The man gets some recognition....
Showing posts with label housing bubble. Show all posts
Showing posts with label housing bubble. Show all posts
Labels:
More bad news, if more were needed.....
As if investors didn't have enough to worry about, Friday's batch of economic numbers shows more signs of recession as well as its evil twin--inflation. First, the government reported that U.S. consumer spending rose more than expected in January, but the gain was eaten up by swiftly rising prices.
Then, a Chicago-based business group said U.S. Midwest business activity contracted sharply in February, showing that even areas of the country least affected by the boom-bust housing cycle are feeling ripples from the crisis. On top of that, U.S. consumer sentiment dropped to a 16-year low in February, hitting levels that usually sound the alarm bells of recession, on worries about declining incomes and rising unemployment, a survey showed.
No surprise, then, that stocks opened sharply lower on Friday--and then proceeded to fall even more. Friday's reports were just the latest in a string of worrisome news about the growing threat of recession and inflation.
"Over the last three to four weeks, there have been a string of economic releases that were dramatically weaker than expected," said John Canavan, a market analyst at Stone and McCarthy Associates. "The implications are quite negative for the economy."
The only bright spot: futures traders are now speculating that the Federal Reserve will cut interest rates by three-quarters of a point at its March 18 meeting instead of the half point that was expected previously.
Labels:
When will it end? Housing just keeps on sliding into a black hole. The December numbers top off a truly terrible year:
WASHINGTON (MarketWatch) -- Capping the worst year for the housing market in 25 years, resales of U.S. homes and condos fell 2.2% in December to a seasonally adjusted annual rate of 4.89 million, the National Association of Realtors reported Thursday.
For all of 2007, sales of single-family homes fell 13%, the biggest decline since 1982. The median sales price of an existing single-family home fell for the first time in the 40-year history of the survey, dropping 1.8%. Although no hard data are available, most economists believe median home prices hadn't fallen since the Great Depression of the 1930s. December resales at 4.89 million were weaker than the 4.98 million pace expected by economists surveyed by MarketWatch.
Labels:
The great thing about following the housing market is that however bad the news might be today, you know it will be worse tomorrow. The crap just keeps pouring on. Nothing can stop it.
Today, D.R. Horton - the second-largest U.S. homebuilder - supplied the misery. According to Bloomberg, the company will report a third-quarter loss after orders tanked 40 percent. Moreover, the company conceded that there is absolutely no sign of a housing rebound.
Orders dropped in every region, with the biggest declines in California, where the number of net sales orders fell 53 percent in California. The situation was also bad in the northeast, where orders tumbled 42 percent. More worrying for their long term viability, the average price for its houses slid 12 percent to $233,672.
With D.R. Horton the bad numbers just kept-a-coming. During the third quarter, the company accepted just 8,559 home orders, compared with 14,316 in the year earlier. The cancellation rate was a staggering 38 percent. The value of houses ordered took a hammering, plunging 47 percent to $2 billion.
Unsuprisingly, shareholders of D.R. Horton took fright and sold off the stock. This morning, the stock fell 58 cents, or 2.9 percent. Since the beginning of the year, the stock has dropped 25 percent. I wonder how bad the numbers will be next quarter?
US homebuilder confidence is at a 16 year low. The industry isn't short of misery; rising inventory, falling sales, rising defaults, falling profitability, rising interest rates, and falling prices. Who could hold a happy face after that litany of problems?
June 18 (Bloomberg) -- Confidence among U.S. homebuilders fell this month to the lowest since February 1991 as interest rates climbed and delinquencies surged. The National Association of Home Builders/Wells Fargo index of sentiment declined to 28 this month from 30 in May, the Washington-based association said today. Readings below 50 mean most respondents view conditions as poor. Economists surveyed by Bloomberg News forecast the gauge to stay unchanged this month.
Homebuilders including Hovnanian Enterprises Inc. are losing money as they cut prices to stem a slide in sales amid stricter standards for getting mortgages. Builders have scaled back projects to work off bloated inventories, a sign housing construction will weigh on growth for the rest of the year, economists say.
The median forecast of 35 economists surveyed by Bloomberg was for the index to stay at 30. Predictions ranged from 28 to 32. The group's measure of single-family home sales fell to 29 from 31. The index of traffic of prospective buyers slipped to 21 from 22. A gauge of sales expectations for the next six months declined to 39 from 41.
Federal Reserve policy makers last month acknowledged that the housing recession will hold down growth longer than they had anticipated. At the same time, officials have kept their outlook for ``moderate'' growth in the overall economy as consumer spending gains and manufacturing accelerates.
Some reports in recent weeks pointed to reviving demand for homes. The Mortgage Bankers Association's index of applications for mortgages to purchase homes rose an average 5 percent in May from the prior month and was up 6 percent from a year ago. Purchases of new homes unexpectedly jumped in April by the most in 14 years from April, the government reported last month.
Still, a large stock of unsold homes means that builders are reducing their projects. Inventories in April equaled 6.5 months' worth of sales, down from a record high of 8.1 months' worth in March.
Building permits, which signal intentions of starting projects, fell in April to the lowest since June 1997. The Commerce Department may say tomorrow that housing starts fell last month to an annual rate of 1.473 million, from 1.528 million in April, according to the median forecast. The housing market also must deal with the burdens of rising mortgage rates and tighter lending standards.
Thirty-year mortgage rates at the end of May averaged 6.37 percent, rising further to an average 6.74 percent at the end of last week, according to Freddie Mac, the second-largest purchaser of U.S. mortgages.
The number of U.S. homeowners who face possible eviction because of late mortgage payments rose to an all-time high in the first quarter, led by subprime borrowers, the Mortgage Bankers Association said in a report last week. U.S. foreclosure filings surged 90 percent in May from a year ago, RealtyTrac Inc., which monitors foreclosures, said June 12. The failure of at least 50 subprime lenders, who make loans to consumers with poor or limited credit history, raised concern homes will be thrown back on the market as foreclosures rise.
Labels:
Lax lending standards, that is why there is a subprime crisis. Lenders ignored risks, and concentrated on increasing volumes.
(THE ORANGE COUNTY REGISTER )Just five years ago he was selling cars. Then, in January 2002, he anted up $250 for a state lender license and started selling home loans through his company, Quick Loan Funding. Over the next five years, Quick Loan wrote $3.8 billion in mortgages, lending money fast – and often on onerous terms – to people with shaky credit.
Boosted by high fees and interest rates – high even for the subprime industry – Quick Loan's after-tax profits averaged 29 percent of revenue. In 2005, Quick Loan's biggest year, profit topped $37 million. Sadek used the earnings to live the high life, buying a fleet of Ferraris, Lamborghinis and Porsches, dating a soap opera starlet and producing movies. He flew private jets to Las Vegas, where he gambled with high rollers at the Bellagio Resort.
He cultivated a rebel image, wearing a beard and hair to his shoulders, dressing in T-shirts and flip-flops, eschewing the typical mortgage banker's pinstripes. "How many thieves are wearing a suit?" he asks, sitting in the kitchen of his $4 million Newport Coast mansion.
Quick Loan Funding's name still crowns a Costa Mesa office tower. But Sadek, like the subprime lending industry, is holding a bad hand. His staff, once 700 strong, has shriveled to about 125. Monthly loan volume plunged to $30 million from a record $218 million in December 2005.
"I've sold all my cars to keep the company going," says Sadek, 38. "Every property I own is mortgaged to the max." Sadek is more than a poster child for the riches produced in the Orange County-centered subprime industry. His career arc shows how:
In California, almost anyone could open a lending business. It's harder to get a barber's license. Subprime lenders reaped billions in profits by charging high fees and interest rates. For the most part, these practices are legal. Borrowers often either misunderstood, were misinformed or simply paid no attention to the loan terms. Thousands would lose their homes.
State oversight is almost non-existent, with 58 examiners to oversee 5,000 lenders, some doing billions in business. Quick Loan has been accused of predatory lending, deceptive underwriting and fraud in at least eight lawsuits. In addition, Department of Corporations records show 33 complaints against Quick Loan, most alleging unfair business practices. Most of the lawsuits were settled out of court. And state regulators have never disciplined Quick Loan.
Sadek denies that Quick Loan ever broke the law or engaged in unfair business practices.
"I work very hard to do the best I can, to keep the mortgage company as clean as possible," he says. "Simple as that. I can't say it to you any better."
Labels:
Surprisingly, the housing bubble actually reduced realtor incomes. As house prices took off into the stratosphere, far too many rookie realtors thought that the market offered an easy way to make big money. However, the laws of supply and demand are harsh and unforgiving. Soon, there were too many realtors chasing too few sales. According to the NAR’s membership profile:
As such, there are too many realtors, suffering from declining incomes in an industry in collapse.
April housing permits down; new home starts up. There is difficult choice here; which indicator more accurately reflects the true state of the housing market. The new home starts numbers are up only when compared to the previous months. Therefore, it is time to invoke the NAR excuse - the weather. Less rain in April relative to March artificially inflated the new home starts data. So don't worry folks, the housing crash continues.
NEW YORK (CNNMoney.com) -- The battered housing market got another vote of no-confidence from builders last month as applications for new projects tumbled to the lowest since 1997, even as housing starts themselves edged higher.The numbers confirm other recent reports from home builders and real estate groups of a housing market that is still searching for a bottom and that is likely to get weaker before it picks up.
Housing starts rose to an annual rate of 1.53 million in April, according to the Census Bureau report, from the revised 1.49 million pace in March. Economists surveyed by Briefing.com had forecast a slip to a 1.48 million pace in April.
But building permits, which are often seen as a measure of builder's confidence in the market, sank to an annual rate of 1.43 million in April from a revised 1.57 million in March. It was the lowest reading since June 1997. Economists had forecast a dip to 1.52 million
The NAR just published this quarter’s house price data. No surprises here; prices are falling; the bubble is definitively over. Here are the sorry details:
• During the first three months of this year, the nationwide median price for houses and condominiums slid 1.8 percent to $212,300.
• Prices are at a two year low.
• Over half the cities in the US experienced declines.
• Sales are down 6.6 percent compared to last year.
Just to complete the grim picture, here are a few additional numbers, which again confirm that the housing market is in the middle of a massive recession:
• The National Association of Home Builders/Wells Fargo index of sentiment fell to 30 this month from 33 in April, matching a 15-year low reached in September.
• In April, U.S. foreclosure filings jumped 62 percent compared to last year.
To summarize; prices are falling, sales are falling, and foreclosures are rising. In other words, the market is falling off a cliff.
The condo sales numbers coming out of Chicago are horrific. During the first quarter, sales of downtown condos dived 46 percent compared to the same period last year. If Chicago has another quarter like this, there won't be any sales at all.
Condos always were the most vulnerable sector of the housing market. They are particularly prone to speculative behavior. When the so-called investors took fright and disappeared, they left a massive, largely unsellable inventory behind.
Where does the Chicago condo market go from here? If the market is going to clear, prices have to fall. It is as simple and as ugly as that.
(Chicago Business News) The slide in new downtown condominium sales accelerated in the first quarter, prompting some developers to think twice about launching big new projects. Sales of new condos and townhomes in the downtown Chicago market plummeted 46% in the first quarter to 1,207 units, the lowest first-quarter total in four years. The number of new units proposed during the first quarter also fell sharply, but fears of an oversupply persist.
Buyers signed contracts for 1,207 downtown condos and townhomes in the quarter, a 46% plunge from 2,243 in the year-earlier period, according to a report by Appraisal Research Counselors, a Chicago-based real estate consulting firm. It was the seventh straight quarter of declining sales and the biggest quarterly percentage drop so far.
Labels:
GMAC - the financial services wing of General Motors - have just reported a huge drop in profits. Again, the subprime market is to blame.
"The slump in the US property market has hit General Motors hard, with first-quarter profits dropping 90 per cent as losses at its mortgage lending business offset improved sales of cars.
Profits of $62 million (£31 million) at the world's second-largest carmaker for the first three months of the year were sharply down from $602 million in the same period a year earlier.
The company attributed the decline to a $305 million loss by GMAC Financial Services, compared with a profit of $495 million a year earlier. The main factor behind the deficit was the fallout from a collapse in the US sub-prime mortgage market.
GM sold a 51 per cent stake in GMAC to private equity investors last year, but still owns 49 per cent of the business. The group said in a statement: “The decline in reported GM earnings is more than accounted for by losses in the residential mortgage business of GMAC Financial Services (GMAC), driven by continued weakness in the US non-prime mortgage sector.”
Labels:
The Casey Serin real estate saga is over. The last of his eight houses has been foreclosed. He is now officially out of the real estate business. However, Casey seems to attract problems like honey gathers flies. According to his most recent blog post, he has three recent addditions:
• His auto insurance was canceled due to non-payment.
• He owes 2 months of rent and utilities.
• He had his car trashed by some thieves, who took his car stereo.
Casey intends to take a well earned break from real estate and blogging. However, he remains the eternal optimist. As he puts it “there are many good opportunities on the horizon, including a possible job, but nothing is certain right now”.
Indeed, “nothing is certain”. This is why we all need to be careful when taking on debt. It took Casey just a few short months to accumulate a lifetime of debt. He will be dealing with consequences of the housing bubble for many years to come.
Here is a youtube clip where casey explains how he got into such a financial mess. The ethical aspect of Casey's behavior is already fully discussed on this website. All I want to say is that Casey has little understanding of net worth, interest rates or risk assessment. For Casey, money is a matter of cash flow; money comes in and money goes out. There is one particularly interesting moment in this video clip. Casey has just explained how he has made $30,000 on a quick flip. Someone asks him about taxes. Judging from Casey's reply, it is fairly obvious that he hasn't thought about it.
So, Casey has come and gone, and we don't need to think about him or his sorry plight anymore. Nevertheless, Casey does leave us with at least one disturbing question. How many other Casey-real-estate-investors are there out there, making the same dumb mistakes that he did? Let us hope that Casey was a one-off.
Foreclosures are a growth industry in California. Statewide, repossessions increased 68 percent compared to the end of last year. The foreclosure rate is now twice as high as the same period last year. There is now one foreclosure filing for every 152 households. Nationwide, first-quarter foreclosure rates were up 35 percent compared to the same quarter last year.
It wasn't so long ago that the lack of foreclosures was a sign that the market was in fine shape. Only a year or so ago, foreclosure rates in the state were at all time lows. The logic was simple; if there are no foreclosures, then people could obviously afford their exotic interest-only mortgages. However, foreclosures will always be low when the market is rising. If a homeowner runs into any repayment trouble, he or she can sell the house at a profit and return to renting. With the sudden downturn, this goes into reverse. Foreclosure is the only way out of a toxic loan.
Only a year or so ago, interest only loans fired up the Californian property bubble. Now, those same loans have started to push up the foreclosure rate. There are a lot more mortgages in California that could go bad. Foreclosures are the future in California.
It is remarkable how often one sees the name Robert Schiller in the mainstream media these days. It is as if the prophet has come back from the wilderness. Back in 2000, he justifiably made his reputation as the man who predicted the collapse of the dot.com bubble. However, when he turned his sights on the housing market, people just didn't want to hear from him. People were too busy counting up the so-called equity accumulating in their homes, and his message of serious overvaluation and speculative behaviour was most unwelcome.
Today, he gave an interview, and made some obvious points about the real estate market. For example, he observes that if house prices are increasing 10 percent a year, then fairly soon no one can afford one. Perhaps more shockingly, he points out that over the long-term the return from owning a house is fairly close to zero.
Question: What caused the stock bubble, and why did it end as it did?
Answer: Some sociologists talk about collective consciousness. We humans evolved to be very closely linked, and our minds focus on the same ideas. Those [ideas] get reinforced because we hear them all the time.
Back in the late 1990s, you kept hearing that you had to stake your claim on the Internet or you'd miss out on the future. No one cared about the present. Then something happened around March 2000. There was an acceleration of public talk about doubts. You could no longer declare at a cocktail party that Internet stocks were going up. Such statements had become embarrassing - and just like that, word of mouth changed.
Embarrassment is a powerful emotion.
Question: Is that about to happen in real estate?
Answer: It doesn't seem like we're there quite yet. But this is the biggest boom in housing prices since, well, ever. Nothing seems to explain it, and nobody forecast it. It seems to me...wait a minute. Please don't quote me as forecasting the markets.
Question: Okay. What you're about to say is not a forecast.
Answer: Well, human thinking is built around stories, and the story that has sustained the housing boom is that homes are like stocks. Buy one anywhere and it'll go up. It's the easiest way to get rich.
Question: So how rich can you get on real estate?
Answer: From 1890 through 1990, the return on residential real estate was just about zero after inflation.
Question: Excuse me? That's all? Hasn't it been higher lately?
Answer: Since 1987 it's been 6 percent [or about 3 percent a year after inflation].
Question: So real estate doesn't go up roughly 10 percent a year?
Answer: It can't be true that homes rise 10 percent a year. If they did, in the long run no one would be able to afford a house.
Question: Let me grab a calculator. If real estate really rose 10 percent a year, a $25,000 home in 1957 should be worth roughly $3 million now.
Answer: And that flies in the face of common sense. In fact, I'm inclined to think there's a good chance that the return on real estate will be negative, substantially negative, over the next 10 years because all booms reverse in the end.
Question: All right. We won't call that a forecast either. So how should people think about their home as an asset?
Answer: Avoid concentration of risks. You need a house, but I would avoid a second one - or at least avoid an outsize house. Over-investing in real estate now would be a recipe for disaster.
Question: You also write about the risk to human capital. What's that?
Answer: What you're trying to do is to invest in skills that somebody else will want to pay you for. Let's say you want to work at Bethlehem Steel. That would have been a good idea in the 1950s, not so good by the 1970s. The world went the wrong way on you.
Question: How can you manage that risk?
Answer: I used to coach children's soccer, and I would tell my players, "Stand away from the pack, and sooner or later the ball will come to you."
In your career choices too: Get away from the pack. Also, you associate your home country with safety. But the rest of the world is pretty peaceful too, on average, and the average is all that matters.
I think relatively few [Americans] are getting away from the pack, investing more outside the U.S. than in.
Question: How are you investing now?
Answer: I'm probably a little over 60 percent in stocks, almost all of it outside the U.S. I have a lot of cash. And I've been reducing my exposure to real estate. It may be at the end of a cycle.
Existing home sales declined by 8.4%, the biggest drop in 17 years.
New homes sales fell by a whopping 17.3%, the largest in 16 years.
Around 35 percent of mortgages were "non-traditional" - i.e.mortgages that allow borrowers to pay only the loan interest or just a part of the interest each month without paying anything on the principal.
.....just putting the numbers in perspective. So, no more happy talk about the US housing market recovering please.
The truth is slowly coming out. When the bubble was raging across the land, everyone thought that it was speculators and flippers who were driving prices up. Now, we are learning that it was something else. True, the flippers and speculators were there, but they could only continue because there were mortgage lenders out there, ready to push the loand that financed the madness. These jokers were pushing mortgages on ill-prepared and naive borrowers like doomsday was almost upon us.
And just how mad did it get? Well, lending standards were so lax that people could get mortgages with monthly payments higher than their monthly income. Presumably, the idea was that the unfortunate borrower could eat into their savings to finance the monthly payments, then sell up and pocket the equity. There was only thing that this scheme required - eternally rising prices. In turn, that required continued lax lending standards.
The Washington Post has an interesting example how the scheme worked:
"Nahid Azimi, who immigrated to the United States from Afghanistan 22 years ago, recently stood in the upstairs hallway of her home in Loudoun County, silently sobbing as she removed the last of her personal items from the $410,000 townhouse in South Riding she bought with pride last summer. She said she was persuaded to buy the house by an Afghan real estate agent she considered a friend and by an Afghan mortgage broker who promised to get her a good loan.
Instead, Azimi, a cashier at Giant who makes $2,400 a month, found herself strapped into a no-down-payment loan with payments of $3,800 a month. She knew it would be impossible to make the payments, but the mortgage broker promised to refinance her loan to make it more affordable. Azimi couldn't qualify for the refinance, however, so she got a second job to try to cover the costs, borrowed money from her friends and tried unsuccessfully to sell the house. Then one day in November, she collapsed at work, in part because of the stress.
"I can't do it anymore," said Azimi, 44, a U.S. citizen. "I cannot afford it, and I don't want them to come one day and put my stuff on the street."
Currently, around 13 percent of sub prime mortgages are experiencing some kind of payments delay. Within a few months, those delinquencies will turn into foreclosures, which will quickly add to housing supply. Not that teh market is short of unsold houses. In most cities, housing inventory is at record highs.
This crash is slow; it is taking its time; but it is getting there. Two things will get us there. Foreclosures, and tighter lending standards.
The housing market data just gets worse. According to a housing index released by Standard & Poor's, prices of single-family homes across the nation depreciated in January compared to a year ago. Furthermore, the decline was the worst in more than 13 years.
The S&P/Case-Shiller composite index showed a drop of 0.7 percent from a year ago in the price of a single-family home based on existing homes tracked over time in 10 metropolitan markets.
Today's housing market problems gave plenty of warning. Since the summer of 2005, real estate indicators everywhere had been flashing red. Inventory, sales, new home incentives were all telling the same story. The market had peaked and it was going to crash.
For example, take a look at just one indicator - KB homes, and in particular, its share price. In early summer 2005, the stock was trading at around $84; three months later it was down at $66. Although there was a temporary rebound during the winter of 2005, thereafter it has traded at around half of what it was during those heady days of summer.
Back then, smart investors knew that the housing bubble was over. Prices were just too far out of whack with reality. The KB homes share price reflected that unsustainability. Since everyone with an Internet connection had access to KBH data, it should not have been too difficult to see where things were going.
Of course, it did not quite happen that way. People looked at the rising housing inventory, declining sales and rising interest rates and somehow could not bring themselves to admit that the market had topped out. Denial and delusion are essential ingredients to any financial catastrophe, and America had both in abundance.
Up until a few weeks ago, many people still believed that the housing slowdown was only temporary. It has taken a 5 percent mortgage delinquency rate and the disappearance of 40 or so sub prime lenders before America as a whole woke up and understand that there was a crisis.
What about KB homes today? What is it telling us about the future for US housing? Well, the recent numbers are grim. The company just reported numbers for the first quarter. Compared to the same period last year, revenues are down 20 percent; net income fell from $173 million to $27.5 million; while orders fell by 12 percent. The only ray of sunshine comes from their cancellation rate, which improved slightly compared to the fourth quarter of last year.
Chief Executive Jeffrey Mezger suggested that "it is hard to predict when the housing markets will stabilize". Perhaps Mezger should try thinking about it a little harder. If he did bother to think, two somewhat related problems would give Mezger sleepless nights. Thinking on a little further, he would understand that the market will not stabilise any time soon.
First, the recent rise in mortgage delinquency and foreclosure rates, will mean distressed sales at knock down prices. In turn, this will undermine KB homes revenue growth potential. Second, the sub prime fiasco will lead to tighter lending standards, drying up housing demand.
KB homes are looking at nasty double-dip; increased supply of unwanted houses, lower demand due to fearful mortgage lenders, this means only one thing, lower sales volumes at lower prices. Since 2005, the share price has implicitly priced in these problems. The share price was flashing red, telling us that the housing bubble is over. Take heed, it is still flashing red today, and it is telling us that the collapse has only just begun.
What? More condos in Florida. Here is a view of the Everglades on the Bay condo development at NE Third Avenue and First Street in downtown Miami across from Bayfront Park. Biscayne Blvd. is in the foreground.
The bad news from the housing market is coming in so fast that it is hard to keep up with it. Here are just a few of the stories that have come through in the last day or so:
Foreclosures at an all time high - According to the Mortgage Bankers Association's most recent data, the proportion of mortgages in the initial stages of foreclosure during the fourth quarter of last year hit its highest in the 37-year history of the association's survey.
Lending conditions are tightening - According to the Federal Reserve's most recent Senior Loan Officers Survey, which the end of last year, domestic banks reported tightening standards on all residential mortgages.
Bankers fear deteriorating asset quality - About 45 percent of bank loan officers in the Fed survey said they expect a deterioration in the quality of the loans, ranging from loans for business investment to commercial real estate loans.
Hey! You've won a ride back to the top
0