“2006 Was The End Of The Boom”
Some housing bubble reports from Wall Street and Washington. CNN Money, “Washington Mutual’s chief executive said that he expects 2007 to be another tough year for the U.S. mortgage industry, which faces overcapacity and unsustainably low margins. Kerry Killinger, CEO of the largest U.S. savings and loan, acknowledged that a sweeping correction in U.S. housing prices would lead to higher delinquencies and loan losses.”
“‘In our guidance we’ve assumed that the mortgage industry would be about as tough next year as this year,’ Killinger said, adding that he would not be surprised to see ‘multiple years’ of housing prices lagging inflation and other asset classes.”
“Industrywide, mortgage origination fell by 35 percent between 2003 and 2006, while industrywide head count rose 8 percent in the same period, he said. ‘There is a total disconnect in mortgage banking between realistic levels of production that are going to happen and the level of employment,’ he said.”
The Scotsman. “The World Bank yesterday said a global slowdown was firmly under way, led by the United States. The report said a soft economic landing remained likely, but warned that a cooling US housing market, especially, could be the catalyst to spark a sharper-than-expected downturn, and even a recession.”
National Mortgage News. “Aegis Mortgage Corp., Houston, which said goodbye to its longtime chief executive last month, has closed two subprime operation centers, laying off an undisclosed number of workers.”
From Origination News. “Fieldstone Investment Corp., Columbia, Md., a top-25-ranked nonprime lender, has put itself on the auction block, hiring Lehman Brothers as its adviser, according to investment banking officials. “There’s definitely a book out on them,” said one mergers-and-acquisitions adviser, requesting anonymity. Another investment banker confirmed this.”
From Bloomberg. “U.S. foreclosures begun on adjustable-rate mortgages rose to a four-year high in the third quarter as borrowers struggled to pay higher interest rates.”
“Surging home prices during the five-year real estate boom that ended last year spurred borrowers to choose riskier adjustable loans, many with rates that adjust annually, to afford real estate, said Doug Duncan, chief economist for the Mortgage Bankers Association.”
“‘You’re seeing the early edges of the reset phenomenon in the adjustables, particularly in the sub-prime market,’ Duncan said. In 2007, about $650 billion of U.S. home loans will reset at higher rates, he said.”
The Washington Post. “About 16 times as many of these high-cost loans, known as subprime loans, are past due as in 1998, when the industry began tracking subprime statistics as part of its quarterly delinquency analysis.”
“About 223,000 households with subprime loans lost their homes to foreclosure in the third quarter of 2006, and about 725,000 had missed payments, according to the quarterly survey from the MBA.”
“About 12 1/2 percent of all subprime loans were delinquent in the third quarter, up from 11.7 percent in the second quarter, the Washington-based bankers association reported. ‘It’s almost certain that the number of delinquent subprime loans is higher than it has ever been,’ said Duncan.”
The Associated Press. “The Office of Federal Housing Enterprise Oversight instructed Fannie Mae and Freddie Mac Wednesday to tighten up underwriting practices for some nontraditional mortgages.”
“According to OFHEO, the government-sponsored entities should follow guidelines issued by federal bank regulators in October that cover high-risk loans that allow borrowers to defer paying principal or interest for a certain period. Many of these loans come with adjustable mortgage rates. The popularity of these loans has ballooned in recent years.”
From Inman News. “2006 was the year that some real estate forecasters had been predicting for several years. It was the end of the boom.”
“‘All of the sudden this seller’s market had morphed into a buyer’s market,’ said Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies. The signs began to appear toward the end of 2005, he said, that the market was in transition. ‘It seemed sudden at the time though all the signs were there before.’”
“Those signs, he said, included double-digit home-price appreciation, increasing investor interest and a rise in unconventional mortgage products that ‘acted almost as a steroid on the residential sector.’”
“With the ‘perfect vision of hindsight,’ Retsinas said it is clear that the slowing began late in 2005. ‘Everyone knew you couldn’t sustain double-digit appreciation,’ he said.”
“Edward Leamer, director for the University of California, Los Angeles, Anderson Forecast, said, ‘The big problem is the disconnect between prices and affordability.’ The housing boom followed normal patterns until 2002, he also said, when there were ‘five years of extraordinary appreciation.’”
“Investors pulled out of the market and consumers may have reacted as investors to changing market conditions, he noted. ‘A lot of people, whether explicitly or implicitly, were thinking like investors.’”
“Kenneth Jenny, CEO and managing partner for (a) real estate consulting company, said the media may have had a role in the housing slowdown, and other real estate industry participants, too, have blamed the media for impacting consumer attitudes about housing. ‘The influences that created this cycle are different than others, they aren’t so much economic as they are media-driven.’”
“The media can act like a match starting a wildfire when it comes to consumer perception about real estate market conditions, Jenny added. ‘Stopping it is really difficult. Whether it’s true or not, it can turn the whole thing into a house of cards.’”
‘The slowdown in the housing market is reaching well beyond the nation’s homebuilders _ in the past few months, several furniture makers and retailers have cut their forecasts. The guidance cuts come amid a correction in the economically crucial housing sector, which has cooled off after years of overheated growth.’
‘According to the Commerce Department, home construction fell to a six-year low in November, while sales of new homes fell by the steepest rate in three months in October. As new and existing home demand weakens, so does the need to purchase big-ticket household items.’
‘Copper prices in Shanghai fell to the lowest in three weeks on concern growth in demand is slowing in China and the U.S., the two biggest consumers of the metal used to make pipes and wires.’
‘Copper prices in London have dropped 22 percent from a record $8,600 a metric ton in mid-May on higher global inventories and weaker U.S. economic growth. Copper for delivery in February fell 1.2 percent a ton, the lowest level since Nov. 22, on the Shanghai Futures Exchange. The contract has dropped 25 percent since May 15 when it touched record high of 84,100 yuan.’
“‘All of the sudden this seller’s market had morphed into a buyer’s market,’ said Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies.
There is no buyer’s market out there. this is still the biggest misconception. affordability is still at all time low. prices are in the dream land, so there is no buyer’s market. such another gimmick. haha
I can’t stand it when these morons keep saying that it is a buyer’s market. I’m a buyer and I can’t afford CRAP! Not even a POS of a home!
The spin works. Our rental just sold, so the lefantome’s are homeless…. the buyers are in their mid 50’s, and I had an opportunity to talk to him last night. They have been renting a place for 10 years in a nice part of town (nice timing on buying ….), and he said that “with the market changing, we thought this was probably a good time to just go ahead and do it”. The NAR cheerleading lines he was giving me, was like he was reading from the 40M add campaign.
I congratulated him on the purchase, and made some ‘softer’ bearish comments about RE during our discussion, and each time he would respond in the positive, as though everything I was saying was the foundation for their decision….(?) All I can think of is they came into some money and it’s burning a hole in their pocket. Just sad…. you rent that place from 1996 until 2006, and take the plunge now. Nice shootin’ Tex.
We’re going to see their rental Saturday, and may swap places if it looks good.
lefantome,
Yep! You nailed it. Came into a “little will” and it’s off to Realty World! That is SO funny. What did he do for the down payment? Show up w/stock certificates in grocery sack? In order for 2006 to 2016 to be half as exciting the avg. home would have to be what? 3.5 mil? Nice shootin’ indeed!
He seems fairly educated (we met once too). They have sublet a studio over the garage to graduate students from Chico State over the years. I guess I am just a little amazed that with the education and age, they could be this RE ignorant. And boy is that a costly ignorance…..
(stock certs in a grocery sack ….. I get more laughs from visualizing your always descriptive posts DinOR…. Keep it up!)
i’ll do you one better, i am a well qualifed buyer who can afford to purchase the half mill mcmansion. I am just refusing to do so. Even if i put half down my piti would still be over 2200/month. I dont want that for the next 30 years nor do i want 250k of real money at risk on a depreciating assett and unavailable to me for REAL investing.
I agree with you. I’d like to but soon, but won’t. Not under these conditions.
oops
but=buy
Interesting about the copper. I work for an automotive company that supplies wire harnesses. The copper prices were so ridiculous that I believe we were losing business because of it. GM wants us to cut our prices because they were doing bad and copper just kept going up. Needless to say I am not very busy! Hopefully the prices will keep going down or we will price ourselves out of business. Kinda o/t but still interesting
cksh-Do not worry, hybrids require double the amount of copper to build.
“‘You’re seeing the early edges of the reset phenomenon in the adjustables, particularly in the sub-prime market,’ Duncan said. In 2007, about $650 billion of U.S. home loans will reset at higher rates, he said.”
This is the equivalent to the 2005 tsunami when the water pulled out to sea and tourists stood around wondering what’s going on. Guess what comes next.
Agreed! Just when spring/summer ‘07 season inventory hits the market!
Oh man it ain’t going to be pretty!
“The World Bank yesterday said a global slowdown was firmly under way, led by the United States. ”
…and who ever said the US was no longer a world leader.
When everybody jumps on this “bubble” bandwagon, I start to get nervous. Their prevailing wisdon didn’t anicipaye any decline in 2006, and now all of a sudden they found religion, these
“Johnny Come Laties” have a clear crystal ball, and are looking for a bad 2007. I like to make my investments against the prevailing
majority opinion, and when CNBC is shouting this decline from I’m always wrong Crammer, it might be time to start buying again.
Read the article. Some of these guys are still saying the bottom is a couple months out. It looks like a little rewrite of their 2006 positions.
Indeed, jacka$$ Cramer is still a raging bull. I saw some housing stuff on CNBC yesterday, and it was pretty tame. They acknowledge the risks, but gloss it over for the most part. Doug Duncan from the Mortgage Bankers Assoc. was on, spouting the usual b.s. about the rising foreclosures not being anything to worry over. They had an opposing view point as well, but the guy was not real good at getting his point across. He had all the same thoughts those of us here do.
Cramer is such as asshat. he was on a local NYC channel the other morning ad was asked who should not buy stocks.
Cramer said if you dont have a home dont buy stocks.
WTF does owning a home have to do with buying stocks? Cramer is such an idiot. It is truly amazing that he has found success on TV. It is such crap that it isn’t even entertaining. The Jerry Springer of Wall St.
“Indeed, jacka$$ Cramer is still a raging bull.”
I agree he’s a jacka$$. I hate to think how much I would have lost if I had taken his advice and gone “all in” in the stock market back in September.
-
http://finance.yahoo.com/q/bc?s=%5EGSPC&t=3m&l=on&z=m&q=l&c=
???
Maybe you could have played a contrarian view after the Titanic hit the iceberg, and gone back to your cabin for a night of sleep. When something is very obvious, that does not make it wrong.
wow nice analogy.
I like the Titanic, Hindenburg, and Hitler/nazi comparisons for analogy all very useful.
Gee, the view on the Titanic was that it was unsinkable. The contraian view would have been “everything is sinkable” and therefore “as a contraian” I would not have been on that ship. Reminds me of David Leaher and the NAR, touting the real estate market thru 2005 and early 2006.
Every word out of his mouth made my “conrtraian” viewpoint rise. Glad it did. Saved my ass-etts. Thanks Ben for reminding me the majority opinion is still a “soft landing”
You don’t travel on sinkable ships? How about in crashable cars?
Too bad you missed pressboardbox’s point: even sheep know to run when the wolf is among them. At that point, being contrarian for the sake of being contrarian is idiotic.
Ah, put me down for not understanding PPB’s analogy. The prevailing view on the Titanic - not the movie - was that the boat would not sink. DC, if he had been on the boat, would have been the first one in the lifeboat as a contrarian.
Analogies are metaphorical, not literal. If you don’t get the analogy, then focus on the explanatory last line instead: “When something is very obvious, that does not make it wrong.”
“Johnny Come Laties”
Did you mean “Johnny Come Lattes?”
good porn title I guess…
Remember, the signal to buy is not “We’ve hit bottom for sure this time” or even “This down turn will continue indefinately”
The true signal to buy is
“Housing is a lousy investment and you should never touch it”
“Remember, the signal to buy is not “We’ve hit bottom for sure this time” or even “This down turn will continue indefinately”
Yes, when it makes the cover of Time Magazine!
Bingo. I would even take just the first part that “Housing is a lousy investment.”
Exactly my thoughts.
Winston Churchill said, “The greatest shock in life is that sometime stupid people are right”. Even loud mouth Cramer is right once in a while or for a time period.
we, the taxpayers pay for these goldbricks
Great comment, pressboard. Interestingly, I would imagine some countries might be crapping their pants right now about an economic slowdown in the US, especially China. Who is going to buy all that useless crapola now? As much as other countries may hate the US (some with good reason), they want the bux to keep on flowing and in a way, I would be quite happy to spend my falling dollar right here in the US on US goods and services. I don’t want the US tied to a global economy. Maybe some good will come out of all of this.
“Kenneth Jenny, CEO and managing partner for (a) real estate consulting company, said the media may have had a role in the housing slowdown, and other real estate industry participants, too, have blamed the media for impacting consumer attitudes about housing. ‘The influences that created this cycle are different than others, they aren’t so much economic as they are media-driven.’”
don’t forget their role in the irrational run-up, Kenny boy. care to thank the media for your profit margin the last five years? didn’t think so.
You know, we all called this one months ago, that the “media did it” would be the lamentation of masses. With that in mind, you would think I could shrug it off, but I still find myself getting pissed off everytime I hear it.
” Whether it’s true or not, it can turn the whole thing into a house of cards.’”
The media can’t turn the housing market into a “house of cards”. The media can only report the fact that a “house of cards” exists.
Exactly. The media is a lagging indicator since they only report what has happened. It would be nice if they actually tried to analyze circumstances and see where things are heading, but they don’t do it. Remember, the media was still reporting all of the “RE is great” type stories through the end of 2005 and into 2006. But everyone seems to acknowledge that the boom ended somewhere between summer and winter of 2005, so the media didn’t cause the bubble to burst.
Is it really the media’s job to do more than report the news? Analysis is supposed to be up to the reader or viewer — that’s you and me. Newspapers, for example, usually put their own analysis on the editorial page and label it as opinion. They also invite outsiders to write for their op-ed pages. But injecting analysis (which is another word for opinion) in a news story crosses a line that few editors would allow.
“But injecting analysis (which is another word for opinion) in a news story crosses a line that few editors would allow.”
Really? Because I’ve seen plenty of stories over the past few years that include predictions on where property values are going and whether the housing bubble was a myth. Clearly, these stories were including some analysis or opinion (almost entirely wrong, by the way, since almost no one in the MSM reported that housing was in a bubble in 2004, and very few did in the first half of 2005).
There is just no way to keep analysis or opinion out of most stories, as the writer and editors are injecting their opinions (whether consciously or subconsciously) in their choice of stories to run, the tone of the stories, the “experts” they quote, the wording of their headlines, etc. So, as long as it is unavoidable, how about coming to grips with that and actually doing some serious analysis of what the market fundamentals are telling us about real estate and what the possible outcomes might be?
“The media can only report the fact that a “house of cards” exists.”
This should be the media’s only job. But unfortunately, the can mold public opinion. Therefore, they can manipulate public behavior (that’s what advertising does). It can be very subtle, like inserting adjectives (opinion, hype, and spin) into the story. And of course, they can refuse to air a story.
These people are trying to make a buck and see their livelihoods disappearing, so they’ll say anything. We really shouldn’t expect them to say anything different.
“said the media may have had a role in the housing slowdown”
Does the science of economics mean anything anymore. When I went to college and studied economics public perception was but one factor. However, public perception does not mean the media is telling them what to do, some people actually think for themselves and percieve what is going to happen. Like me for instance I thought the housing market was going to tank in 2003, but sub-prime fraud kept it going, the media did not tell me that.
And how does the media turn a fundamentally strong housing market into a “house of Cards”? It can’t. But the media can question a buying and flipping frenzy, and simply report that it appears the game dried up, evidenced by home sales and prices both going negative. if it turns out to be a house of cards, don’t blame the messenger.
I guess since every dollar spent today is an “investment”, it should come as no surprise that these liars saw their advertising dollars as investing in the MSM, and our good buddies are doin’ us wrong now.
You are so right, lefantome. The only thing the media can “turn into a house of cards” is … a house of cards!!
I don’t see anything wrong with claiming that the media is partly responsible for the decline. Bubbles are basically manifestations of mass hysteria, the human equivalent of lemmings leaping to their death. The media is one of the mechanisms of the hysteria, both on the way up and on the way down.
I think most basic economic theories don’t model mass hysterias very well. The most “science-like” aspect of economics is you can model it mathematically, but the most mathematically appropriate model turns out to be non-linear dynamics – chaos theory! That in itself suggests that conventional equilibrium-type economic models will turn out to be incomplete at best.
I would be highly interested if anyone could refer me to economic theories that try to encompass the mass psychology factor.
Annata,
We live in a predatory universe. Any attempt to place responsibility on someone other then the bearer of the consequences is just wishful thinking and only confuses things.
“Any attempt to place responsibility on someone other then the bearer of the consequences is just wishful thinking and only confuses things.”
Are you suggesting that every person is responsible for whatever consequences they bear? So when people get raped or struck by lightening, it’s their own responsibility? I find that a highly confusing meaning of the word “responsibility.”
I think the people that are jumping into the bubble now are making bad decisions. The people that got out while they were ahead made good decisions. But without the media, I wouldn’t know about any of those people. I can’t honestly say that the media had no influence on my own decisions. Saying that the media was involved in the rise and fall of the bubble does not mean they are soley responsible for it.
In my opinion, the whole exercise of assigning blame for the bubble is not a useful exercise. We should certainly study its causes and try to mitigate future damage. But realistically, any policy changes you might worry about (gov’t bailouts, etc.) will be made on the basis of efficacy and influence, not justice, so blame won’t even enter the picture.
Most economic theories are “predatory” in nature. The “predator” part is not hard to model; if this truly described real economics, then bubbles would never come to exist. Bubbles happen because every persons *thinks* he is the predator (acting in his own best interests), but collectively they become a bunch of sheep. That is the part that is difficult to model.
Two words: Taco Bell.
It’s not the media’s fault TB’s brand is in trouble. The media reported people got sick after eating at TB. Now, as the housing bubble busrts, the media is simply reporting the sickening impact on all the FBs and GFs that binged at the trough of easy credit.
Great analogy! Indeed, these “consultants” moaning over the media make me sick. If this Kenneth Jenny guy was working for me, I would hire txchick57 to come over and beat him senseless with one of her 20 lb trouts. It is the fault of the media, not the fact that a POS tract home costs 8-10X median incomes in much of CA. What a freaking dip$hit. He should leave the RE sector and go work for Cramer at CNBC.
(Apologies for double posting)
Annatta, Two words: Taco Bell.
It’s not the media’s fault TB’s brand is in the toilet. The media reported people got sick after eating at TB. Now, as the housing bubble bursts, the media is simply reporting the sickening impact on all the FBs and GFs that binged at the trough of easy credit.
“I would be highly interested if anyone could refer me to economic theories that try to encompass the mass psychology factor”
I belive it’s called Predatory Capitilism!
I don’t think that I have read one main stream new article that interviewed a expert declaring this run-up in real estate as a baseless mania .
Instead we are getting mostly the rah rah spin on the ugly data . The media even puplished a article attacking people that don’t buy by saying they might have “commitment problems “.
I’m seeing far more rah rah cheerleader spin on the bad data without a contrary view within the same article .
Why is it that DL at the NAR gets so much free press with his one-sided faulty spin on the state of affairs ? And don’t think the NAR Ad Campaign isn’t working because people believe that BS.
It’s not that the press should have a opinion when they interview a party , it’s just that they also should interview another party that might see the data different so your not asserting bias self-serving opinions from the so called “experts ” as a reporter .
published not puplished
I’m not in the media, but I’ll ride to their defense…
The media is made up of people. A few people have been publishing Shiller & other bears, quietly; one article in a million, maybe, but I have seen some. The rest turn to prevailing common knowledge.
If a reporter was quoting a NASA official about the circumfrence of the earth, she wouldn’t feel the need to be objective by including a quote from a Flat Earth believer, because our common knowledge suggests that Flat Earth “theories” are ridiculous. The viewpoints that the media recognize tend to be based on what’s generally considered to be *credible* opposing viewpoints. Unfortunately, in bubbles, the mentality is such that opposing viewpoints suddenly are mocked as incredible; and your average reporter doesn’t want to be quoting fiction as a viewpoint. Economists hold their crystal balls up and suggest they’re working a science; I think, through becoming a housing bear, that the market walks are random and the predictions that look like science aren’t. However, they look good to a non-economist/non-scientist.
Since reporters aren’t necessarily thrown at stories that they have tons of personal knowledge about, they’ll report what through research seems to be credible sources.
It takes a reporter who thinks something is hinky in the prevailing wisdom to find the credible underbelly of a story.
But if there were a lot of people thinking that housing was hinky, there wouldn’t have been a bubble. Hence the lack of a plethora of bear reporting in any bubble.
I’m saving this quote as an example of the complete arrogance of so many RE “professionals”.
After relentlessly employing the “RE never goes down” and “Don’t get priced out” gimmicks Jenny has the gall to suggest the “media” is at fault for driving the market down and then say “The influences” that drove this “cycle” have been MEDIA-DRIVEN.
WTF? It was BS in the press (that YOU provided) that drove the cycle up and it is the press reporting (for a change) some reality and now you are blaming them for the decline.
Why does this remind me of the child, after murdering his parents, asking for mercy because he’s (now) and “orphan”?
The whole mortgage aspect of this really does make the whole thing seem financial, as if real estate were just another paper asset. It is because it seemed real that investors flocked to in post-2000.
If not one additional nonsense mortgage is issued, we’ll still have a mess until all those issued from 2004 to 2006 adjust, and are either coped with, refied or foreclosed.
With credit drying up at the worst possible time. Typical credit cycle.
The “affordability” mortgages have been terrible. Instead of giving individual borrowers enough rope to hang themselves, the whole market was given enough plutonium…
WT Economist,
Good point. If you’re at all like me you get tired of the knee-jerk reaction of lenders and realtors shouting from the roof tops “It’s sub-prime (and the media) that did us in!”
Well just forget it. Sub-prime (yeah….while a factor) cannot account for 100% of the mania! A lot of borrowers found themselves in SP b/c of their DTI, not their payment history and again a great many wound up there b/c their fico was on the cusp but it paid the MB better!
several furniture makers and retailers have cut their forecasts
Household formation is waneing ???
Not necessarily. Perhaps people are becoming more sensible. I have seen a proliferation of garage sales recently, with some amazingly good stuff for sale, incluing some good furniture. People may be starting to adjust to the new reality that the housing ATM is closed for repair.
Around the bay area I have noticed a surge in new furniture stores over the past few years. Lately I’ve seen alot of clearance sales and going out of business advertising. How many furniture retailers does one town really need? For that matter, how many granite stores and contractors does one town need? I can’t say for sure, but I think it is much less than we have at present!
I agree….Same thought can be applied to 7-11’s or McD’s or anything else…..Stevens Creek Blvd. (San Jose) several going out of business….For lease signs everywhere up & down the Blvd…
Good old Stevens Creek. Because of traffic and what some might call snobbery, I try to avoid the general 880/Stevens Creek area, but a friend is renting a condo very near there, and I hear that Santana Row is not doing all that well with their retail. Too high end is what some say? Evidently the flats there are very popular though, as are many of the restaurants. Right across the street you have Valley Fair, and then all the shops at Santana. I honestly do not understand the insane retail boom that has taken hold. I know all about MEW over the past few years and how that contributed, but surely we have passed the point of diminishing returns with retail. Overall bay area population is not really expanding. Anyone else here forecasting retail ghost towns over the next decade?
Absolutely a good point.
I thought there was a shortage of retail strip malls, tilt ups, and the like, they way thety have been going up all over the place in CA. Another sign of cheap money. The same easy credit that drove the housing boom/bust.
Gost towns (malls) indeed. It’s just a matter of time.
I don’t know about retail ghost towns, but I did notice a slowdown at our local (new-ish) strip mall that caters to our community’s nouveau riche. All the usual suspects are tenants: Williams-Sonoma, Pottery Barn, Talbot’s, Borders, J. Crew,etc. Took a stroll down the strip, all the stores had pre-Christmas sales that definitely were NOT on the program last year. I wondered if this was a consequence of the McMansion ATM $$ drying up.
Last year preChristmas merchandise was moving off the shelves - quickly - without markdowns.
CA GUY;…..Yeah, Santana row & Valley Fair are the “Go Too” places around here….Your correct on your understanding of the situation there….Retail is “Iffy” and the Condo’s/Restaurants are doing well…Spoke with the Manager of “Cheese Factory” just a few days ago and he said he is “Booked” solid…. I think the Jury is still out on the concept ?? I just don’t know if San Jose is ready for this..??? The test will be during the next recession…Then we will know….
“I honestly do not understand the insane retail boom that has taken hold. I know all about MEW over the past few years and how that contributed, but surely we have passed the point of diminishing returns with retail. Overall bay area population is not really expanding. Anyone else here forecasting retail ghost towns over the next decade?”
I’m amazed at all the signs in Mandarin; it won’t be long before the sequel to Blade Runner can be filmed there.
I work in commercial realestate. I don’t do leasing, but I do work in an office with leasing agents. Many of the clients seeking to open business are FB’s using their MEWs to finance businesses. Typical operation would be a tanning salon or nail salon. From what I understand, the financial underpinings of their loans leave a lot to be desired. Many areas have seen housing built at such a fast pace that commercial services didn’t keep up. Now, there are so many new commercial developments springing up in my area that they are having a hard time filling the units up as they complete constructiton. Retail centers are built based on a proforma, or an educated guess by the developer on how much they can charge for the space, the likely vacancy rates, the cost to develop, the cost to develop, loan costs, etc. It doesn’t take very many empty units to take a center from “profitable on paper” to a money loser. With so much of the liquidity being pumped into the commercial RE industry recently, I believe the pace of development will soon outstrip the true demand.
California cities have become dependant on the tax revenue generated by sales taxes from commercial developments. The city governments spend much more time trying to lure retailers into their cities than they do trying to lure manufacturing, since the commercial centers generate much higher (local) tax revenues than manufacturing. Comments brought up by the planning commission and city councils tend to be more along the lines of “what color is the building going to be”, or “can you name the center x so it ties in better to the history of the town” than “do we really want to rezone our industrial land to commercial”.
I haven’t posted much about this since I fear placing too much information out there which could be linked back to me (paranoid). I believe that in the next six months or so, there will be a need to create a commercial development bubble blog. Maybe I can start this myself and get a few pointers from Ben.
Regards.
Credit has not dried up - the borrowers are tapped out. The fed is still expanding the money supply, just not as many are able to participate.
Exactly! And that’s why the Spring selling season may be a bust even if rates go lower!
“The fed is still expanding the money supply, just not as many are able to participate. ”
a situation that is going to accelerate before it wanes!
I was referring to the OFHEO guidlines on option ARMs and the GSEs.
Ben
RE: For misunderstanding you - MY BAD.
RE: the OFHEO
IMHO the OFHEO guidelines are a CYA that go into effect (maybe) in February 2007. The industry gets alast chance to comment - in the past the comment period has taken 6 - 9 months.
Guidelines are just a redherring, easy credit is not going anywhere yet.
As long as hedgefunds (desperate for returns these days) and foreigners are willing to buy the US’s MBS crap, the credit train will keep flowing.
The real fun won’t start until the MBS start biting the idiots that are buy them (can’t wait to see Ben try and fly a helicopter in the middle of that $hitstorm)
Isn’t that why Paulson and Bernake are in China now!
Agreed, they are probably begging the Chinese to keep buying US Treasuries and MBS’s, as well as rasing thier currancy (yuan) compared to the US dollar (or maybe begging them not to sell (so fast) ).
I wonder what Paulson and Bernake have to promise in order to get the Chinese to do that (it goes against thier best interest)?
No doubt an ordely decline (that’s the only way). But who (or what) is going to buy when everybody else is selling? Can you say FED Monitization!!!
Which means inflation big time for you and me.
Pushing on a String is what it is called.
Everyone keeps saying the Fed is expanding the money supply, but I don’t see much M1 or M2 growth. M3 (or its proxy since the real numbers are not calculated) is going exponential, but that just counts credit issued by banks and other firms. The Fed doesn’t have much to do with those instruments (derivatives, for example). Maybe what we see with M3 proxy is just the acceleration of the use of all these CDOs, derivatives, etc. etc. being issued by Goldman Sachs et. al.
It’s my understanding that the FED does regulate what the Banks’ reserves on hand must be. We have a fractional reserve system which used to mean the banks could loan $9 for every $10 on deposit. But that has changed. In fact the reserve requirment is close to $zero! Remember, you take a loan from one bank put it into your bank, and now your bank has money to loan. It doesn’t take long before the fractions chasing fractions get smaller and smaller.
That, in effect, is creating money out of nothing and is the biggest liquidity factor going. That is why M3 is off the charts! Besides once they sell the loan (which is what they have been doing for sometime now), they can create again!
This must be why the dollar is only worth 20 cents of what it was in 1972.
Please check out this site - this is updated weekly. Some of the economics requires a good highschool education or my crappy university education (PAC - 8).
Nowandfutures.com
http://tinyurl.com/wcy83
This site has excellent graphs, including an adjusted M3 that correlates with the old M3 to the 7 decimal place - admittedly not perfect when dealing with multi billions.
The whole mortgage aspect of this really does make the whole thing seem financial, as if real estate were just another paper asset.
If only it were that way all along, we wouldn’t have had a bubble in the first place.
“Kenneth Jenny, CEO and managing partner for (a) real estate consulting company, said the media may have had a role in the housing slowdown….”
I acknowledge the influence of advertsing and media on the masses but how in the world was this guy allowed to become CEO of anything?
Boy we need to start teaching personal responsibility in grade school and makin sure every student has a mirror to look at themselves with.
Yo Ken: You’re welcome, and you ain’t seen nothing yet.
When people blame the media for a worsening condition of anything, that’s when I know the condition is actually critical. The neocons starting blaming the media a year and a half ago for the chaos in Iraq BEFORE the chaos in Iraq really became front-page news; that’s when I personally knew that Iraq must be far worse than any of us realized.
So if these mortgage brokers and real estate “consultants” are blaming the media for a downturn in the RE market, the actual conditions must be HORRIBLE. If they’re blaming the media for a soft landing or minor correction, then Armageddon must be right around the corner.
I agree - The media is, if anything, responsible for failing to report the ridiculousness of the economic bubbles created since 1994. There were reports then that said Fed policy was going to fuel economic bubbles. And only in the last year are we reading/viewing/hearing main stream media concerns of a housing bubble. I call BS on the media - everything was hunky dory as long as housing prices went up - now we are in a recession and people are losing their homes and jobs as well as societal strainss from the ensuing divorces.
The media also reported about Saddam’s WMD for the past decade:
http://tinyurl.com/yhdd48
Guess Saddam can blame them for failing to comply with UN 1441?
that post should have come with a warning about the Ted Kennedy pic within
Great observation, vioviv! I cannot agree more. Whether it is politicians or realtors, blaming the media is pretty much a last ditch effort. These goons are grasping at straws, much like the current administration (GWB has effectively driven me from the GOP). The good thing is that blaming the media won’t fool even the dimmest bulb in the population, with the exception of those who have a direct stake in seeing a soft landing. “It is difficult to make a man understand something when his livelihood depends upon his not understanding.”
No kidding. I voted for the Shrub the first time around. I kind of believed the GOP stood for smaller government, less entitlement, more personal responsibility (I was willing to look past their crazy religious fixation).
Wasn’t I sadly disapointed. Matters which I truly cared about (illegal immigration, balanced budget to name a few) were quickly thrown under the bus for tax cuts and huge budget deficits. And don’t try to tell me that 911 happened and changed everything. Afganistan I can understand, but Iraq I cannot. We are pissing in the wind in Iraq. Insanely stupid undertaking by our government with no real upside.
Freedom for all peoples of the world is a nobel thing to hope for, but the idea we can bring it through force of arms is ridiculous. The only instances in history where the US was actually able to achieve bringing western freedom to a people through military intervention were Japan and Germany. To achieve this, we had to bomb their countries back to the stone age and spend decades rebuilding them. Not a task which should be undertaken lighty.
All very good points.
Maybe I can punch Ken in the face and blame the media. Surely he’ll understand.
Let’s blame the media! Hmmmm. Let’s see, Flip that House, Curb Appeal and all the other shows where people made big money becoming residential real estate moguls. Why aren’t they blaming the media for contibuting to the hype which fueled so many peoples excessive expectations about making money buying and selling houses?
Now that the luster has worn off and people are trying to figure out how to pay all of their other bills while paying 40 to 50 percent of their income to their mortgage, insurances and taxes, it’s the medias fault for depressing the market so they can’t sell at a profit to get out from underneath their debt. But all along it was the media that convinced them the “White Hot Housing Market” would go on forever.
All markets driving by a mania crash whether it be tulips, Beanie Babies or houses.
What people have failed to recongnize or choose to ignore through this “boom” is that a house is a consumable asset which require maintenance and upkeep to preserve. Consumable assets cost money, they don’t make money. They have a usable life span and require constant cash input to operate.
Wow doesn’t reality suck? But let’s blame the media and the blogs for creating the negative environment instead of admitting the maniacal market finally died the way all of the others did…..from exhaustion.
Spot on!
I must have missed the “Pay My Mortgage” show.
” that a house is a consumable asset which require maintenance and upkeep to preserve” This is a definition of a “liability”
an asset per GAAP “Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.”
Liability = ” A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.”
Personal housing has in the past been considered a liability, investment property is an asset as well as non owner occupied.
Reminds me of my favorite line from “Rich Dad, Poor Dad”: The rich own assets, the poor own liabilities and think they are assets.
Reasonably-priced house affordable on 30-year fixed mortgage w/ 20% down: asset
$870K Garden Groce sh!tbox: liability
Cars, TVs, kids: liabilities
Where I come from if you don’t pay your liabilitys your assets in jail!
Re: Curb Appeal. Don’t you just love how they would equate a $200 paint job with $25K profit/value! And to think that people actually believe that crap instead of considering that it may just be insane liquidity and lending standards. Scary thought. The only reason I ever watched that program is because I like architecture. Most of the residences are god-awful ugly though. Oh yeah, it was fun mocking the hosts and show participants as well!!
At least Curb Appeal is about people wanting to fix up their home because they want to improve the place they’re going to be living in. That other HGTV show where people did really tacky & cheap corner-cutting renovations just before selling the home… that one rubs me the wrong way
What stage are we at for the score keepers at home?
I believe that would be anger brad.
“The media can act like a match starting a wildfire when it comes to consumer perception about real estate market conditions, Jenny added. ‘Stopping it is really difficult. Whether it’s true or not, it can turn the whole thing into a house of cards.’”
Babycakes, mixing metaphors like that (wildfire and a house of cards) doesn’t help your campaign at all.
Actually, these realtors-financial experts-economists-soothsayers they keep quoting actually do make the media look like a bunch of morons.
“The media.” Just wait until people start blaming “the blogosphere.”
Oh I’m waiting for that begin too…and it will happen. It’s the main reason why I’ve decided to be less vocal about my bear position recently.
“It’s the main reason why I’ve decided to be less vocal about my bear position recently.”
It’s the main reason I am becoming more vocal (although I always have been.) If people think I have the power to bring down an entire asset class by the power of my negative thoughts they will be very, very nice to me.
However, I do think the media has had a role in the slowdown. And by media I include this blog and other free speech outlets on the web. Think about how fast and almost nation wide the housing mania ended. One day multiple offers; the next the highest inventory of all time. And yes, that is a bit overstated, but it was rapid slowdown and almost national wide. Quite a bit different from the 90’s downturn where Denver fell two years before California, etc.
Blaming the media is a red herring - extreme prices, everyone tapped out, those willing to buy have, etc., have all had a role. But I do think the media (thanks Ben) is providing a new and different type of housing crash. Think about the people on this blog. I KNOW I have talked two clients out of buying and put a lot of doubt into other people’s mind partially because of info from this blog. Also, I did not buy. So there are three houses from willing, able buyers with great credit and good down payments gone. Multiple that by everyone on this (and other) blogs who have had some influence on potential buyers and do you really not think that has affected things including housing psychology?
Next time someone blames the media just say, “Yes, and thank God they did before prices got even more insane. I mean bubbles always revert back to the mean and can you imagine how horrible it would have been if it had been 10, 15, 40% worse?” (Insert innocent wide-eyed face at the end.)
Don’t worry — we are under the MSM radar screen. Any admission of this blogs’ accurate prediction of a housing downturn back when the MSM was still saying “real estate always goes up” would further undercut their already-waning credibility.
MSM, yes.
REIC, no.
You know darn well LeReah/Watts/ LAY are all lurking here.
if these dopes had their way blaming the blog’s you could see Ben in handcuffs doing a 24 year bid like that sack of dirt from enron yesrterday.
charged with -intellignet financial decisions in the 1st degree
just kidding ben
“intelligent”
sorry folks
I hope I never see Ben or any of us in handcuffs for anything we ever put in this or other Blog’s!
I think I’d be the first to go!
Hah hah — it’s like rats blaming the flashlight for making people aware they were living in their crawlspace.
If the media’s to blame for anything, it’s for not aggressively questioning the forces (loose money, herd mentaility) driving real estate prices up the last few years. Besides the occasional Business Week or Fortune article questioning real estate froth, I would say it was a spectacularly under-reported story.
And there is STILL a lot of work to be done in putting together the definitive story on how all this loose credit came to the market. It didn’t just “happen” by accident.
I would LOVE to see this story get the Bethany McLean treatment (she wrote the first great articles questioning Enron in Fortune — great stuff, and probably still on that website if you’re looking for a fun read)
What’s amazing is that while the RE bulls are now blaming the media for the housing downturn, the media is actually still MISSING the severity of the downturn!
‘The influences that created this cycle are different than others, they aren’t so much economic as they are media-driven.’”
Kenny Jenny do you blame the media for your name as well?
yeah, well the media is trying like hell to “call the bottom” and reinflate the bubble at this juncture. So why isn’t it working if the media is so ‘all powerful’.
It is kinda working. Look at the stock market. There are stoies on this Blog about people buying now.
I can’t help but wonder what the media reports were like at the top of the Japanese RE bubble decline.
“The Office of Federal Housing Enterprise Oversight instructed Fannie Mae and Freddie Mac Wednesday to tighten up underwriting practices for some nontraditional mortgages.”
Don’t the OFHEO guys know that tightening underwriting practices will worsen the crash in progress? Or are they just making CYA pronouncements with no intent to back them up with action?
Is there any way at all to predict how the government can afford trillions on wars AND a huge MBS bailout? I suppose troop withdrawal and base closures will help.
In 2008 The bills will be piling up big time and little cap gains from RE to pay for it. If they close your local military base good luck selling house for 10 years after that.
“Is there any way at all to predict how the government can afford trillions on wars AND a huge MBS bailout?”
‘Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.’
http://www.federalreserve.gov/boardDocs/speeches/2002/20021121/default.htm
Anyone who insists the gubmint does not intervene in the stock market should ponder this passage from the speech linked in above:
“Normally, money is injected into the economy through asset purchases by the Federal Reserve. To stimulate aggregate spending when short-term interest rates have reached zero, the Fed must expand the scale of its asset purchases or, possibly, expand the menu of assets that it buys.”
They’re going to lend bazillions to Goldman Sachs et al to buy up all private assets in the guise of “fighting deflation”. Then they’ll declare the dollar defunct, switch to the Amero, but keep the assets. Welcome to the New World Gulag.
At least the greenback is not that easily counterfeited…
http://en.wikipedia.org/wiki/Continental_currency
Physical paper is not the issue. 1s and 0s can be vomited forth indefinitely without effort. Assets that the Fed (+PPT) has authority to buy will be bought, and stooges/ co-criminals like Goldman will be credited with 1s and 0s to snap up the rest. Or maybe they’ll use their derivatives trillions somehow.. exciting times. Heads on pikes.
Grantland,
I’m afraid you’re correct on that prediction. We can all hope it won’t come to pass, but must be prepared for it. It’s looking more and more likely, IMHO.
Yea, but do we put up with it? Unlike most of my compadres I have no particular objection to global free trade per se. I think it’s inevitable, over time. But NOT as a slave to a malevolent New World Order, a global totalitarianism, a monstrous Soviet tyranny. Heads on pikes I say! Here’s a Jefferson quote:
“The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants.” — Thomas Jefferson
“Surging home prices during the five-year real estate boom that ended last year spurred borrowers to choose riskier adjustable loans, many with rates that adjust annually, to afford real estate, said Doug Duncan, chief economist for the Mortgage Bankers Association. ‘You’re seeing the early edges of the reset phenomenon in the adjustables, particularly in the sub-prime market,’ Duncan said. In 2007, about $650 billion of U.S. home loans will reset at higher rates, he said.”
Does anyone know whether Douglas Duncan is still renting these days? A couple of years back, he sold his home and began renting to wait out the impending RE downturn. I would not recommend even thinking about getting back into the market until this guy buys a home…
Yeah, right. “Surging home prices …spurred borrowers to choose riskier adjustable loans.”
Let me explain really, really how it happened.
One fine moning, those fickle homes got up from bed and decided “I feel kinda cheap. I’m gonna go higher in price”. Then all the people had no choice, but to court these houses with riskier loans. Because they HAD to buy, and they HAD to pay whatever was the price. It was pre-ordained to be that way.
Yup. None of it came by because of choices and decisions of people of free will. Nope. It was all mindless robots executing pre-scripted programs.
Repeat after me.. surging home prices did not spur borrowers to choose riskier adjustable loans; borrowers choosing riskier adjustable loans caused surging home prices.
Actually. I believe it was Alan Greenspan!
It was, and he knew EXACTLY what he was doing, just as Bernanke does now. Here’s proof: http://www.etherzone.com/2003/stang011003.shtml
Incidentally, Rand was 100% in on the scam, she once described Hayek as “our (objectivism’s) greatest threat.” Odd, no? Not if she was 100% scam, as was Friedman, and other “Russians”.
I don’t know about Doug’s housing situation, but he was on CNBC yesterday and said not to worry about the uptick in foreclosure activity! He did qualify it with the thought that things would be okay as long as we had steady employment! I have to believe he has connected the dots between housing and employment though. That is why he sold and rents! He knows what is coming, but he also knows where his bread is buttered. By the very ethical mortgage bankers!
“not to worry about the uptick in foreclosure activity”
I would interpret that as a fairly strong indication that Doug is still renting…
“With the ‘perfect vision of hindsight,’ Retsinas said it is clear that the slowing began late in 2005. ‘Everyone knew you couldn’t sustain double-digit appreciation,’ he said.”
I say BS to that!
“Seven years ago, only about one loan in 20 was subprime, because lenders sought to avoid making loans to people who would be less likely to repay. But lenders who wanted to expand into new markets found that investors liked these loans because they carry high interest rates. In the past two years, about one-fifth of all loans originated were subprime, said Keith Ernst, senior housing counsel at the Center for Responsible Lending, a nonprofit group that works against predatory lending practices.”
A classic race to the bottom, combined with a cynical dumping of toxic financial instruments on investors who have inordinate faith in their ability to hedge risk. The fatal flaw is the assumption that there will always be a market for the toxic tranches. When the psychological impact of the failures sets in, it’s debatable if there will even be a market for the “quality” tranches, given the lack of transparancy into the underlaying assets. The cost of vetting a mortgage bundle may cut so far into the potential return that most potential buyers will simly walk away.
landlord: good point.
also consider that during this run up 2001-2004 the overnight lending rate was very low which may have driven money into these higher risk tranches, or been the main driver behind MBS activity in general. Today I can get %5.75 on 8 month CD’s which was not available in 03.
Where was the Center for Responsible Lending in 2002 and why wasn’t the media reporting their comments then?
Another CYA statement BS.
And this just in from CNN Money / Fortune:
6 Strategies to Survive the Real Estate Bust
http://money.cnn.com/magazines/fortune/fortune_archive/2006/12/25/8396764/?postversion=2006121309
That’s nice, but it’s not anything that any of the regulars here don’t already know….in fact, we know a hell of a lot more than that.
“NEW YORK (Fortune) — Bret and Tricia Baird are all too aware of what they’re getting into.
Friends and family have admonished them to rent when they move this month to Mesa, a suburb of Phoenix, for Bret’s new position as product manager with Bard Peripheral Vascular, a medical-device manufacturer. In the past few months the Bairds have been researching local real estate online and haven’t liked what they’ve seen.
With an inventory of more than 38,000 homes for sale, up 94 percent from this time last year, Phoenix is one of the shakiest markets in the country. Nevertheless, Bret and Tricia, both 35, have decided to make a leap of faith. Mesa is Tricia’s hometown, and the couple, who have four young children, are planning to live there for a while. So they just put in an offer of $400,000 for a 2,700-square-foot, five-bedroom house right next door to her sister.”
Enjoy the Koolaide, Bret!
“So they just put in an offer of $400,000 for a 2,700-square-foot, five-bedroom house right next door to her sister.”
I was ok with the article until I got to that quote. Then it just confirmed how much of an idiot Trish is.
And don’t ya feel for the husband living right next door to the sister as well. Or maybe not . . .
If they’re smart they’ll skip the foreclosure and move right into a tent in the sister’s backyard.
“Friends and family have admonished them to rent…”
Talk about a collective 180 in six months’ time.
And if you read the story, sis’ house next door - about 50% of what these loonies are paying.
good god, these people are idiots.
4 kids too; someone should tell them about birth control.
“4 kids too; someone should tell them about birth control.”
I’d rather a family like that have 4 kids than the typical one having 4+ kids.
The “Friends and family …” are lucky they were not stoned to death or flogged. I have stopped telling family members to rent and wait. I have been flogged enough - if they wish to buy, I have learned to smile and wish them luck.
I agree that sharing advice is pointless, but six months ago the story would’ve been “We’re thinking about renting, but every family member and friend we have is screaming at us to buy.” Quite a change.
I tried politely to tell my sister and niece for them NOT to buy now on Cape Cod. As newlyweds they were excited and this seems to have clouded their judgement. They bought a ranch at the very very top and now have an intrest only $2,400/month payment. Combined income of less than 100K and now she says she is unhappy at work. Uuuuggghhhh. Maybe I can buy it next year for 250K and keep it in the family
They won’t listen. Have a nephew do the same thing. Nice kid. Hope he doesn’t get burned but I can’t see how he won’t.
“It’s possible that the broader housing market will firm in the next few months, that the worst is over,” says Mark Zandi, chief economist at Moody’s Economy.com. “But that to me is a dead-cat bounce.” In a word, yikes.
wow….just…..wow…
According to a study earlier this year by Fed economists, 41 percent of ARM holders do not know the maximum interest rate they might have to pay
We’re all doomed
Anyone know of a way to short homo sapiens?
Sign up to be an astronaut on the expedition to establish the first permanent colony on the planet Mars.
Remove the anterior pituitary gland at birth which will stop the secretion of Human Growth Hormone?
Buy stock in the Tyrell Coporation?
Mish and Kasriel v. Janszen.
http://www.itulip.com/forums/showthread.php?t=701
I am of the inflation (possibly hyper inflation) persuasion. My reason is the the 3+ trillion dollars overseas that are looking for a home. These dollars have been buying oil producing land in Africa, agricultural land in Brazil, metals - the problem is that we are not producing goods that can be ‘end uses’ for these floating dollars. What can a small country or large company do with excess dollars? I believe we are seeing new bubbles forming in stocks, bonds, commodities, currencies, fine art, precious stones etc. Many companies are doing stock buybacks - not because they believe their stock is cheap - but because they stopped expanding. Private equity funds are paying ridiculous prices for semisound companies to strip and then take public. Hedge funds are making trades that make little sense between negative correlated stocks. These transactions are being fueled by 3+ trillion dollars floating. The easiest way I know to get rid of excess capital is to inflate it to worthlessness. Someone on this Blog recommended Smith & Wesson - so I put it on my watch list. The stock is currently trading at over 50P/E to future earnings. I can buy a ‘turnkey’ bar at 3x current reported earnings and probably 1X real earnings. So now I have to find 200 bars, buy them and then list on the NYSE or OTC to get my 50X P/E and still maintain control. Not a bad little profit, In fact I would be happy with 10X P/E. And the stock touts think this will never end?
“So now I have to find 200 bars…”
Hoz — I suggest you form a corporation to pioneer the concept of “virtual bars.” The website would let subscribers establish a running tab, which they could “redeem” at local watering holes. It would easily run up a PE past 50 if it caught on…
Tell me more! Can I get “virtual Honky Tonk Angels” to solicit my bar patrons or is that pandering?
I’m kinda leaning that way myself but no matter what happens, it will be amazing to witness.
btw, it was me who mentioned Smith & Wesson. LOL But it’s up a lot already.
Check out American Ammunition AAMU, it’s down 65% for the year.
How do “they” decide which stocks qualify for price stabilization?
Case in point:
http://tinyurl.com/yn6uqz
“I believe we are seeing new bubbles forming in stocks, bonds, commodities, currencies, fine art, precious stones etc.”
Hoz: Agreed. As you explained, little to none of the actions happening make much sense. I don’t know about S&W’s stock, but it might be a good idea to have one of their pieces handy if things start spiraling down. They make damn fine revolvers.
And the S&W polyester barrel is light weight & incredibly accurate. Unfortunately restricted to military and police at this time. Tho S&W now also handles Walther in the US. Personally I like my Remington 1100 with #4 shot, I don’t have to worry about aim.
S & W is still infamous for the craven cowardice in kow-towing to the Clinton gun-grabbers. No self-repecting gun owner who believes in the 2nd Amendment as the cornerstone of our continued liberty will ever buy from this company.
To me, the important story here is OFHEO telling Fannie and Freddie to tighten their guidelines, and to report back by the end of February.
If (and that’s a big if) Fannie and Freddie do tighten by the end of February, that will kill new mortgages just as the inventory is starting to spike from all of those people who pulled their listings with the intent to re-list in the spring (you know, when the NAR said that prices would start to climb again).
Oh, and it would also be in time to make it nearly impossible for many with toxic loans about to re-set to be able to re-finance.
Seems like more elements of the perfect storm keep gathering. 2007 should be an interesting year.
You have explained why I don’t expect the OFHEO to back up their cheap talk with tough action.
I thought I read about this kind of change months ago. Regardless, the market will sort it out. Who’s going to by an MBS at anything less than a gigantic discount until the underwritting standards are reliable again?
I know people are stupid but not most of the buyers of these things…at least not when the defaults kick in and they fall decisively in value.
“Who’s going to by an MBS at anything less than a gigantic discount until the underwritting standards are reliable again?”
Somebody who believes he has fully hedged the risk?
This change a few months ago was for the banks under national regulation (but it didn’t apply to banks who are regulated by the states). The news here is that OFHEO is now telling Fannie and Freddie to follow the new guidelines. Since Fannie and Freddie buy so many of the loans to package into MBS, if they actually do follow these guidelines then it will help to dry up the market for the toxic loans that the state banks are still peddling.
As I noted above, it is a big “if” as to whether or when Fannie and Freddie will actually do this. GetStucco clearly believes that OFHEO won’t back up their talk because if they did, it would truly help to crash the market. So, we both agree on what the effect would likely be, but GS believes that the possibility is less likely than I do (GS apparently believes it won’t happen; while I consider it a possibility, though not a probability - if I had to take a guess, I’d say 20% chance that Fannie and Freddie comply by the end of Feb. 2007 and 50% chance by end of May 2007).
From BB’s speech (linked in above):
“Normally, money is injected into the economy through asset purchases by the Federal Reserve. To stimulate aggregate spending when short-term interest rates have reached zero, the Fed must expand the scale of its asset purchases or, possibly, expand the menu of assets that it buys.”
Given how confident top govt policymakers are that the housing market correction will be a blip, do housing bears think there is a risk that the “menu of assets that it (the Fed) buys” could be extended to homes? Of course, this would tend to worsen the problem Yellen noticed of ghost tract home developments in the middle of the desert, but perhaps practical matters like this are not a big concern to academics?
I don’t think that the Fed would buy homes. Too many factors seem to weigh against it. For instance, the time involved to buy (and eventually, sell) individual homes would be enormous, and buying whole ghost town tracts doesn’t seem to make a lot of sense. Also, it seems that the Fed likes to keep its activities secret, and it would be hard to purchase homes (public records) without someone catching on and reporting it. Plus, there is just too much expense associated with buying homes (insurance, maintenance, potential liability, appraisals [even the Fed would have to get some idea how much to pay for the home], etc.).
Given all of these factors, plus many more I’m sure that I’m missing, I don’t foresee the Fed getting into the home buying business. But, the mortgage (MBS) side might be another story.
“But, the mortgage (MBS) side might be another story.”
Indeed!
P.S. Buying MBS will not save the market. The problem is that too many HHs who cannot afford to buy overpriced loans are currently tempted to do so by low mortgage rates and lax lending standards. Hence the rising tide of foreclosures, which is the elephant under the rug in the housing market’s living room which nobody will be able to hide going forward. Suppressing interest rates will only serve to exacerbate the glut of homes on the market and tempt more GFs into buying homes they cannot afford.
“overpriced loans”
I meant to type “overpriced homes.” But I guess you could argue the loans are overpriced, if the buyer is going to go bankrupt as a consequence.
GS: I agree that the Fed buying MBS won’t save the market, but I could see them at least attempting to buy MBS in an ultimately futile attempt to prop up the market. My point in distinguishing houses from MBS was to say that I could see the Fed possibly expanding their list of assets to include MBS, whereas I don’t see their list of assets ever including actual houses.
San Diego trustee sales for November was 284:
The expeonetial rise continues. Enter 1982 as start year on this page:
http://www.sddt.com/Finance/EconomicIndicators.cfm
Notice how the rise is about 2x as fast this time (and much less noise on the graph, this thing is on its way to the moon).
Correction: exponential rise
D’ya think the USD MBA students factored that rising level of foreclosures into their soft landing forecasts?
Of course, they are MBA students aren’t they? I just heard of another research. 62% of San Diego kindergardeners expect toys and money to drop from helicopters soon (they might be 50% right).
At this point, being neither in San Diego nor a kindergartner, I myself am about ready to believe the “money” part of that scenario.
I remember the lonely San Diego bankruptcy court and clerk’s office in 1988. I think there was the Tony Gwinn case and nothing else to keep them occupied. How many judges are there in the San Diego District now? There was only one when I was there.
Tony Gwynn (my favorite baseball player) filed for BK in the 80s!?
http://www.sandiegomag.com/media/San-Diego-Magazine/December-2006/Hitting-the-Hall/
boom ended in 05 , yo
I’d fire anybody that didn’t know that
The way I see it, and please correct me if I am wrong, even those who have been in the market of purchasing MBO’s for 30 or 40 years can no longer be sure what they are buying. The layering of good and high risk loans has made it almost impossible to determine what you are buying. Applies to CMO’s also.
P.S.-Who is going to buy all this stuff if they can longer figure out what is in them? At one point they have were triple A. After layering in risky loans, what are they?
A conundrumish flattening of risk premiums would be the natural result if the price signal was muted by indiscriminate govt intervention in the asset markets.
The media creates and feeds into hype –nevertheless, is not “responsible” for what people decide to do…run out and buy overvalued property with no solid/fundamentally sound financial backing. However, investigative reporting –true journalism….ie - a look into the facts of bogus lending practices and unrealistic financial gain expectations in light of economics and history…..could have been expounded on by the “journalists” in the media.
Today’s CNN money piece was amusing. Has anybody noticed that these used to be about actual “millionaires in the making” but are now mosty about FBs?
Todays is about a family struggling paycheck to paycheck. In Nebraska. On $150K/year. I know. I had the same reaction.
It went on and on about their lack of credit card debt, their frugal living, building on the theme that there is some BIG mystery in their financial state. Finally, if you read waaaaayyy down they just mention that the dude is a FB with two unperforming rental properties, d’oh! Big mystery solved…. as well as the mystery of their 2007 bankruptcy. BIG mystery indeed.
http://money.cnn.com/2006/12/13/magazines/moneymag/scraping_by.moneymag/index.htm?postversion=2006121411
I have a new title for their series: No $hit, $herlock!
Struggling to get by on $150K a year & your head stuck in your posterior is more like it. What a shoddy article.
“A closer look at the Schuetts’ finances reveals, for example, that a big chunk of their income is eaten up by two rental properties. Brian purchased them thinking they’d generate extra income, but he has yet to find tenants. Even when the properties are finally occupied, the area’s softening rental market probably won’t allow them to make enough to cover carrying costs. “
A closer look at their finances also reveals a pet orca that is really expensive to feed. Free Willy.