went on for me. Elizabeth had been challenging Geithner on how the program was going to help home owners, and he had responded by citing how it would help the banks. Geithner apparently looked at HAMP as an aid to the banks, keeping the full flush of foreclosures from hitting the financial system all at the same time. Though they could handle up to ‘10 million foreclosures’ over time, any more than that, or if the foreclosures were too concentrated, and the losses that the banks might suffer on their first and second mortgages could push them into insolvency, requiring yet another round of TARP bailouts. So HAMP would ‘foam the runway’ by stretching out the foreclosures, giving the banks more time to absorb losses while the other parts of the bailouts juiced bank profits that could then fill the capital holes created by housing losses.”
And this:
‘Roanoke Realtor Bonnie Hall, who deals almost exclusively with foreclosed properties, said a lot of the new properties are so-called shadow inventory — properties that stalled in foreclosure and have not been sold, or homes that banks delayed putting on the market until conditions improved.’
People in the business know. I saw it with my own eyes. We went from putting these houses on the market in weeks to showing up 3 years or later after the FB’s had left.
“Though they could handle up to ‘10 million foreclosures’ over time, any more than that, or if the foreclosures were too concentrated, and the losses that the banks might suffer on their first and second mortgages could push them into insolvency,”
And we’re not even through the first 10 million. There is 15 million more after that.
Maryland is a semi-commie state which declared moratoriums on foreclosures. Washington County is a mountainous country far from any jobs, basically halfway between DC and Pittsburgh. I’m not surprised that the houses went zombie. They’re probably falling in too.
Donk,
There are no jobs anywhere except for DC and Pittsburgh?
I thought u lived in md.
You hot soviet,you
I’ve posted this excerpt before, but it definitely is relevant to the story above and sadly shows that the role of the Fed was not so different nearly 100 years ago….this is from “Oil!”, a novel by Upton Sinclair published in 1926 and based on the then recent southern Calif. oil boom and related Teapot Dome scandal….
“Bunny had a talk with Mr. Irving, who told him that it was the Federal Reserve system at work; a device of the big Wall Street banks, a supposed-to-be government board, but really just a committee of bankers, who had the power to create unlimited new paper money in times of crisis. This money was turned over to the big banks, and in turn loaned by them to the big industries whose securities they held and must protect. So, whenever a panic came, the big fellows were saved, while the little fellows went to the wall.
In this case it was the farmers who were being “deflated.” They were unorganized, and had no one to protect them; they had to dump their crops onto the market, and the prices were tumbling—literally millions of farmers would be bankrupt before this year was by. But the price of manufactured goods would not drop to the same extent, because the big trusts, having the Wall Street banks behind them, could hold onto their stocks. […]”
Excerpt From: Upton Sinclair. “Oil!.” iBooks.
I find it funny the level of short term memory and shock people exhibited after “The Big Short”.
So, you never saw “Inside Job”? Seriously?
I saw it. In a shopping mall theater where I counted eleven people, including me and my wife. One of the “Fast and Furious” films was a big draw that weekend. It was the only theater in Tampa that was screening the movie.
When in the film Columbia Business School dean Glenn Hubbard became snippy in response to interview questions about his outside consulting arrangements with the financial services industry, I could not help myself and audibly said “a__hole!” And then I read that he was Romney’s “go-to economist” during the presidential campaign.
And Rubin (also in the movie) was Clinton’s man.
A-holes all around. I feel like I’m in Spaceballs…surrounded by a-holes.
“But the surprise of the year was land. ‘Someone once said, ‘Under all is the land.’ It is so true in Naples,’ said appraiser Cindy Carroll. ‘Recovery has been taking place in the underlying land value,’ she concluded. Even in Golden Gate city, where lots in the recession sold for 7 cents on the dollar, vacant land is listing for $80,000, at or above pre-recession prices.”
____________________________/
Golden Gate is east of I-75, in what used to be nondescript scrubland and the habitat of snakes and Florida panthers. Yeah, it’s Florida. But otherwise, fail.
Every time I go to Naples I’m struck by how little wealth, outside of the construction industry, seems to be local. The whole setting is practically colonial.
Naples is the canary in the coal mine for the Florida part of the bubble. I remember back in 2005-2006 when Naples real estate was going to the moon. BOHICA!
Florida’s been on a boom/bust cycle since the 20’s. We’re probably in the last 6 months of the present boom.
Get Stucco?
Why a Duck?
And the question is, why is that? This isn’t a commodity economy like oil-producing areas. Unless raw land, purchased with borrowed money, itself is the commodity.
I think the impact of Brazil’s trouble, and associated currency fluctuations, hasn’t been fully felt here yet. We’ve really benefitted from Brazilian tourists; the Orlando airport gives public-service announcements in Portuguese and several Brazilian airlines have direct flights. There are anecdotal stories about tourists from Brazil flocking to outlet malls and going crazy. And it was all a product of Chinese malinvestment in redundant infrastructure.
Some have already taken note:
http://tinyurl.com/zc34c3y
‘One year ago, analysts at Bank of America Merrill Lynch drew a parallel between the subprime mortgage crash and the disorderly fall in the price of oil. Led by Chris Flanagan, a veteran of the securitization space, the team drew attention to Markit’s ABX Index, better known as the mother of all synthetic subprime credit indexes.’
‘Fast-forward to today and the BofAML analysts provide an update to their previous thesis, which was that the downward spiral in the price of oil was shaping up to look a lot like the negative trend that engulfed the subprime space circa the year 2007.’
‘Here’s what they say:
“The pattern of the decline in the price of oil that began in mid-2014 is remarkably similar to the 2007-2009 pattern of the price decline of ABX, the credit derivative index that referenced subprime mortgages and, ultimately, the U.S. housing market (Chart 1). The ABX history suggests that oil will see more declines in the next couple of months and find a floor somewhere in the low 20s in the March-April time frame. Both the duration of the decline (1.5+ years) and the scale of the decline (100 neighborhood starting price down to the sub-30 neighborhood) are similar. Given that both housing and oil prices were fueled to spectacular heights in the two periods by massive credit expansion, it’s probably more than just coincidence that the respective “bubble” bursting patterns are so similar.”
“Consider how things tend to work. Denial on what constitutes fair value is a big component of bubbles, on the part of both market participants and policymakers. When perceived “bubbles” burst, markets take their time in steadily shredding views of the perception of fundamental value, as prices move lower and lower. Along the way, many will cite “technical factors” as the cause of the decline, which in some way suggests the price decline may not be real when in fact it is all too real. In the end, the technicals drive the fundamentals, as credit flees and borrowers go bust, and a feedback loop lower kicks in. Lower prices beget accelerated selling, as asset owners need to raise cash. It could be margin calls or it could be producer selling needs, it doesn’t really matter: the selling becomes inevitable and turns into forced selling.”
‘The point here is not that oil is necessarily the new subprime per se but that the recent action in the price of crude resembles nothing if not the bursting of a bubble and the sudden realization that the asset has been overvalued for too long.’
This is a must read article.
Portland, OR Housing Prices Crater 5% YoY
http://www.zillow.com/portland-or-97210/home-values/
‘McLaughlin says hits from China are down nearly 50 percent so far this year.’
And the stock option guys are out too. Double whammy.
‘Basically these houses have sat empty for 10 years, and they never were lived in’
But there’s a shortage? The Canadians? The hedge fund guys?
Probably a demand for a coinciding product:
• demand for the mortgage debt or its derivatives
• demand for a speculative vehicle, which a house can be
Not consumption demand apparently.
Not consumption demand apparently.
At some price, there would have been consumption demand. What boggles my mind is that the market forces are SOOOO broken; any mortgage holder should have preferred a partial recovery over a zero recovery—and yet nothing happened to move these houses to new hands. Why? I can only point the finger at federal housing policy, in other words, politics.
“Mortgage broker John Holmgren says some of his local clients, who are relying on their stock portfolios for a down payment on a house are having second thoughts. ‘We have a lot of clients, who are from the tech sector and they had stock options they were about to exercise that were in the money that would allow them to cash in and make a down payment. Now, not so much,’ explained Holmgren.”
Piling debt on top of debt is truly the American past time. Just keep throwing imaginary money after bad!
People spend so much time acquiring debt they forget what it feels like to pay it back.
That’s a good point:
‘they had stock options they were about to exercise that were in the money that would allow them to cash in and make a down payment’
These guys make so much money, we’re told. Yet they don’t even have a down-payment.
LOL, true. Fake money is easy to spend because it doesn’t activate the pain sensors.
‘Erickson said there are some similarities to the tech bubble of 1999-2000, even if the new firms have more developed business models. “While the companies are more seasoned, the issue similar to 2000 is that many are burning tons of cash,” he said. “If they need to have enough cash to break even and if they can’t access capital either through the public markets or private markets, then they face more difficult decisions.”
‘Erickson added that “we are not quite at that dire stage now,” but that if capital dries up it may mean that promising startups would either need to sell themselves or “hit the wall.”
‘The unicorn population — estimated by Forbes this month at 173 companies worth a collective US$585 billion — is still alive, but some are hurting.’
‘CB Insights chief executive Anand Sanwal said he expects to see “some wounded unicorns” but that there is still capital available from private equity and corporate venture funds. “Some of those companies that got ahead of themselves on valuation are going to have difficult conversations. You can’t just keep selling your dream and your business model can’t be raising venture capital.”
‘Research analyst Brenon Daly said the message has not yet reached the unicorns. “Most money-burning startups continue to run their businesses as if there’s an inexhaustible supply of money,” he said. “But at some point this year, startups will almost certainly have to make different decisions than they’ve made up to now.”
http://www.chinapost.com.tw/business/company-focus/2016/01/25/456920/Unicorns-may.htm
To be fair, it would be hard for most people to save 20% for Silly-con valley mansion, say $150K to $200K.
To give you a real world example, I know a family that recently bought a $2M McMansion, and put down $1M from stock options (I believe they cashed out). I still think it wasn’t wise (consider what their property tax is & a 1M mortgage is still substantial). They are a two-earner, tech but not app (think semiconductor, not mobile apps), family so joint income is probably $200K->$300K. However, it’s still very possible for one or both to get laid off…
Can you imagine being in such a reckless, careless state of mind to pay that kind of money for a depreciating asset?
These people will not want to repeat the experience in their lifetime.
It will take a lifetime and much longer to undo all the damage that has already transpired. The longer we paper over the damage the longer it will take to dig out. It’s probably too late…
’save 20% for Silly-con valley mansion’
I doubt anyone has put 20% down in California this entire year. Who even does 20% down? Not the GSE’s, not Quicken, not FHA, and that’s 90% of the market. And a mansion? What I see in these photos are dinky little old shacks with a very pretty flower bed and no driveway.
Some of you may have noticed I was following this stock technician I heard on the radio. Last week after the drop, he said look for support on the S&P 500 at 1830, then it would climb 5%. It hit around 1807 the next day. I calculated 5% and I came up with around 1902. Friday it got to 1908 and hung around there the rest of the day. Today, down about 1.5% to 1877. This guy says major support is between 1300 and 1400, or when the institutions know who the next president will be.
“The Oil Crash Is Crushing Houston’s Housing Market”
http://www.businessinsider.com/oil-crash-hits-texas-housing-market-2016-1
The reality housing prices need to be crushed. What better tool to accomplish that task than falling oil and gas prices to dramatically lower and more affordable levels.
A month ago Houston’s mayor was saying all is well
Mayors lie?