‘Housing Down Further And Faster Than Anticipated’: CEO
Some housing bubble reports from Wall Street and Washington. “Lennar Corp. warned Tuesday for the second time in a month that it would miss Wall Street forecasts and its CEO said the housing market hasn’t hit bottom. ‘The housing market has continued to deteriorate, trailing down further and faster than anticipated,’ CEO Stuart Miller said in a a statement.”
“‘Although the economy remains strong and unemployment and interest rates remain relatively low, it is not clear that the homebuilding downturn has yet found a floor,’ he added.”
“Lennar’s policy has been to start a new home as soon as one is sold, with or without first finding an intended buyer and using incentives for the sale. ‘Rather than slamming on the brakes, they’re trying to let the business wind itself down to whatever the appropriate level is over time,’ analyst Todd Vencil said. ‘They are clearly adding to the problem overall to the market in having too much inventory.’”
“CEO Miller said the company has seen its cancellation rate rise to over 30%. ‘Primary purchasers are either on the sidelines or demanding better pricing before purchasing,’ Miller said. ‘Customers in backlog are also demanding concessions or are walking from deposits.’”
“Lowe’s Cos. forecast profit for the year toward the lower end of its prior view, citing near-term pressures on consumers such as a weaker housing market. ‘We are not surprised..given the declines in the housing market continuing to accelerate,’ Wachovia analyst Peter Benedict wrote. ‘We believe there is still risk that more estimate reductions are ahead given there is no sign of the housing market reaching a bottom.’”
“Countrywide Financial Corp has confirmed that it will cut up to 10% of its ‘general and administrative’ work force in the coming months. A Countrywide spokesman confirmed..layoffs have already begun. One source told MW that the company has even canceled its regular practice of providing employees with free doughnuts on the last Friday of every month.”
“In Southern California..home builders, real estate agents and loan brokers here are starting to feel the pain. ‘Everyone is tightening their belts,’ said Irene Genders, president of the California Escrow Assn. ‘We’re expecting this to be a little while.’”
“Andy Perkins, San Diego branch manager for Orco Construction Supply, said he believed that job losses were just beginning as housing projects finish up and builders find little or no new demand. More construction equipment is coming back to his stores rather than moving to another job, Perkins said. ‘San Diego has set the trend for the business falling off the shelf’ in single-family homes, he said.”
“‘Things are clearly turning down pretty hard’ for residential real estate, said Jan Hatzius, an economist at Goldman Sachs. ‘Hatzius said the risk was that housing could see a much harder landing than now appears reasonable.”
“‘We have never seen the kind of housing boom nationally that we’ve seen over the last six or seven years,’ he said. ‘So to know what’s on the other side of the boom is very difficult.’”
“Paul Volcker, who halted a wage and price spiral as Federal Reserve chairman between 1979 and 1987, said he’s worried both about inflation and pressure on the U.S. central bank to not do anything about it.”
“‘I am a little bit more worried about inflation,’ said Volcker. ‘ I am impressed by the degree of pressure, if that is the right word, psychological pressure, political pressure, there is not to do anything about it.’”
“To bring buyers back into the market, sellers simply have to lower their prices, said David Lereah, the NAR’s chief economist. Lereah has repeatedly cut his forecast for the housing market this year and says he’s now unsure how deep the correction will turn out.”
“There’s now a 7.5-month supply of homes for sale, up 60% from last year. ‘If we have prices drop for the rest of the year and sales also continue to drop, then we will have a bad situation in housing of balloons popping rather than air coming out,’ Lereah said. Either way, he says, ‘It’s a buyer’s market.’”
And Lennar’s stock price was up on the news. Go figure!
Does anyone know the status of the new tighter lending standards guidelines that are supposed to be issued in September? They (not sure which agency) issued recommendations to tighten lending standards late last year, and most banks and subprime lenders proceeded to *loosen* the standards.
No Fannie financials in the forseeable future, they are quietly going to ask OFHEO to allow portfolio increases again, even rumors of converting ARMs to FIXED, dropping the ball on tightening lending standards…prices have only dropped a bit and the bagholder (taxpayer) bailout is already starting.
I think they will tighten standards when the market has bottomed; for the next years you can bet on even more loose lending.
Shawn,
I recently heard talk the GSEs were getting more involved in the “affordability product” (read ARM, hybrid, maybe I/O)market next year. Nice timing…
guys, i have to applaud the genius of the blog. people on this blog are just scary. we saw through all the bs and take on all the so-call experts throughout this bubble. Such BS as soft landing, RE never goes down, buy now or never, RE price is based on sound fundamentals, etc and wagon loads more of such nonsensical garbage. now even the top guys have to admit to the truth or be the buffoons. hahaha.
We’ll see how smart we are when/if we actually $$ profit from this…
Lost a certain number of friends by telling them NOT to buy at the top. Now they’re mad because they did it anyway, and I am just a spoiler if I think they are not getting it back soon. May have to bail out one of them, if I can persuade that person to do an auction soon. I mean VERY soon.
No Fannie financials in the forseeable future, they are quietly going to ask OFHEO to allow portfolio increases again, even rumors of converting ARMs to FIXED, dropping the ball on tightening lending standards…prices have only dropped a bit and the bagholder (taxpayer) bailout is already starting.
You mean convert exsiting holder of stupid mortgages at some favorable rate? That’s just NOT FAIR, especially if they bought the homes to get rich, and not as a place to live in. It would be like the government helping out people who lost all their money in Pets.com stock with interest free loans.
Underwater is underwater, regardless of the terms. You are still a FB if you owe 100K more than the market value.
“That’s just NOT FAIR”
I too feel that it is NOT FAIR; but it *is* a possibility.
Compared to pets.com stock (and the other tech stock craters), a crash in housing values will effect more households, and at a much greater dollar value. Add to that the fact that the odds favor “less vigilant” and “less educated” households seeking and getting the most risky loans, and you have a perfect storm of human interest stories of how these people that didn’t know any better got totally wiped out by the bubble, and ‘how can we expect them to get back on their feet?’, and something should be done, and how all they were trying to do was to live the “American Dream”. Way better front page stuff than “employees at Pets.com thought they were millionaires, but now they may have to find a job and work until they are 65″.
IMHO, there *will* be pressure to bail homedebtors out…whether by grants, tax breaks or forgiveness, or by converting the failing loans to a low, government subsidized fixed rate. If that happens, well guess who gets to pay for it.
But for all those that managed to get into trouble by telling a tall tale of their income on their liar loan app, I would imagine the gov’t could proscecute? Hopefully they won’t shy away from legal action.
Some of these idiots are so far under they’ll default even if their ARM becomes fixed. And at some point, the I/Os will have to start repaying principal one way or another.
“Does anyone know the status of the new tighter lending standards guidelines that are supposed to be issued in September?”
Shawn, to answer your question: From what I read recently the guidelines won’t be issued until the end of this year (the date was pushed back from this summer). The agency at the lead of the guidelines is the OCC, or, the Office of the Comptroller of the Currency (www.occ.gov). But a bunch of other agencies (FDIC, etc.) are also on board with it. We’ll see how far they go.
‘From what I read recently the guidelines won’t be issued until the end of this year (the date was pushed back from this summer). ‘
This could be bad. If the 10 year yield hits 4.4%, the refi flood gates might open again, pushing the inevitable implosion back another year or more. I would sure like to get this over with quickly rather than delaying the pain (and worsening the big hit) even more.
“If the 10 year yield hits 4.4%, the refi flood gates might open again”
To refi you also need apreciation or bring money to the table! They don’t call them F_cked Buyers for nothing!
Analysts had it pegged at earnings of $1.27 per share. It posted earnings of $1.30. No great mystery.
The question I have is how pessimistic the analysts are on the long-term prospects. Is that already built into the current stock price, which has seen around a 20% drop in the past year. Or is the market less-bearish on these home related stocks than they “should” be?
“The question I have is how pessimistic the analysts are on the long-term prospects.”
Apologies for the cynicism but I believe it is warranted. Wall Street analysts are for the most part clueless. They are perpetually a day late and a dollar short. Nowhere has this been more evident than with the homebuilders. Readers of this blog are far better informed. The best info on the homebuilding market is right here. If you are interested in a particular homebuilder review the SEC filings yourself. Or even better, reduce your company specific risk by going long (not what I would recommend at the moment) or short the HB index ETF symbol XHB.
‘Or is the market less-bearish on these home related stocks than they “should” be? ‘
On CNBC this morning Bob Pisani said that if 10 yr yield hits some magic number around 4.4% then the refi flood gates will open again. It’s getting close.
If the 10 year yield hits 4.4%, the refi flood gates might open again”
To refi you also need apreciation or bring money to the table! They don’t call them F_cked Buyers for nothing
I just saw that Lennar has started construction on a new cluster of about 20 luxury homes in Rockland County on route 9W in NY State right next to the IBM conference center in Palisades. This used to be a golf driving range. What terrible timing! What on earth were they thinking?
That may be the solution to Lennar’s problems—diversify into the driving range business. No problems with raw materials shortages. And the price of a bucket of balls seems to have shot up almost as much as home prices. $12 for a large bucket? Sounds like a good business to me.
“And Lennar’s stock price was up on the news. Go figure!”
Oh, c’mon GS, you *knew* that would happen.
True, but I still say, “Go figure!”
I think the housing bust is going to pull the economy down into recesssion in 2007. Anyone besides me looking at shorting XLY (Consumer Discretionary SPDR)? It’s almost at its all time high now.
of providing employees with free doughnuts on the last Friday of every month.”
_________________________________________
LMAO!
Another major milestone reached today:
First major milestone announced yesterday was YOY Declines.
Second major milestone announced today is that Countrywide is cutting back on employee doughnuts.
Next major milestone to be reached is when David Liareah is fired and is replaced by Bubbles the Clown.
Second major milestone announced today is that Countrywide is cutting back on employee doughnuts.
This makes CW a BUY I’m sure.
have you seen how many doughnuts the average administrative worker can put down?
He IS Bubbles the Clown!!!
Hey, doughnuts get pretty expensive when employees are trying to take enough to subsist on until the last Friday of the following month!
Maybe realtors will bring doughnuts instead of cookies to open houses. Hey, KKD was up 1.28% today after a long slide.
Well, they could be like Northwest Airlines and offer doughnut dumpster-diving tips to the employees.
No free doughnuts….isn’t that the final sign that it’s officially over? Someone stick a fork in the housing bubble, the doughnut prophecy has been fulfilled.
We didn’t lose doughnuts…in ‘84 the company I worked for cut out toilet paper. We had to bring in our own. Course, shortly thereafter the locks were changed and the President of the company was arrested for embezzlement. Perhaps that’s a sign too.
Maybe this will solve the obesity problem in America? No more doughnuts on Fridays?
‘MARK F.: Isn’t it really a creative financing option to keep the payments down? MARC S.: Right. But it is short term also. It is a quick fix. JIM N.: I think the one advantage is, even with 50-year term, you’re going to get very little of the principal, at least you are going to get something of the principal. That in many cases is better than the interest only.’
‘MARK F.: How soon before we see a multigenerational mortgage? (laughter) ‘
‘BRAD: Speaking of working with other trade groups, the changes in your ethics statement is an area where the appraisal industry has been quite vocal. They claim they are being pressured by mortgage originators without specifying which originators. Were the changes in response to those accusations? GEORGE: We would never support anybody who would put pressure on an appraiser. It is completely improper. Our response is we’re against it and I think everybody in the industry is against it.’
nothing to laugh about … several EU countries already have multi-generation mortgages, Netherlands is one of them. Japan had them to, just before the downslide started.
That’s the key point - “just before the downslide started.” The downslide lasted 13-14 years.
UK since a few weeks.
Holland balances out its multi-generation mortages by having the most liberal euthanasia policies on the planet. So, if Junior gets pissed off at inheriting that huge mortage, he can trundle the drooling idiot geezers he calls parents off to the local Dr. Kervorkian, and at least get one burden off his hands.
“Paul Volcker, who halted a wage and price spiral as Federal Reserve chairman between 1979 and 1987, said he’s worried both about inflation and pressure on the U.S. central bank to not do anything about it. ‘I am a little bit more worried about inflation,’ said Volcker. ‘ I am impressed by the degree of pressure, if that is the right word, psychological pressure, political pressure, there is not to do anything about it.’”
I am glad that Volcker is stepping out of the shadows with his gently-worded reminder about the pressure to respike the punchbowl. The Fed’s leadership needs all the moral support to do the right thing that they can get at this critical juncture in the policy process.
Even if politicians have their way, ie lower interest rates a lot, or heck, just give everyone in the US and their illegal immigrant friends a check for $100K, would that really stop the bubble from popping?
Forgive my ignorance, but how would out of control inflation affect businesses aka those who give money to politicians?
Yes, it will stop the bubble from popping (if not, hand out $1M, or $1B, to each person). It’ll also cause the US to quickly achieve third world status as the dollar loses all value and we are unable to import anything.
Ah, but you assume their true goal is to keep import costs down. What if the PTB wants import prices to rise and export price to fall (to out foreign buyers)? I think that is the right way to go, IF the FCBs allow our dollar to depreciate against their currencies (we default on our debt — better some money than none at all??).
I would love nothing more than to see the US get out of this service economy BS and get back to creating and producing things which improve our QOL and, perhaps, enable us to be softer on mother nature. It would be nice.
Yeah, well Volcker did all the work. And GreenScum just lowered rates and celebrated himself.
the stock market is already pricing in that no one is going to listen to Volcker and that there will be an even bigger punchbowl in the near future.
in the STOCK market.
Bernanke is listening. He is the one who has to decide whether to follow in G. William Miller’s footsteps, or to take the road less travelled and follow in Paul Volckers’s footsteps.
http://www.washingtonpost.com/wp-dyn/content/article/2006/03/19/AR2006031901108.html
The fed is powerless over deflation. They have to protect the dollar or the government will not be funded. Every credit bubble (especially the epic one now in place) has been resolved through a deflationary collapse. Perhaps the government will print money after the collapse. But it will be in response to it.
Posted “The fed is powerless over deflation.”
Well you nailed that one! I agree that the defence of the Dollar will crush all of the whishful thinkers…. if any are left. When the NAR is saying “it is worse that we thought” the tipping point is past my friends we are now falling.
One more point if David Lereah say the problem is that prices are too high…. Why the hell doesn’t he set an example and cut prices. We need one “Realist” not another Realtor.
I thought deflation was fought by dropping dollars out of helicopters?
The world’s biggest debtor nation does not have the option to drop money from helicopters. It is hyperbole, plain and simple. Without foriegn capital the government cannot not fund it’s welfare and wars.
Hyperinflation would take us down the same path as the Latin American dictatorships…and destroy the economy (and with it the power of our military and hence our government). Either way, the choice will be painful.
‘“To bring buyers back into the market, sellers simply have to lower their prices, said David Lereah, the NAR’s chief economist.’
But doesn’t this screw up the comps for everyone who bought last year? And won’t that worry prospective buyers that they, too, will lose money if they purchase right after the market started to correct off the all-time-high real price of housing?
GS, If I’ve learned anything from DL it’s that the future does not matter. Live for the moment, live for today. Say what needs to be said and do what needs to be done to sell the house today. Don’t worry, be happy, and lower the price.
DL’s kind of an existential, new age guy.
‘“To bring buyers back into the market, sellers simply have to lower their prices, said David Lereah, the NAR’s chief economist.’
How about the Realtor industry leading the way by lowering their commissions, that way the sellers will be inspired to lower their prices. Maybe Mr L can lower his pay because we now have a housing decline.
They actually had an article in the Sunday LA Times RE section suggesting that realtor commissions should rise given the tougher market. Do you believe the gall of these people???
They ARE rising in some instances. Listing agents are offering 4% instead of 3% to buyers agents to get more traffic, so the total is 7% of the purchase price. Happening more and more often.
GS posts “But doesn’t this screw up the comps for everyone who bought last year?”
Well, what it does is rescrew, the people Lereah already screwed.
He needs to cut his price!
“Sellers simply have to lower their prices”
What a profound statement. I’m glad that David’s education was not a waste.
Bubbles the Clown said that the anagram for David Lereah is “Drivel Ahead.” Always makes me laugh.
I forgot about that one. That is hilarious.
It is a buyer’s market. Some houses are still selling - at least in West Palm Beach - but those houses had better be in tip-top condition, perfect locations and priced right. Or the seller needs to be willing to come off their overbloated asking price. Otherwise, that house is going to sit and sit and sit. And if someone comes knocking, the seller better be willing to buck it up and take it, because most likely that buyer is going to have a very long list of concessions.
(providing employees with free doughnuts on the last Friday of every month.)
The must have a defined benefit pension plan. I’ve often said that Crispy Creme was the only entity that was trying to do something about the Social Security shortfall caused by an aging population.
In any event, past housing busts have been good for retailers such as Lowes, because those who might have chosen to purchase a new home instead fixed up the old one. So this is something new. Perhaps the amount of already-extracted home equity is worse than I had hoped.
I was trying to figure out what Crispy Creme donuts were doing to ease the social security system problem. The only thing I came up with, was they gave free donuts to seniors so their arteries clogged quicker, thus giving them heart attacks, thus dying early and thus taking the pressure off the social security system? Right or wrong?
Krispy Kreme is having financial issues bigtime. All the shops here in the valley closed up when the franchisee filed for bankruptcy.They have been really having problems filing their paperwork with sec on time.Not sure if they will be in business long enough to worried about ss.Dunkin donuts will clearly be the winner.
They abruptly closed several of their Tucson stores. Happened just a few weeks ago.
ugh. sugar itself does not clog your artery.
It ain’t about the sugar, baby… The secret is in the lard… Mmmmmm- boiling hot, rendered lard… Yeah…
KK better than DD
Hey, Krispy Kreme is kosher, no lard there.
Actually, the secret is the 4g of transfat per donut. Two donuts a day will almost unquestionably result in your death…
I also originally thought Lowes and Home Depot would do well with a housing bust as people remodeled instead of moving up. However, I’m beginning to suspect that HD and Lowes have changed their business model over the past 10 years to cater more to contractors, exposing their business more to new home sales than in the past and especially more to flippers. Also, I think there may be a greater emphasis today by homeowners to fix up/remodeling a house before putting it on the market than was present 10 years ago.
I think that’s true with HD, no doubt. Lowe’s, I’m not so sure. If you walk into a HD, it’s like a warehouse, with concrete floors, narrow aisles, etc. Lowe’s is lighter, wider aisles, caters more toward the weekend renovator, not the contractor.
Time will tell–I think both will hurt, but Lowe’s less so.
Good view. HD’s parking lots are full of rack trucks all day long - and they start showing up 6 AM. HD is the contractor’s main source, while Lowes is for fill-in stuff. Point of order: Last Saturday, my wife refused to go into a Lowes because after a day of yardwork, she was ‘just too grungy’ to shop there. But she went into HD without a thought. In a downturn, HD has a serious problem.
Anybody remember Builder’s Emporium?
It was the big box predecessor in So Cal at least to HD.
They went bust after the last RE boom.
I still remember the vacant bldg and huge parking lot that stood empty for almost 10 years at 17th and Tustin in Santa Ana, CA.
If you guys don’t think that Lowe’s is riding the faux-equity wave, you don’t know the same homeowners I do.
Cabinets, appliances, doors, ceiling fans, tile, fixtures. . .all on that home equity credit line.
Sure they are, but (sorry for the sexist belief system)
women shop, men buy. Lowes will carry more traffic in a downturn than HD - and in retail traffic is the key.
I think both will take a hit because the equity faucet will be turned off. My guess is that both have benefitted from the loose money over the past few years in terms of high end business like kitchen upgrades, flooring, etc. Also the contractor traffic increases for the non diy crowd seeking these upgrades. But now that things are headed downward their traffic will move back toward the maintenance items as people tighten up their budgets.
Not to mention, Home Depot has just finished this year with a purchase of Hughes Supply (I think it is) and integrating them into the Home Depot business. Ever heard of Hughes? Of course not. But contractors and builders have, at least in some parts of North America. This might not have been the best timing on HD’s part to make that big purchase whose business depends on money from building contractors.
Home Depot also recently purchased Cox Lumber stores here in Florida.
They are trying to buy profitable companies to make up for slower sales. Unfortunately, their timing is impeccibly poor.
Cox is a building supplier that was raking in the dough, like every other supply house, including Hughes.
I suspect HD will get hit doubly hard for their lack of foresight.
Nobody expects the Spanish Inquisition!
Comfy pillows for everyone! [to cushion the landing.]
“Nobody expects the Spanish Inquisition!”
Except everyone on this blog.
‘If we have prices drop for the rest of the year and sales also continue to drop, then we will have a bad situation in housing of balloons popping rather than air coming out,’ Lereah said. Either way, he says, ‘It’s a buyer’s market.’”
finally. He gets it. economics 101!
I don’t understand it being a buyers market. Nationwide, prices just started dropping. If national prices were a stock, the technicals on the chart would be screaming “SELL”…but in real estate, when prices finally start dropping, one should buy?
Also, unlike a stock that may pay a dividend while you wait for the price to come back up, the negative carry (alligator) is not condusive to “waiting out” your break-even point.
Kinda brings to mind yesteryear’s dot com startup hoping and waiting for future profits to make up for a high current cash burn rate…
Yeah, like how the NASDAQ was a “buyers market” after the first 2% drop because if it’s not a sellers market then it must be a buyers market right?
It’s still a sellers market because if you bought at a non-bubble valuation then you can still make a lot of money selling right now.
that’s what puzzles me about sellers’ reluctance to cutting prices…most of the homes I’ve looked at, even if they reduced their price by 25%, they’d make a decent profit.
but they expect to be inundated with offers after a 1.5% reduction.
(i’m in Phila metro area, not a huge bubble, about 20% overvalued according to National City, and that’s about right except for where the specuvestors ran amok)
No puzzle here — they already permanently-liberated all their equity through cashout-ATM-financed consumption expenditures, and now a sale at a 25% price reduction would put them deeply underwater.
The difference is that stocks are far more liquid than property. The best description I ever heard was from an 85 year old investor who was in the stockmarket for almost 50 years and in real estate investing for 60 years. He said when property prices start a downtrend, they look like slowly falling domino’s. It can take several years to reach bottom. On the other hand, stocks can be sold in minutes. BTW, he also said he had never seen the US economy in such a serious condition in his lifetime and felt we are standing on the edge of a cliff with the earth crumbling under us. He said he has never heard any previous administration spin, lie and cheat the American people like this administration and he has always voted Republican. That’s really worrying.
“The difference is that stocks are far more liquid than property.”
What do you mean by “liquid?” Is the difference between being able to sell within minutes (stock) versus within a week (houses) material given that prices can adjust in an instant on a shift in collective perceptions?
P.S. And for how many years did stock prices fall in Japan after 1990? Or in the USA after 1930? I don’t think the long-term price adjustment process for stocks is substantially different in terms of wave length than is that for housing.
I think the gist of what he is getting at is that with stocks, the stock is such a commodity, and volumes are so high that you know every minute exactly what your position is worth, and can turn that into cash (liquidate the position) with the click of a mouse.
I appreciate your point–that home prices can shift instantly with overall perception turing sour, but there is nowhere that you can look to determine exactly what your home is worth.
I think the biggest reason that home price corrections take longer than stock corrections is that with stocks, there are many, many players who approach the market without emotion. They go long and short without an instant’s hesitation, and recognize that taking losses sometimes is part of the game.
With housing most people have had it pounded into our skulls by brokers, and our parents that RE always goes up in the long run, and there is an emotional aversion to selling your house for less than you paid for it–especially when leveraged. The slide downward simply takes more time for houses than stocks.
For every stock sold, there is a willing buyer.
That is not always the case with houses, sometimes there is no willing buyer and the bank would prefer not to take back the house, but is forced to.
Skip,
This supposed-difference between the housing market and the stock market is a misconception, as for every house sold, there is also a willing buyer. Suppose I bought a share of BubbleCorp Inc stock at yesterday’s share price of $400, and today I try to sell it for my wishing price of $410. If the market price has dropped to $350 a share, I guess I will not be able to find a willing buyer to pay my wishing price in that case, right?
The main difference is that in the stock market, shares of a given company are identical, they generally sell steadily (except not on Black Monday, Oct 19, 1987) and prices are publicly posted minute-by-minute. By contrast, in the housing market current prices must be inferred through comparison to the closest comps (which are generally not identical to the home you are trying to sell) and the market price can only be discovered through actually selling the home.
The main difference is that there are no short sellers in the housing market and therefore, it is less efficient. Bottoms are best put in by short covering which there isn’t in RE.
Shawn I don’t understand it being a buyers market.
Nationwide, prices just started dropping. If national prices were a stock, the technicals on the chart would be screaming “SELL”…but in real estate, when prices finally start dropping, one should buy?
You do not have to understand it, just like you don’t have to understand it on the way up, I doubt most people do. The fact is price’s are dropping.
Unlike the Stockmarket the Housing market moves in slow motion. It takes 30-60 days many times to do a transaction. In the Stockmarket you can get in and out of a stock 20 times a day. At the end of every day the stocks are marked to market and you know where you stand. Housing…. not so.
Forget about “technicals and charts” most of the people that spout that stuff have holes in thier shoes. Very, very few Fund Managers beat the S&P over time.
but let’s get one thing perfectly clear. They’re BALLOONS, not bubbles.
when the bubble grows big, they alsmot look like baloon…
faster than anticipated- you bet !
WAPO had the 1.3 % fall on the front page
my house is off 12% from peak 5/5
1-2% is total BS
Does severely understating the magnitude of the drop so far make the drop larger or smaller after “everyone” catches on to the deception? I frankly am not sure…
I still don’t buy these declines of only 1.2%, those do not account for these 100k in incentives that builders are using to prop up prices. Take those into account and the real story is much uglier.
“my house is off 12% from peak 5/5. 1-2% is total BS”
One of the reasons for the disconnect is that prices reported are distantly TRAILING data–for example, the S&P/CS housing indices reported today are for sales closed in July. In other words, for purchases initiated in May/June.
So yes, I agree that the reality is worse that the currently reported numbers. And we’ll see that in the reported numbers in a couple of months.
Jon
it’s bad for housing busineses all over.
Bad Blood Over Bad Loans
Mortgage defaults are rising. Wall Street thinks banks should mop up the mess
http://www.businessweek.com/magazine/content/06_40/b4003063.htm?chan=search
Fred Hooper,
Perhaps you should take a look at this link; remember I said was’nt going to name names; Here are some publicly traded names.
Yes. Thank you. I cut that article out when I saw it. I’ve done some research on MortgageIT. I was going to short them 6 months ago but couldn’t get any shares. They’re being acquired by DB.
MortgageIT holds an 80/20 first and second totalling 204K on a property I used to own. I sold the property in 1998 for 85K and wouldn’t give 60K for it today, as the neighborhood has degraded more and more over time. It is truly incredible to think about the risk exposure that lenders and investors have on these loans. Multiply this story by a million and you see why I think we’re on the precipice of the greatest real estate collapse in history, followed by a long recession or depression.
From the link:
“(LEH ) is trying to recoup $20 million on toxic loans bought years ago from Beverly Hills Estates Funding Inc., whose principal, Charles Elliott Fitzgerald, is believed to have fled the country to a South Pacific island. “While the speculation is that he’s offshore, we don’t have any leads to his whereabouts,” says Michael Wachtell, an attorney for the receiver overseeing Beverly Hills Estates Funding’s liquidation.”
———————
This is what I’ve been wondering about all along. I’ve seen so many fly-by-night lending operations in recent years…there’s no way MBS buyers are going to be able to get their money back from these operations.
Am I missing something?
“CEO Miller said the company has seen its cancellation rate rise to over 30%. ”
THINK about that statement for a minute. Imagine any other business where 30 % of a company’s product has NO BUYER. What is wrong with this picture? Beam me up Scotty.
it’s more than 30%. many of their homes are sitting on the market, and 30% of the ones they thought were sold are coming back to them.
What does X (or 7 +) months of inventory mean?
Here’s a general and IMO, an important question. Exactly how is the “months of inventory” calculated? I assume that one takes the current sales rate and applies it to the inventory, assuming that no houses are coming on to the market(??). Of course there are two big problems if this is the case. First, a substantial number of buyers have to sell a house in order to buy a new one. Second, the building has not stopped. In order to reduce the inventory, you need new buyers, either first time buyers or speculators who are adding to their own inventories.
If speculators are net sellers, how long would it really take “first time buyers” to clear out the inventory? Second homes have been a big part of the market over the last few years–I think that many baby boomers decided RE was saver than the stock market. I guess that second home buyers could help the “first time buyers,” although second home buyers seem to be selling in Florida and some other markets.
One source told MW that the “Country Wide has even canceled its regular practice of providing employees with free doughnuts on the last Friday of every month.”
——————————————————————————
We’ll there you go! The bubble has officially popped!
Bit off topic:
But Wall Street is feeling the sting, too. A few lenders have refused to buy back loans, prompting arbitrations and lawsuits. Bear, Stearns & Co.’s (BSC ) mortgage affiliate, EMC Mortgage Corp. of Irving, Tex., is suing New York lender MortgageIT over $70.5 million in disputed buybacks. (Deutsche Bank (DB ) said in July it would buy MortgageIT Holdings Inc. (MHL ) for $429 million; it declined to comment.) And Lehman Brothers Inc. (LEH ) is trying to recoup $20 million on toxic loans bought years ago from Beverly Hills Estates Funding Inc., whose principal, Charles Elliott Fitzgerald, is believed to have fled the country to a South Pacific island. “While the speculation is that he’s offshore, we don’t have any leads to his whereabouts,” says Michael Wachtell, an attorney for the receiver overseeing Beverly Hills Estates Funding’s liquidation.
http://www.businessweek.com/magazine/content/06_40/b4003063.htm?chan=search
David Lereah says, ‘It’s a buyer’s market.’
Hardly! It will only be a buyers market once we see that house prices have been appreciating steadily for several years. Right now prices have just started to go down, and NO ONE wants to buy when prices are declining. Who wants to own a depreciating asset?
Ironically, it was a great buyer’s market in 2004 (despite the fact prices had been appreciating for years), since buyers stood to have significantly more appreciation over the next year. The actual price level is irrelevant when determining whether a given market favours buyers or sellers. It’s only the expected appreciation/depreciation levels that really matter.
Don’t buy if prices are falling. Buy if prices are rising.
My motto is buy when it’s affordable to me. If the value falls from there, so be it. I’m planning on actually living in a house - not playing a game of how-much-money-can-I-make-in-the-short-term with it.
Don’t buy if prices are falling. Buy if prices are rising.
That works fine with stocks, where you’re gambling with maybe 1 year’s SAVINGS with a tight stop loss.
It’s a whole nuther matter when you’re gambling with 8 years’ EARNINGS.
There is no reason (other than outright criminal behavior) that this impending disaster should not have started 4, 5, 6 years ago (albeit with less painful consequences)
Fortune Magazine, October 2002 “Is Housing Next?”
“It will only be a buyers market once we see that house prices have been appreciating steadily for several years.”
Not necessary. Just wait until
1) Homes price out as rentals (100-120 X rent)
2) The home price to income ratio has reverted to affordable levels (under 3 times income in flyover land, 6 times income in CA)
Getstucco,
While I agree with your numbers being good from a historical perspective…
1) Home prices way overshot traditional valuations to rent, so they’ll go the other way on the downside.
2) Traditionally, whenever homes in CA reached 8X incomes they would drop to 6X income. But now its at 11X income! So the bottom? I’m betting 5X income. (Its still a nice place, but once jobs leave, its going to be a *long* time before they return.)
Neil
And once jobs leave, 5X income may sound a lot lower than it does based on today’s income levels.
We are in agreement sir.
Yes, 11X income Y is a lot bigger number than 5X income 70%*Y. Gulp!
Of course, I’m talking real incomes, not nominal. I accept inflation might keep incomes constant in nominal dollars or even cause nominal wages to climb.
This will get interesting…
Neil
ps
I cannot wait to see the November and December sales. September? Eh… yawn. We’re going to have a slow winter market.
“We’re going to have a slow winter market.”
I predict that liquidity may freeze up for a few months this winter.
I don’t doubt that.
Personally, I expect that the MBS market will stop taking bonds backed by Option ARMs or stated incomes. That allone will stop 1/3rd of the buying.
If 1/3rd of the buying stops, that will put the breaks on the upgrade market… (Instant 50% drop in sales.)
Yes, winter might be a very deep freeze as far as the market is concerned.
I think that’s dangerous advice for a lot of flyover country. Better add a caveat to allow for falling wages or out-of-sync inflation of non-house expenses. (And “just” out-of-sync; I don’t even want to think about hyperinflation.)
The average Memphis home goes for $168K, factor of 5 times average household wage.
The average home in Memphis’ most expensive suburb goes for $300K, a piddling 3 times average household wage there. (Although newer crapboxes of the same size on 1/4 the lot in a less desirable part of the flood plain go for at least double the asking price of the better built older resale. Lots of dumb, DUMB money here.)
Memphis perenially makes the short lists for “most undervalued” markets, also highest foreclosure rates.
The house we rent shows a Zillow value of 166 times our rent. Many local comps rent at 200+ times.
It should be a fine, safe time to buy here. But I don’t think so.
There are a limited # of major businesses with headquarters here: International Paper, FedEx, ServiceMaster, Hilton Hotels, Harrah’s Casinos, St. Judes & other medical research - I think a few of these will very directly feel the pinch of the FB borrowing spigot turning to the OFF position.
Zillow believes that our landlord has lost $14K of value in our rental since this time last month. $4K of that just in the last week. (Shows upward trajectory for first half of the year.) But that’s nothing compared to the $68K she has lost on her own McMansion since December. This against a backdrop of local articles touting RE investment capital racing to scoop up “prime” properties, here. (I posted about that recently, and someone followed-up with a comment that we’re so, like, in a time warp, man. Yes. We are.)
Flyover country is full of off-the-radar burbs with less economic security, even, than my own. The trick to calling a buyers market will involve astounding prescience necessary to factor in wage depreciation/deflation/hyperinflation/whatever comes, or patience to ride out quite a bit of volitility and actually see where all the pieces land. (I’m actually a little concerned that me and mine may be situated in a cozy corner of the “new” 3rd world.)
Mikhail,
In our neck of the woods (North San Diego County), prices have been flat/down since 2004. It would have been foolish to buy here at that time. I’m seeing quite a few foreclosures coming on that were purchased in 2004. Best to buy after all the crazy NINA buyers have been wrung out of the system (kept out of buying AND foreclosed on). Just MHO.
The people who bought last summer bought when prices were rising… as did those who paid $95 for YHOO in Dec ‘99.
I guess those were good “buyers markets”
hahaha
“I am impressed by the degree of pressure, if that is the right word, psychological pressure, political pressure, there is not to do anything about it.”
Mr. Volker is speaking directly to the barking moonbat brigade located in the back room of the WhiteHouse. The mere suggestion of sound fiscal and economy policy in lieu of the supply side lunacy illicits a freakish attack-like response by the southern GOP commerce henchmen. Bernanke, Wall St and opposition parties need to put a fork in those bastards and their thinly veiled heist of the public and treasury.
supply side is lunacy because why…..????
Government tax receipts set an all time record in 2005. Taxes were lowered but receipts went up pretty consistently since the tax cuts were put in place.
Of course Congress and the Prez squandered the windfall, but spending like a drunken sailor is not part of the the supply-side school.
Remember that no country ever taxed its way to prosperity…
“supply side is lunacy because why…..????”
Hint: Check out that US current account deficit chart on the front page right of yesterday’s WSJ… part of Ronnie’s legacy of gettin the gov’t off the people’s backs while running big Keynesian deficits to goose the supply side of the economy in the process so the good greed could trickle down to all the little folks.
garcap,
I’ve seen these numbers as well, but question the validity. How do we *know* tax receipts are up? Is there any detail as to exactly where this money came from (private taxpayers/corporations/which sector/from sales or???). It would be interesting to dissect these tax revenue numbers. Even better if we could find some factual evidence which supports these revenue increases.
Government spending directly increases tax revenues.
Post Office hires one new employee. That one new employee will pay income taxes. Tax revenue UP.
I think supply side economics does work to increase the size of the economic pie. But how much pie can be allocated to 1% of those at the table before we find ourselves in the same boat as Cuba?
“Remember that no country ever taxed its way to prosperity… ”
And which country spent it’s way into prosperity? Show us… rather show the world ONE country….. that’s right. ONE country where voodoo economics has worked SUCCESSFULLY…
We await your reply.
This is the type of stuff that’s showing up on TV today. Likely to cause a selling panic, I think:
http://cosmos.bcst.yahoo.com/up/news;_ylt=At25F_mHpawEVeNeWE7UBOXcKs0F;_ylu=X3oDMTA5dXJmZWdsBHNlYwN2aWRlbw–?ch=61492&cl=894804&lang=en
Maybe I’ll take a drive to Castaic and sample her cupcakes…
Posted “This is the type of stuff that’s showing up on TV today. Likely to cause a selling panic, I think”
She gave it up at the end….about the Toxic Loans. How many people did she hang with ARM IO loans in the last 5 years?
Let’s see: Froth, Soufflé, Balloon….. could Bubble be next?
Hopeful Glimmers In The Housing Slump
I give up, I don’t know anything about how the world works. Bad news is really good news, down is up. They’ll keep playing their games until the bitter end. Alas.
I can write David Liareah’s speeches for the next 3-4 years:
“We’re possibly at the bottom, things are about to turn around”
repeat for the next 3-4 years.
posted “I can write David Liareah’s speeches for the next 3-4 years:
“We’re possibly at the bottom, things are about to turn around”
repeat for the next 3-4 years.”
Yea, from the Bunker as the Red Army is on top of him.
I posted a few weeks ago about my older brother who quit his blue-collar job to become a real-estate investor. He has never made a downpayment, all his houses have been 100% financed, and recently 100% financed, with additional home improvement loans.
He bought a rental house in 2002 for $250k—it’s approximate value now is $500k.
He bought another home in Dec 2004 for $600k—it’s approximate value is $600k.
He just bought a third home for $650k. A few days after he bought the house, he called me asking for help. He couldn’t get his home improvement loan and he had started drinking and couldn’t sleep.
Now (after a loan from family members) his confidence is back up!
We post to a family YahooGroups mail site, so about 20 people (all family and extended family are copied)
Here is our latest e-mail exchange:
From September 12—in response to an e-mail I sent to my brother-in-law about a stock recommendation…
“What you have to understand about real estate, is that it always goes up in value. There are times when it has dropped a little, like now, but never very much and never for very long. In the bay area, real estate is not dropping in price, but sales have slowed. In Placer county, prices are dropping, but this is a short term situation caused by slow sales.
We are not in a depression, or even a recession. Employment is up, people are still buying houses. The reason for the slow down in sales is that the housing market climbed too fast over the last few years due to extremely low interest rates combined with adjustable rate - negative am. loans that allow people to pay more in overall price but with smaller payments. This seemed like a good idea a few years ago because the price of homes was climbing faster than the neg. am. was eating up the equity. Now that interest rates are starting to climb, all of those people who bought homes can not afford the payments anymore. Adjustable rates are adjusting up. People of course, are in denial. They want to sell their homes like it was still 2004. They put a sign up in the yard with too high of a price, and wait for the offers to roll in. It doesn’t work like that anymore, so the homes sit for 6 months or more until the people finally either settle for less, take a second job, or get foreclosed on.
For an investor, this is a great opportunity. Sellers are willing to negotiate more, not just on price, but on terms. It is much like the stock market, where you buy low and sell high. Think about your Ford stock. You bought it as it was spiraling down into oblivion. It looked really bad, and I watched as it dropped close to 50% of its value after you bought it.
I was not so sure about Ford coming back, but Real Estate has always bounced back. With the money you put into that Ford stock, you could have put it into real estate and done a lot better in a shorter time if you knew what you were doing.
As if he knows what he’s doing!
I’d be pretty brutal back. I’d say something like, “weren’t you just crying for a bailout a day or two ago? Why should we think you know what you’re doing?”
The mentality of that makes me a little nauseous.
There are times when it has dropped a little, like now, but never very much and never for very long.
Not written by a student of history, obviously. Boston ‘88, Japan ‘90, Houston ‘??
Houston, we have a problem.
Real estate has always bounced back, except when it hasn’t, or except when it takes 15 years to bounce back like recent history in Japan teaches us. Is he prepared to hold on to his properties for 15 years? If so, maybe he’s okay. If not, when he has to sell, he’s going to be competing with all of those desperate sellers he talks about that are creating such “deals” for investors right now.
Note that real estate hasn’t really “bounced back” in Japan. It has only just started turning up from its lows (and only in the most in-demand areas). It is unlikely ever to “get back” to its bubble highs.
I wouldn’t even respond to that, just let the next 6 or so months speak for themselves.
“I wouldn’t even respond to that, just let the next 6 or so months speak for themselves.”
Ditto. In person, when the topic comes up, just grin and nod your head.
Again, any lesson he learns from all of this will be valuable. Pain is a good teacher.
I wouldn’t loan that FB a dime.
“What you have to understand about real estate, is that it always goes up in value. There are times when it has dropped a little, like now, but never very much and never for very long”
Tell that to the Japaneese for the last 14 years of depreciation.
Hey you guys,
Tough question:
Do you remember the report a year or so ago done by some think tank or other that mentioned that prices only needed to decline 5% to put 40% or something of new homeowners underwater?
I’d appreciate a reference, I know this one is a tough one.
Hatzius said the risk was that housing could see a much harder landing than now appears reasonable.
Thank you very much.
How low will the 10 year note go? Is there any chance that with declinging interest rates the punch bowl will get spiked again or spiked enough to keep home prices from declining as much as we all think?
Posted “How low will the 10 year note go? Is there any chance that with declinging interest rates the punch bowl will get spiked again or spiked enough to keep home prices from declining as much as we all think? ”
Some think it is not a good sign that the 10 year rate is trending down. The S&P 500 are FLUSH with record amounts of cash. I get the sickning feeling the “smart money” is heading for high ground.
IMO, they are not trying to protect the FBs so much as they are the investors, and the banks. No matter what they do, unless wages come up quickly, there will be a crash.
Not sure if this has been posted or not. It’s getting harder to read all the post as this unwinds.
http://www.larouchepub.com/other/2006/3339bubble_grdzero.html
This Lyndon LaRouche link has been posted repeatedly. LaRouche is an insane lunatic who thinks that the Queen of England is involved in drug conspiracies and defends the authenticity of the Protocols of the Elders of Zion.
from
http://www.opednews.com/articles/opedne_joel_s___060925_political_fallout_fr.htm
Consumer spending drives the American economy and clearly spending on homes is extremely important. So what is this housing bubble bursting saying about the political fortunes of Republicans and Democrats this November?
Compared to the recent sharp reductions in gas prices that affect virtually all Americans in positive ways on weekly basis, all the bad news about sluggish housing sales and decreasing sale prices is much less important. Simply because less than about 10 percent of the population is involved with selling homes in a year. However, people with recently popular interest-only mortgages could find themselves in serious trouble if the value of their homes decrease and they have not paid off any of the principal. Either expensive refinancing or foreclosures face them. Still, the housing bubble will not affect many Americans before November.
Bottom line: the net economic story is a positive for the Republicans this coming November.
The party in in power is doing everything possible to keep the floor from falling out from under our economy until after November 4. Or, at least, to keep it off of the front pages.
Oh yes, we Rs will be fine this November, for none of the real pain will become apparent until after Election Day, six weeks away.
I work in DC politics, and no one is talking about this in public or private. Most Congressional staff I know still think the old financial fundamentals still apply. We’ll see what they think in a couple of months when housing prices keep going down, down, and even more down.
2008 will be a very interesting year for the Republican Party. We on this blog know they will be the ultimate FB if our predictions come true of 20-40% price drops.
If the GOP wins both Houses it will be the last time for another 40 years. Frankly, I’m surprised with the aggressive campaigning as of late. I was convinced since Spring that the R’s were just going to mail it in, surrender to the Dems, so when the the sh*t hits the fan in the next 2 years, they could blame the Donkeys. But I guess that why Jeff Gannon never visits my house…
“I was convinced since Spring that the R’s were just going to mail it in, surrender to the Dems, so when the the sh*t hits the fan in the next 2 years, they could blame the Donkeys.”
I agree with you Chillidoggg. I expected them to do that too. NYRepub’s asked William Weld not to run for gov and instead installed a no name candidate way behind in the polls. Somehow I feel there’s a story there that’s connected to your comment.
Cramers take on Home Builder Stocks
You have to watch this clown…..
Now the housing bubble is on the cover of the LA Times.
Now the housing bubble is on the cover of the LA Times.
Apparently the burstng bubble still isn’t being reported in the media accurately or taken very seriously. I had the TV on in the background last night and one of the major national news networks ran a quick blurb about the YOY median home price declines nationwide. They ended it with “experts expect this to be a short, quick correction.” In other words, “NO NEED TO WORRY, PRICES WILL GO UP AGAIN VERY SOON.” This is the kind of crap that continues to feed the bubble mentality and give ignorant realtors fodder for their continued sales push.
How can anyone possibly think this correction will be short or quick, when it took us like 7 years to get here, with gains of 20 percent per year??
“How can anyone possibly think this correction will be short or quick, when it took us like 7 years to get here, with gains of 20 percent per year?? ”
Because it is in their economic interest to say it is so.
http://www.latimes.com/news/printedition/la-fi-housing26sep26,1,6234291.story?ctrack=1&cset=true
http://www.latimes.com/news/printedition/la-fi-housing26sep26,1,6234291.story?ctrack=1&cset=true
This article proves my point. If I were an uninformed reader this article would not worry me too much. Some examples:
“The price picture is slightly brighter in Southern California…”
“Many analysts believe that the economy is strong enough to avoid falling into recession even if housing continues to weaken…”
“You have to be careful not to exaggerate how much [housing] dampens the economy given that everything else other than the auto sector is doing well…”
“In California, prices are still rising, but more slowly…”
“the psychological hit from ebbing home prices is being tempered by rising personal income and by a relatively low unemployment rate of 4.7%…”
“the downturn in housing may at worst shave about 1 percentage point off U.S. growth in 2007…”
“the long run-up in home values has given many people a reservoir of untapped equity. “Most people still have a ton of money in their houses…”
Well, if you’re waiting for the media to do a hit piece on RE, we’re about a year away from that. The pain has to be more widespread, then they’ll be running personal interest stories about starving flippers.
I get that. It’s just frustrating being in “the know” as all of us on this blog appear to be, but the average “Joe” relies heavily on the media (as I used to) to influence their ideas and perceptions on many things, including real estate. This type of reporting fuels the denial, but as you say, a year from now it won’t be avoidable any longer.
Posted ” The pain has to be more widespread, then they’ll be running personal interest stories about starving flippers”
Feed them “tubesteak”…. the same they wanted to feed others.
think how different this article is from those of just 3 months ago, then extrapolate out another 3 (or less) months and think what the articles will say. The end of bullish talk (except from our buddy Liareah) is nigh.
In Sacramento the correction so far is atleast 15% for homes over $600K and inventory is going up a lot and lot of sellers cut prices a lot in August.
…trailing down further and faster than anticipated….
What I want t know is if YOU were the CEO of a billion $ company and your BUSINESS was related to home building, would you not be more clued in? The answer is - THEY MUST HAVE BEEN. The fact that they waited until they could no longer remotely ignore what was public and could no longer go on lying with a straight face.
I never thought much about this industry, but this bubble has me hating all the participants, including banks.
I think it is called “plausable deniability”. They either knew and chose to misrepresent the facts so that they could continue to make the sales OR they did not know and are incompetant. By claiming now that they did not antcipate this they introduce plausable deniability into an equation I suspect includes knowlingly misrepresenting information for the sole purpose of suckering those last greater fools.
Posted ” ‘The housing market has continued to deteriorate, trailing down further and faster than anticipated,’ CEO Stuart Miller said in a a statement.”
Wow! I hate it when that happens.