This is an all too familiar street scape ... unsold housing units. But this is not in the U.S. This is Canada, the next victim to fall in what seems like a game of global housing dominoes.
For Sale ... For Sale ... For Sale ... For Sale ... For Sale ...
The U.S. has provided a road map of how to avoid a devastating housing slump. But do you think anyone listened?
I can understand that the Brits don't believe they could learn a lesson from Americans. After all it was a national sport to scoff at our self-imposed housing troubles. That is until it became their own fate to face a free falling housing market crash that was even more dire than our own. Who's crying now?
But for our northern neighbors not to read the housing tea leaves when they're laid out in all their glaring glory ... well, that's pretty unbelievable. Why would Canada head down the road toward a collapsed housing market when it could still be avoided or at least mitigated?
Two analysts at Merrill Lynch predict a hard fall in Canada, a harder fall than most are willing to concede as a possibility. Merrill economists David Wolf and Carolyn Kwan said in a recent report that "developments in the Canadian market lag similar developments in the U.S. market by about two years." They said the "ramp-up in Canadian construction may even be larger than it was in the United States, with more units, largely condos, being built in each of Toronto and Vancouver than in all Canadian cities combined a decade ago."
Wolf and Kwan's findings are very controversial to housing and mortgage professionals, reports Reuters. "Though the consensus does seem to be gravitating towards our view of a sustained downturn in the Canadian housing market, we still do not sense any particular alarm in either the policy-making or forecasting community. We ourselves are getting more alarmed by the day." Their detractors insist, "No way!" as they peak around their blinders.
The Merrill Lynch report cites that housing construction in Canada is just off the record high set in May, and 97 percent above the long-term average. That compares to 54 percent off the long-term average in the United States in 2006.
Further report findings point toward trouble. Inventories of “unabsorbed” new single-family homes as of last month were up 56.1 percent year over year. Two years ago, at its peak, inventories of unsold new single-family homes in the U.S. were up 26.5 percent over a year earlier.
Last month Merrill published another report saying Canadian households were overextended and that the market was "too optimistic about the prospects for the housing sector and the overall economy." Doesn't this sound eerily familiar? Exuberance and success are blinding.
"Economists are divided on how deep a downturn in housing activity will be." But while most economists believe Canada is in for a downturn next year, they believe it will be "buffered by more prudent lending practices" than that experienced in the U.S. Data clearly shows that Canada is in for housing trouble, but most analysts are sure the ill effects will be more like a light blanket than a ton of bricks.
How familiar this sounds to our disbelief in 2006 that the U.S. housing slowdown was anything but a short-lived setback instead of the tsunami that it turned out to be. Maybe the sound of a burst bubble just can't be heard over the deafening sound of success, no matter how loud the warning.
Global warming may not be enough to thaw markets as Canada faces a long cold winter.
October 29, 2008
This is an all too familiar street scape ... unsold housing units. But this is not in the U.S. This is Canada, the next victim to fall in what seems like a game of global housing dominoes.
The Mortgage Bankers Convention this year in San Francisco was a pretty sober event according to industry insiders. For the convention once known as "Party Central" and coming off nearly two decades of good times, this year's festivities must have felt more like a wake than any kind of industry pep rally.
This year, the gathering's spirits could not be lifted, even by being held in visitor-friendly San Francisco. Attendance, at about 2,000, was half of what it usually tallied. When the MBA last held its annual conference in San Francisco three years ago, one in five home loans were subprime and that mortgage market was valued at $625 billion.
Subprime mortgage kings such as Countrywide chief Angelo Mozilo could attract thousands when he would speak at an MBA event during the industry’s boom years. But there was no Mozilo this year.
Gone were the party-going subprime specialists. The mortgage crash that wiped out that high-risk business has sucked much life out of the conference.
“A whole sector of the business is gone. If people aren’t making loans, they aren’t getting flood insurance, title searches, credit checks,” said Bryan Horn, a salesperson for DataVerify which runs checks on potential home buyers.
Exciting mortgage entrepreneurs were replaced by no-nonsense government officials for the convention panels. With bureaucrats in charge of the mortgage industry, the champagne definitely stopped flowing and uplifting music and popular entertainment were tainted by the grim messages from the podium.
Reuters reports that a new component for the MBA convention this year was the appearance of angry protesters. “Well, we’re certainly not in Kansas anymore, Toto,” John Courson, the new president of the Mortgage Bankers Association told attendees in the opening session of his conference. “This is my 50th year and I have never, ever seen a tornado like this,” he said.
Prior to the current industry maelstrom, the Mortgage Bankers Association built its new Washington headquarters. Just as they occupied their new digs, the mortgage market crashed and membership plummeted. “That decision was made, obviously, a different real estate climate than we see today,” Courson said of the MBA’s purchase of its headquarters that is mostly vacant and desperate for tenants.
“But this association has been around 95 years. We are not going away,” Courson said in an interview with Reuters. But still, times are very hard.
Protester voices were loud and clear in their anger against the many "wrongs" felt by much of the California population. Several protesters sneaked past security to cat call during a panel discussion featuring Karl Rove.
This was definitely a different atmosphere for what is usually a celebratory, large-budget, industry party - a sign of the times that will probably be repeated by the much less high profile conventions for the home builders and Realtors.
Dial back to the late 70's ...
In those days I worked for the man who started Wachovia Mortgage when the parent bank was a mid-sized regional institution based in Winston-Salem, NC. He was then on his own doing work-outs for real estate investment trusts. In those years the MBA conventions were a blast, or so it seemed to me (but then I was in my 20s and everything was a party) . Even with interest rates hovering around 18% (can you imagine?) there was not the sense of doom and gloom that permeates today's mortgage market.
October 27, 2008
The third quarter housing numbers are in and they are not too bad, maybe even a little encouraging. However, mix these numbers with the recent economic tsunami and you might want to start looking for a paddle.
A few days ago we got the third quarter numbers for existing home sales from the National Association of Realtors and foreclosure filings from RealtyTrac. This morning the Commerce Department announced new home sales data.
Basically, we see the number of sales increasing based on falling home prices and increased affordability. Existing home sales increased 5.5% and new home sales were up 2.7%. New home prices fell 9% from the previous month and existing home prices fell 9% from the previous year.
Inventory levels are decreasing slightly. The foreclosure numbers merit a big fat question mark. Although there was a decrease in foreclosure filings of 21% from August to September, that decrease may be due to legislation passed in several states that is slowing the foreclosure process.
So where are we now? Although there is some very encouraging news in the third quarter and September numbers, they tell the story before the other shoe fell on the housing and financial markets. All the rules were thrown out and everything changed September 15 when Lehman Brothers collapsed and we were plunged into a history-making downward economic vortex. Our worries now are much further afield than the foreclosures from readjusting subprime loans.
Over the last two months a very large portion of wealth has been erased from many asset statements, even if just on paper. Falling real estate prices, falling employment numbers, still frozen credit and tighter mortgage availability particularly for jumbo loans, huge stock market losses and subsequent diminishing 401K accounts, all contribute to weak consumer confidence and an underlying sense of fear.
According to Mark Zandi, chief economist at Moody’s Economy, about 12 million homeowners owe more on their mortgage than their homes are worth. Reuters reports this is compared to 6.6 million at the end of 2007 and 3 million at the close of 2006. These are upside-down or “under water” homeowners who are still paying their mortgages and are not counted in the current ranks of the foreclosure filings.
In the current economic crisis and slowing economy, it won’t take much to push an underwater mortgage into default. “When you’re under water and you have some kind of hit to your income or some kind of unintended expense, that’s when you default. And so now we’ve got this noxious mix of millions of people under water and quickly rising unemployment,” Zandi said.
If foreclosures continue or increase, prices will continue to fall and we could see filings spread to other areas with weakened economies outside the handful of states topping the foreclosure list. And the credit market has not loosened for residential mortgages, but instead is showing further tightening. As prices continue to fall, lenders balk.
So while the September numbers showed some movement toward the positive with increased sales and less inventory, there are now mitigating factors that may derail any positive headway. I hate this ugly housing prognosis. I present the quarterly and monthly numbers below and hope that someone smarter than me can put a better spin on the current realities.
New Home Sales Data
The Commerce Department data released on new home sales (contracts not closings) for September was better than analysts had expected. Sales were up 2.7 % from August on sales price declines of 9 %. The median new home price for September, $218,400, was the lowest since September, 2004. Unfortunately 9% is dangerously close (if not much more than these days) to the profit margin for many builders.
Inventory levels of new homes declined in September by 7.3 % against August numbers, representing the sharpest monthly decline on record. The 394,000 new homes on the market represent a 10.4 month inventory supply based on the current sales pace, down from 11.4 in August.
The Commerce Department said that building permit activity had declined by 6.1 % for September versus the 8.3 % first reported for September.
Existing Home Sales Numbers
The new home numbers come on the heels of the existing home sales data (based on actual closings) from the NAR showing the highest level of home sales activity in more than a year. On the shoulders of falling home prices, home resales rose 5.5 % above August.
Estimates by the NAR cite up to 40% of existing home sales were distressed properties, either foreclosed properties or short sales. The September median price represents 9.0 % decline from a year ago. That $191,600 median price is the lowest since April, 2004.
Inventories of existing homes fell 1.6 % at the end of September to 4.27 million which represents a 9.9 month supply based on the current rate of resales.
RealtyTrac reports foreclosure filings for the third quarter rose 71% from a year earlier and 3 % from the second quarter. A more gentle view of the numbers shows a 12% decline for September filings compared to August, although compared to August of 2007 there was a 21% increase.
There are several states that have passed legislation that requires a slow-down in the foreclosure process. These actions could have a temporary effect on the decrease in numbers. A new law in North Carolina resulted in a 66% drop in notices of defaults in September, according to Reuters.
The “rat pack” of the foreclosure parade was once again Nevada (leading with an 11% increase from August and 137% from a year earlier), California, and Arizona. Six states accounted for more than 60% of the foreclosure activity in the third quarter and California alone speaking for 27% of the filings.
The Wall Street Journal reports that Vermont was the best performing state, with only six filings in the month, followed by West Virginia and South Dakota, the few stalwarts of stability.
Wall Street Journal
October 26, 2008
This week's Worthy Nods from the news and around the blogs:
CNBC/Realty Check Blog: Housing Forecasts Too Cloudy...Even to Forecast -From the Mortgage Bankers Association conference and the National Association of Home Builders Construction Forecast Conference ... positively bewildered expressions on the faces of the chief economists of both associations. NAHBs David Seiders said the risk in housing right now is just so high that it makes forecasting extremely difficult.
The Wall Street Journal: New Loan Fix Is Unlikely To Be the Last/FDIC Suggests Guarantees for Loans - The government's latest plan to help struggling homeowners gives mortgage investors more incentive to agree to refinancings.The roughly $40 billion plan would encourage mortgage investors to permit struggling homeowners to refinance by having the government guarantee part of the rewritten loans.
The New York Times: Investors Flee as Hedge Fund Woes Deepen - The gilded age of hedge funds is losing its luster ... in the throes of an unprecedented shakeout. This unregulated, and at times volatile, corner of finance lost $180 billion during the last three months. Investors are heading for the exits. Funds dumping stocks contributed to market plummet.
BBC News: House Sales Slump 53% Across U.K. - The number of property sales in the UK has fallen by 53% in the past year, according to the latest figures from HM Revenue & Customs (HMRC). That was also a 62% fall from the recent peak in sales seen in December 2006.
The Big Picture: How Lending Standard Changes Led to the Housing Boom/Bust -"There is a general lack of understanding as to how the Housing boom and bust occurred, and why it led to the subsequent credit freeze. The situation is complex, and that is why we are still explaining this 3 years into the housing bust." Barry Ritholtz takes another shot at clarifying this ...
The Real Estate Bloggers: How About a $10 Million Dollar Price Reduction - The Pink Palace, one of the toniest homes in Atlanta, has taken a 50 percent cut in price this week from $20 million to $10 million. Many questioned the original pricing as extravagant and the price reduction has tongues wagging in this exclusive section of Buckhead. The real estate agent said publicly that the reduction was not her idea.
Matrix Blog: [Jackass Analogy] Securitization Explained - Young Chuck moved to Texas and bought a donkey from a farmer for $100 ... (As good an explanation to be found.)
Forbes: America's Next Foreclosure Capitals - Tell me something I didn't know ... California still the foreclosure king.
October 23, 2008
The iconoclastic Alan Greenspan, former Federal Reserve Chairman and creator of the greatest financial disaster since the Great Depression, asked lawmakers this week, "What went wrong with global economic policies that had worked so effectively for nearly four decades?''
WHAT DID HE JUST ASK? “What went wrong?” The world obviously misplaced the Greenspan Rule Book.
If Greenspan is shocked by the housing and financial crises, how does he think the rest of us feel? We're shocked that he's shocked!
Greenspan testified during a House Oversight and Government Reform Committee hearing on Capitol Hill Thursday and there did not appear to be many sympathetic faces. The only thing that could have made the situation more tense is if Greenspan had sported a tattoo on his forehead that read “Wall Street Lackey.”
Faced with a “once-in-a-lifetime credit tsunami”, lawmakers removed the gloves( in contrast to deference to Greenspan while he was Fed chairman) and grilled the former Federal Reserve Chairman as to the causes of the current financial crisis.
Greenspan’s position was synonymous with, “Hey guys, I made a mistake, but don’t blame me. My assumptions were flawed, but I was just the man in charge. I’m not personally responsible.” Primum non nocere, or “first, do no harm” should have been the preamble to his swearing in ceremony in 1987.
You can read Greenspan's prepared remarks here, but here are some of the more salient comments:
Greenspan acknowledged that the crisis "has turned out to be much broader than anything I could have imagined.”
"Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity (myself especially) are in a state of shocked disbelief," admitted Mr. Greenspan.
Henry Waxman (D., Calif.), the panel chairman criticized Greenspan charging he "had the authority to stop the irresponsible lending practices that fueled the subprime mortgage market," but Greenspan "rejected pleas that he intervene."
Greenspan admitted he was “shocked” by breakdown of the credit system but claimed he had raised concerns about the dangers of “underpricing of risk” in 2005, but conceded that his free-market ideology shunning regulation was flawed.
Greenspan admitted that the flaw in his assumptions that he acted upon for forty years was that lending institutions themselves were best able to protect the interest of their shareholders. Thus what looked like a solid edifice to his thinking broke down.
Greenspan opposed increasing financial supervision as Fed chairman from August 1987 to January 2006. Policy makers are now struggling to contain a financial crisis marked by record foreclosures, falling asset prices and almost $660 billion in writedowns and losses tied to U.S. subprime mortgages.
As to the economic outlook? Greenspan suggested the financial crisis will take many months to improve, meaning higher unemployment and softer consumer spending is likely ahead. "Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment."
That, in turn, "implies a marked retrenchment of consumer spending as households try to divert an increasing part of their incomes to replenish depleted assets, not only in their 401Ks but in the value of their homes as well.”
Greenspan warned recovery will be slow. A "necessary condition for this crisis to end is a stabilization of home prices in the U.S."
Well, he’s right about the housing prices, and he's right about the pain to come.
History is a harsh judge and the quickest fall from hero to fool is living by the unconscious axiom, “Often in error, never in doubt.”
Source: Wall Street Journal
October 21, 2008
I came across an interesting video this morning entitled the Universal Declaration of Human Rights. I was curious if there was really such a document that was the basis of the video. The answer is yes and it goes back to Eleanor Roosevelt who crafted the lofty ideals into a document in 1948 for the edification of middle and upper grade school children.
The entire document can be viewed by clicking here. Here is a short explanation:
When the United Nations established its Human Rights Commission in February 16, 1946 out of concern for victims of World War II, Eleanor Roosevelt was chosen to chair its effort to draft a Declaration of Human Rights. Her selection as leader of this endeavor was particularly appropriate because of her commitment to refugee issues. The commission's mission was to create a document that might help to prevent another such war and serve as a model for how human beings and nations should treat each other. The General Assembly of the United Nations adopted the resulting Declaration on December 10, 1948.This creative presentation incorporates the 30 articles of ER's Declaration in less than 5 minutes. Click here to view on Quick Time.
Though not intended as a political statement on my part, the plug at the end is for a human rights organization called U.S. Campaign for Burma fighting repression in that country.
If you're a Realtor reading industry blogs you are obviously smarter than the average bear. So don't take offense at the above headline comment that "even Realtors" can understand Lawrence Yun's explanation of the credit crisis and the pain of deleveraging.
Whenever I read something penned by the great National Association of Realtors' chief economist my hackles immediately rise. So when I started reading the following explanation of how the world works I thought he was writing down to us Realtors. But it's actually a very clear statement of his topic void of any superfluous info that we, as Realtors, don't necessarily need.
If you want more and deeper info check out this thorough (and very good) piece on understanding the credit crises. It was the 2nd most emailed piece from the New York Times.
Otherwise read on under the smiling face of Mr. Yun:
We're currently experiencing a credit crunch: credit is not flowing. It isn't flowing because the banks are holding onto whatever cash they have. Banks are holding the cash, rather than lending, in order to be able to meet the unpleasant shock of debt deleveraging. The goal of last week's Treasury disbursement of $125 billion to the nine largest banks, and the additional $125 billion made available to other lending institutions was to help lenders do the business that they were set up to do - that is, lending. Yet, the lenders still appear to be very hesitant of letting loose any of their capital. Why?
Leveraging is a term for expanding the power of borrowing. Let's say you save up $1,000 in order to invest. While that's nothing to sneeze at, if you are able to borrow using your $1,000 as collateral then you expand your buying power. If you buy assets considered absolute solid, then you can borrow even more using what you just purchased as additional collateral. Borrowing on top of borrowing - that is the power of magnifying returns on investments.
Consider your initial $1,000. If you can leverage it up to $50,000 from borrowing on top of borrowing, then even a puny 1% return on a $50,000 bet will return a cool $500 on your initial bet. If the borrowing cost is cheap and if the return can be generated in a short time, the interest cost becomes a non-factor. As long as there is a positive return all is good. If this very high leveraging is legally prohibited, then simply do it off the balance-sheet, as was often done by many lending institutions.
But what happens if there is a negative shock and there is a loss in your investment? Your $50,000 bet turns a bit sour and is now worth $48,000. This modest decline in itself does not appear too worrying as it would occur under any normal market fluctuations. However, if the most of the $50,000 was borrowed, with you starting from only $1,000 as in the example above, then you are in a deep hole - not only losing all of your initial $1,000 but also unable to fully pay off all your creditors.
My Realtor friends, click here to read on under Yun's tutelage ....
October 20, 2008
SunTrust Mortgage Inc. ranks first in customer satisfaction among the nation’s mortgage-origination businesses, according to J.D. Power and Associates. Atlanta-based SunTrust received an overall score of 790 of 1,000 possible points in Power’s primary mortgage origination study. Atlanta Business ChronicleHere’s my take on SunTrust . . . Being based in Atlanta real estate along with SunTrust for what seems like a lifetime, I must concur that the folks at SunTrust are real pros. My association was more in construction loan originations where SunTrust stabled the crème de la crème of the Atlanta builder population. As a matter of fact when a buyer of a new home wanted to know about the financial stability of a builder, we could say “they are a SunTrust builder.” The punch line being that you could only get construction loans from SunTrust if you didn’t need the money.
That was in the good old days. Now builders have no money and can’t beg, borrow or steal a construction loan or a buyer.
SunTrust also carried the same conservative mortgage lending philosophy for home mortgages. They were not very competitive as a mortgage lender, at least to the off-the-street customer. But their conservative underwriting guidelines probably saved them from much of the stress from the subprime fallout. The point being that SunTrust dealt with the upper echelon borrowers and was well paid for their service.
Congratulations to SunTrust.
The rest of the story is that Wachovia (obviously prior to) ranked third with a score of 786 and Bank of America came in fifth with 764 points. Last year Wachovia was first. What a difference a year makes.
The average score was 757.
The study measured customer satisfaction in four areas:
- Problem resolution
- Interaction with the loan representative
- Application approval
Click here to see the results for each of these categories.
The results are based on responses from 4,256 consumers who originated mortgages in the year ending in June.
"The study finds that customers have higher levels of satisfaction and are more committed to their lender when the loan officer takes the uncertainty out of the mortgage origination experience by setting expectations, proactively communicating and maintaining personal contact with them during the loan process. For example, customers have considerably higher levels of satisfaction when their loan officer provides a time frame for their application approval.
"Similarly, customers are more satisfied when status updates are provided, last-minute requests for information are limited, mortgage servicing options are discussed, and when loan officers meet with customers in person and attend the closing. In addition, customers who report being highly committed to their lender as a result of a superior origination experience are two and a half times more likely to recommend the lender to others and to use the lender for another mortgage. These highly committed customers also use twice the number of additional financial services with their lender, on average, compared with customers with lower commitment levels.
“ 'Many customers blame financial institutions for the current economic situation, and many also have doubts about their futures,' said Tim Ryan, director of the financial services practice at J.D. Power and Associates. 'In such an uncertain environment, it becomes especially important for lenders to re-establish trust with customers through the loan officer relationship. About one-half of mortgage customers express some level of doubt about whether their loan representatives are acting in an ethical and honest manner and in their best interest, which indicates an opportunity for higher levels of satisfaction through an improved customer-
lender relationship.' ”
The study also finds that customers can improve the quality of their experience when obtaining a mortgage by keeping the following guidelines in mind:
- As part of the selection process, ask whether the loan will be sold or its servicing transferred—and if so, how billing, payment, and escrow management might be affected.
- Ask for a full explanation of the entire process from application to closing (e.g., what the steps are, what will be required, expected timeframes).
- Discuss the initial estimate of closing costs in detail, and determine which of the costs could change and why.
- Request updates or status reports at key junctures in the process—for instance, when preliminary approval has been given or when the appraisal is complete.
- Prior to closing, ask to review and get an explanation of the following: the closing document; final closing costs; and billing and payment options.
Customer satisfaction was higher for 2008 than 2007, attributed to lower customer expectation.
October 18, 2008
This week's Worthy Nods from around the news and in the blogs:
Associated Press/MSNBC: Hombuilders Scramble to Downsize Floorplans - In order to compete in markets dominated by foreclosure price, builders are cutting size, amenities and price to stay in the game.
The Wall Street Journal: End of the Office Party is Coming - Commercial real estate is heading into the danger zone as office vacancies rise, stores close and hotel bookings fall.
Encouraging Takes on the Stock Market:
Barrons: The Yields Are Staggering; Rollins Financial: Let's Talk Turkey; and of course, the Op-Ed for the New York Times by Warren Buffett: Buy American, I Do.
Wall Street Journal: Foreclosure Auctions are Slow to Unload Inventory - So far this year, 748,381 homes—or 46% of the foreclosures—have gone into the possession of the banks as real-estate owned, or REOs, because no bidders were interested in them at auction.
I had never heard of Andrew Lahde until yesterday when Sue Herrera, CNBC, brought up his now famous goodbye tirade to his investors. It peaked my interest and I found the missive on Portfolio.com.
Here is what I learned: “Andrew Lahde, manager of a small California hedge fund, Lahde Capital, burst into the spotlight last year after his one-year-old fund returned 866 percent betting against the subprime collapse. Last month, he did the unthinkable -- he shut things down, claiming dealing with his bank counterparties had become too risky.”
Yesterday, Lahde passed along his “goodbye” letter and it’s a doozy of an “up yours” from an obviously out-of-the-box kind of guy. It is a rollicking good ride and is both humorous and thought-provoking, and definitely not to be missed.
October 17, 2008
Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.
Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, "What I have learned about the hedge fund business is that I hate it." I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government.
There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list those deserving thanks know who they are.
I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark.
Throw the Blackberry away and enjoy life.
So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don't worry about my employees, they were always employed by Mr. Springer's company and only one (who has been well-rewarded) will lose his job.
I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life -- where I had to compete for spaces in universities and graduate schools, jobs and assets under management -- with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.
On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government. Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man's interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft's near monopoly. I believe there is an answer, but for now the system is clearly broken.
Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won't see it included in BP's, "Feel good. We are working on sustainable solutions," television commercials, nor is it mentioned in ADM's similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won.
With that I say good-bye and good luck.
All the best,
October 17, 2008
THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.
So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.
Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.
Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.
Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”
I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.
Thank you Mr. Buffett.
We’re closing in on Halloween but it is not in tribute to the eve of All Saints' Day that I sound like the Grim Reaper. This time last year at the presentation of ULI’s Emerging Trends in Real Estate 2008 the theme was “A Dose of Fear” and the mood was cautionary. The predictions for the housing market were right on target but no one was prepared for the depth of the credit and economic crises that was to come. Take a look at Trends 2008 in retrospect.
Watching the financial markets these days is like watching the ship go down, then bob back to the surface, roll hull up, then regurgitate the surviving sailors. The volatility of the stock market and last week’s one day “crash”, coupled with the mortgage market’s continued squeeze in terms, cost and availability (jezzzz!) is like a battering ram to the housing industry and consumer confidence.
This is not the scenario that gets people feeling good about rolling the dice to the tune of hundreds of thousands of dollars, if not millions. If the problem on the stock market is that no one knows how to value stocks today, (but most agree stocks are dirt cheap) you may also feel the uncertainty in the eyes of a buyer in valuing a property in today’s housing market (where there are plenty of bargains.)
Recent events were apparently a crippling blow to the psyche of most builders. According to the latest numbers from the National Association of Home Builders, builder confidence is at an all time low – ever.
The home start numbers came out this morning and not only were the permit numbers down 6.4 percent, but the average value for permits pulled were down as well. Neither of these indicators is surprising in the least. Obviously builders are heeding the market indicators and responding in light of fewer buyers and soft home prices.
Historically, economic reversals lead to housing slumps. In our current situation the unraveling of the housing market has led to an economic downturn. The economic tables are turned and we find ourselves in uncharted waters. Foreclosures, and all that entails, are running ahead of the economic crisis. Housing is the parade master of all this trouble and will have to lead the way back to the light.
It is the alarming economic downdraft that now stymies housing and its possibilities to stabilize. Many economists have revised their estimate of a housing recovery depending on the depth of an anticipated recession. If credit eases, housing will definitely recover quicker, but this week their was no relief on the credit front.
On Wednesday, the average rate for 30-year fixed rate mortgages was 6.75 percent, up from 6.06 percent last week. While banks are moving aggressively to sell foreclosed properties, the number of empty homes is hovering near its highest level in more than half a century.
Insights on the Mortgage Market from the New York Times:
To cushion themselves from potential losses if homes lose value, Fannie Mae and Freddie Mac, the mortgage finance companies that the government took over in September, have increased fees on loans made to borrowers who have good but not excellent credit records, even those who are making down payments as big as 30 percent.
Those higher fees are generally invisible to borrowers because banks factor them into mortgage interest rates. While the national average rate for a 30-year fixed-rate mortgage is now 6.75 percent, according to HSH Associates, mortgage brokers say the rates for many borrowers in the Southwest or Florida can be as high as 8 percent, especially for so-called jumbo loans that are too big to be sold to Fannie Mae and Freddie Mac. (Those loan limits vary by area from $417,000 to roughly $650,000.)
Higher interest rates result in bigger monthly payments, pricing some potential buyers out of the market. For example, monthly payments are $2,700 on a 6 percent 30-year, fixed-rate loan of $450,000. If the interest rate rises to 7 percent, those monthly payments jump to $3,000. All things being equal, when rates rise, prices generally fall.
That bears repeating: When rates rise, prices generally fall.
The other driver for house values is incomes. When incomes fall, demand for housing falls. Unfortunately, “the number of people who are losing jobs or seeing their incomes decline is rising. The unemployment rate has climbed to 6.1 percent, from 4.4 percent at the end of 2007, and wages for those who still have a job have barely kept up with inflation.”
I so hate to write this dismal assessment. I really do. But it is what it is. All the markets - housing, credit, stocks, auto, retail - will come back and we'll enjoy the heights all the more for the lows. But for today we have to understand where we are and be careful in finding and choosing our opportunities. I’ll follow up with some good financial news for the future from the Desk of Joe Rollins.
October 15, 2008
Lawrence Yun, Chief Economist for the National Association of Realtors, issues his latest economic forecast for the housing industry. The following are a few excepts from Monday's commentary looking forward to 2009.
As a frequent contrarian to Mr. Yun's opinions, I once again find exception to several points. I think Yun is hanging too much on the improved numbers for August's pending home sales. One month does not create a trend although I hope he is correct and that we are looking at home price stabilization. I still want to see the third quarter numbers for sales and foreclosures, but in light of the dire economic news and diminished national wealth from the last couple of weeks, I find it hard to yet see a rainbow. I do however see Yun's point on signs of increased affordability.
For once, I agree wholeheartedly with Yun that the economy will not recover without a housing market recovery.
Without further a due, I give you Mr. Yun:
The U.S. economy has entered a recession and will contract for the next three quarters, and the recovery, from the second half of 2009, will be tepid. The unemployment rate will peak at 6.7 percent by midyear next year before steadily heading down. However, existing home sales will be rising despite challenging economic times.
The most important factor driving home sales is affordability. With home prices falling in many parts of the country and mortgage rates still near historic lows, affordability conditions have markedly improved. Even with rising unemployment, nearly 93 percent of households will have jobs. This 93 percent of working households (rather than 95 percent during good economic times) respond to incentives. Added measures, from the first-time homebuyer tax credit to a larger number of mortgage loans qualifying to be purchased by Fannie and Freddie and through the FHA program, will further bring homebuyers to the marketplace.
An early indication that buyers are responding to incentives was the solid jump in the pending home sales in August to the highest level in over a year. The biggest increases were in areas with rising affordability from sharp reductions in home prices in California, Nevada, and Florida. The expansion will broaden to other markets where home prices have markedly fallen, including Rhode Island, Virginia, and Minnesota. Existing home sales, therefore, will likely breakout from the narrow trading range of 4.8 to 5 million of the past 12 months to 5.2 million by the year end and to 5.4 million in 2009. Even with the improvement, the next year's sales level will still be well below the 7.1 million peak sales achieved with rampant speculative buying in 2005.
New home sales will be a different story. There is an overhang of inventory and homebuilders are being forced to cut back sharply. New housing starts have fallen by about 60 percent from peak activity three years back. Because of the cutback in new home construction, the inventory of vacant new homes on the market has fallen to 408,000 as of August from nearly 600,000 just two years ago. The total inventory - new and existing combined - still remains elevated, so further reduction in building by builders will be welcomed. Because of low housing starts, new home sales will continue to tread at soft levels -under 500,000 in 2009 (far below the 1.2 million peak sales in 2005)...
The Bottom Line
Put it all together and what do we have? A recovering economy will help consumer and business spending to turn the corner and the economy to move to a self-sustaining pace. But it requires a catalyst to get things started. The tumbling housing market and subprime mortgage defaults have caused financial markets to freeze and have pushed the economy into a recession. However, recent rising home sales and some sustained momentum will bring the economy back into the fold. Rising home sales will also thin out the housing inventory and begin stabilizing home prices. The credit market will start to unfreeze once home prices have passed bottom. Simply, the economy will not recover without a housing market recovery.
Fortunately, policymakers and both Presidential candidates clearly recognize the need to get the housing market moving. The two housing stimulus bills (homebuyer tax credit and higher loan limits), $700 billion Treasury plan and the Federal Reserve's actions are designed to assure steady mortgage flow and help revive the housing sector. With it, the economy will expand and create jobs. America and its exceptional ingenuity always find a way to move past crises and back to economic prosperity.
October 13, 2008
Starbucks, an icon of a booming economy, is now feeling the pains of contraction. As customers go into cost conscious mode and pull back on the luxury of a $5 cup of coffee, Starbucks confronts slower sales and weak earnings.
By reducing the Starbucks footprint by 600 U.S. stores by early next year, the company hopes to revive their future prospects. Demographics count when it comes to high-end java. Not everyone demands their specialty coffee to be served by a highly educated barista. Customers with a financially conservative mindset may forgo the soy and try Dunkin Donuts or McDonalds, but the real coffee snobs will find a way to maintain their latte budget.
Retail landlords in the growth years of the last decade have coveted Starbucks as a traffic-driving, high-paying, golden tenant. With growing store closings, however, Starbucks’ sterling reputation has been tarnished with many landlords claiming to being left out in the cold.
At least seven lawsuits have been filed against Starbucks since last year in cases where money is owed for rent or other expenses associated with store locations that were leased but never opened. Allegations include nonpayment and unfulfilled obligations but Starbucks counters that it is not aware of any delinquent rents. They also claim that in some cases nonperformance by landlords releases them from responsibility under the terms of the lease. Exit negotiations continue across the country.
Landlords say they aren't eager to let Starbucks out of a lease. In many cases, the high rent Starbucks agreed to, the customized nature of the building, and the deteriorating conditions of the commercial real estate market mean that replacement tenants willing to pay the same rent will be very hard to find.
The Wall Street Journal quotes Michael Malanga, Starbucks' senior vice president, U.S. Store Development, "We're not doing anything out of the norm of any other company that would seek to restructure its real-estate portfolio. Our No. 1 objective is to maximize shareholder value."
Retail landlords will be hard pressed to replace the lucrative Starbucks operations as their darkened storefronts join other retail casualties of chain closings and failed businesses that are plagued by a weakened economy.
I’ve written often about Starbucks, as an example of a brand so strong and effective that their products benefit from added value beyond the intrinsic product. The majority of Starbucks are alive and well and thriving still, but let’s face it, economic woes demands sacrifice from many and Suze Orman’s first order of financial advice is always to cull the daily latte from the budget.
Economic Note: My daily purchase at Starbucks is a Misto which is a cheap substitute for a Latte. A Misto (café au lait) is 2/3 coffee and 1/3 steamed milk whereas a Latte is a shot of espresso and the rest being steamed milk. Not only is a Misto cheaper but it is also half the calories. The catch is that it’s not on the menu. You have to ask.
October 12, 2008
The news and blogs this week were dominated by the credit crisis and ensuing market downdraft, but here are a few other Worthy Nods mixed in:
Reuters: Greenspan Pegs Housing Recovery to Early 2009 - Take good news wherever you can get it.
New York Times: Those Who Know History May See A Time to Invest - The four most dangerous words for investors are: This time is different.
BusinessWeek: They Warned Us About the Mortgage Crisis - There are two good men in Washington. State whistle blowers tried to curtail greedy lending and were thwarted by the government status quo and the financial industry.
Wall Street Journal: Housing Pain Gauge: Nearly 1 in 6 Homeowners "Under Water" - To be more specific, that should be 1 in 6 mortgage holders.
Associated Press/MSNBC: Experts Skeptical About McCain Mortgage Plan - Buying up troubled home loans will be difficult and might not work say experts.
BusinessWeek: Stock Market Crash: Understanding the Panic - Market psychology experts weigh in on what's feeding the selling frenzy on Wall Street and when to look for investors' moods to change.
CNBC/Realty Check: Coldwell Bankers' Home Sale Price Reduction: One Tough Sell - Participating sellers to reduce listing prices by 10% for 10 days. Good luck.
IHT/Raising The Roof: Companies Warn of Growing Problems in the Timeshare Business - Timeshare market leaders say industry is taking a beating.
I've been looking for the silver lining to this week's shocking losses in the stock market.
Here are some possibilities and random thoughts:
1. It will make me a stronger person. That's pure crap.
2. It will put me in touch with Mainstreet. I live on Mainstreet.
3. Great investment opportunities have been created in the stock market. I just lost all my money. Invest with what?
4. I am now eligible to become a member of the Obama's "pay-no-tax club". Congratulations to me.
5. Consumer confidence is the problem with the stock market. Translated into returns, it means that everybody is losing money. I get it all the way to $0.
6. Least you worry about the U.S. turning into a socialist government, just think of the oh so happy day when we have universal health care. Ever been to a VA hospital?
7. What will Baby Boomers do about retirement? Welfare.
8. What will I do when the market recovers? Build an altar.
9. Banking consolidations create huge real estate opportunities. Vacated bank branches will make excellent McDonald sites replete with fast tube delivery in the drive-thru.
10. What will things look like tomorrow? How would I know? I'm just hanging around long enough to see a housing bottom. You've heard it before....not yet.
October 10, 2008
The mind, an adept machine capable of creating its own truths, easily crafts realities around those things that give pleasure. What is more seductive and pleasurable than success? Once launched on the road of the righteousness of success, our minds often refuse to concede error. In other words, love is blind.
Nothing epitomizes this more clearly than the housing and the credit crises. Along the road to perdition, the crises morphed into a nuclear global crisis. In hindsight all the warning signs are obvious but the adrenalin rush of the game turned players into addicts. Only a two-by-four could slow down the miscreants of an unsustainable market. And a two-by-four between the eyes (if that is physically possible) is just what we got.
Why are people so sure of themselves despite overwhelming evidence to the contrary? I’m not pointing fingers; I’ll jump on the optimistic bus as willingly as anyone. In 2006 I was ready to believe that the housing slowdown would be short-lived and shallow. In 2007 I was ready to believe the Fed that we had no inherent credit problems. In 2008 I was ready to believe the financial CEOs who convinced us their institutions were strong, liquid, and not threatened by toxic mortgages and securities. Only a month ago I was willing to believe that economic fundamentals would sustain the stock market.
Just say it loud, say it often, and say it like it’s the truth.
We are always trying to convince others of our truths. The National Association of Realtors’ truth is “It’s a good time to buy a house.” You have to question their judgment, but their mission is to push whatever is beneficial to their Realtor members. They carry a fiduciary responsibility to Realtors, specifically the majority members, not the public. That's their truth.
Robert Burton, a neurologist by training, argues in his book, On Being Certain: Believing You are Right Even When You’re Not, that the feeling we are right is a biologically-based, involuntary, and unconscious process that cannot be trusted as a reliable indicator of fact. The feeling of certainty, according to Burton, is simply “…not a biologically justifiable state of mind.” In other words we are right to question Bush’s actions based on his gut feelings ... but that's for another day...
As the bubble began to burst in 2006 and 2007, real estate experts were falsely bolstered by their "market fundamental" arguments. These are the “real estate truths” that served us well until the bust. The tried and true … appreciation will continue … population increases will drive increased housing demand … the affluent Baby Boomers are a deep well … permanence of easy credit. Those platitudes now manifest themselves as empty promises.
The two primary causes leading to the boom and bust in housing are a nonfeasant Fed that did not enforce lending standards, and very low interest rates that drove prices artificially high. The New York Times tells the tale of our twin housing and credit debacles:
- Between 2001-04 - The subprime mortgage market grew from $160 to $540 billion;
- Between 2005-08 - Fannie purchased or guaranteed at least $270 billion in loans to risky borrowers;
- Between 2005-07 - after the market's peak -- Fannie's acquisitions of mortgages with less than 10% down payments almost tripled;
- Between 2004-06 - Fannie operated without a permanent chief risk officer;
- Congress continued pressuring for more loans to low-income borrowers.
We’ve gone from a housing crisis, to a mortgage crisis, to a credit crisis and now we’re in a global crisis that will test the resolve and perseverance of our national fortitude. But there is still a good side to the news. “As bad as the mortgage crisis has been, 94 percent of all Americans are still paying off their loans. The problem is Wall Street placed its huge bets and side bets with all of those fancy securities on the 6 percent who are not,” says Jim Grant, the editor of "Grant's Interest Rate Observer" in an interview with CBS’ 60 Minutes.
Where does this leave the housing market? The National Association of Realtors shows an increase of 7.4 percent in pending sales for August over July numbers. The good news is that pending sales are also up 8.8 percent over August of 2007. Driven by lower home prices, the largest percentage of both the price declines and pending sales come from California and other markets most affected by the boom-bust. I’m not predicting a bottom, especially in light of the debacles of the last two weeks. The telling will be in the home buying and foreclosure numbers after the recent, excuse me, current pandemic. It seems that most fundamentals, all rules, and business models have been thrown out as dirty bath water.
Again, what about the housing market? Take away the top 10% of the worst housing markets and the balance of the market will recover as the global credit dilemma is resolved, as the stock market recovers, as credit eases and as consumer confidence returns. That’s a long list of caveats for a housing recovery and is stating the obvious. But it is important to remind and encourage ourselves that housing will recover and hopefully find its bottom in the foreseeable future.
We’re facing a future based on long-term value, not short-term appreciation, with significantly fewer home sales but a more stable market. We’re going back to a market similar to before 2001. The hangover from the housing boom may dull the enthusiasm for a “normal”, stable market, but “normal” will be a welcome respite from today’s ills.I also hope we’re traveling toward a more ethical truth.
Moving forward the current real estate generation will never view the “market truths” quite the same way again. We could do well to take a page from Disraeli’s play book on truth.
October 9, 2008
The following interested article was forwarded to me today. Sorry, I'm not sure of the original source but research is cited.
By Nissa Hanna
Home/Garden and Retail/CPG
Are the 'burbs beginning to diet? A recent report by AIArchitect suggests that homeowners are feeling the ballooning weight gain of love-handle rooms and spare-tire spaces. In their Q1 2008 survey of residential architects, "more than twice as many respondents reported home size declines" (AIA.org 6.6.08). That's the inverse of results from the 2006 report.
So why the architectural about-face? At Iconoculture, we've been citing the same reasons that AIA mentions: an economic downturn, population shifts and increased environmental awareness.
A National Association of Home Builders' survey recently found 60% of potential homebuyers would rather have a smaller house with more amenities than vice versa (Realtor.org 5.12.08). From sky-rocketing utility costs to the need for universal design, many are finding that a morbidly obese McMansion just isn't sustainable.
The home goods marketplace is starting to respond. Mammoth furniture main-streamer Pottery Barn is now shedding the pounds with its in-demand "Small Spaces" collection. We're even seeing luxury kitchen appliance brands making smaller versions for grand-at-heart-but-not-in-size galleys.
As some American dream homes start to shrink and homeowners jump off the unsustainable-home treadmill, they'll be looking for retailers and brands that promote a more (financially and environmentally) healthful way of living.
October 4, 2008
No Worthy Nods this week. The Rescue Bill and banking musical chairs trumped all else. Blood is returning to white knuckles while tolerance for political rhetoric and the Presidential campaign is wearing thin, at least for me. Very thin.
There has been a lot of wealth lost in the third quarter market machinations. Much of it in hard fought retirement accounts. A couple of days ago I found myself in a conversation with a total stranger whose retirement (he thought) was wiped out during the recent slaughter. It was the day Citigroup announced the deal with Wachovia in advance of the Wells Fargo coup. His 401 consisted entirely of Lehman Brothers and Wachovia stock. I guess he didn't get the memo about mutual funds. Unfortunately he will have to work the rest of his life. Although there is now some hope on the Wachovia front, he still has cause for heartburn.
I 'm sure blogs will spring up all over the blogosphere to tell the stories of loss, much like Dr. Housing Bubble who reports the bad news on the burst housing bubble. He is relentless at weaving tales of woe, and he's got lots of material to work with. I'm not sure what purpose it serves unless it's for the entertainment of those who savor a train wreck.
The Rescue Bill passes but the pain is not over. The behemoth that is the housing market will feel little immediate effect. The Rescue Bill should however boost consumer confidence, which we sorely need. A step in the right direction. The Rescue Bill hopefully means the loosening of credit and the avoidance of the mother of all train wrecks.
The housing and financial markets are joined at the hip and while both are diseased, they are now receiving treatment. Let's hope it takes and helps to find a firm bottom in both markets.
Real estate search sites report a significant surge in searches, which is a great sign that favorable prices and pent up demand is peaking consumer interest. Hopefully third quarter housing and foreclosure numbers will be reasonable. A halt in price declines and rising foreclosures would indeed be cause for celebration.
Patience and forbearance is the call of the day. Fourth quarter and real estate often don't play together well. The goal is to bring in 2009 standing.
October 2, 2008
Thirty-year old Joanne Smith from Chicago out bid eight other contenders for this fixer-up. She bought it sight unseen and without the assistance of a buyer's agent. Pretty gutsy.
The Saginaw News reported that Ms. Smith had never been to their town nor did she have any plans to relocate there. She's opted to stay in Chicago and hopes to eventually resell her newly acquired investment.
Just in case anyone was thinking upping the anty to $2.00 for the house, Ms. Smith was required to pay $850 in back taxes and yard clean up costs, increasing her original investment of $1.75. Still ...
Check out the video on MSNBC.
October 1, 2008
Although my Mother is tough old bird, I once again find myself in a North Carolina hospital in her company. Watching and hoping that we can patch her up again, I view the debates and commentaries, and read the editorials on the financial crisis and the myriad of solutions. This is one of the most contentious issues put before our country in recent history.
Even with our economic future in the hands of Congress, who has an approval rating of 10% (a decided F no matter what the party), I'm still confident we'll once again, somehow, pull through. What is unknown is the pain level.
Immediate economic indicators of the credit squeeze can be seen in the number of loan applications and car sales. The Mortgage Bankers Association reported a 23 percent drop in overall mortgage volume this week compared to the previous week. Auto sales also tanked after 11 months of slow sales. As September auto sales numbers roll in, they reflect low consumer confidence and a tightening of the credit markets: Ford Motor posted a 34% drop and Toyota sales dropped 32.3%. GM and Chrysler to report later today.
House prices continue to fall, both existing and new. KB Homes reported an unexpected loss of $144.7 for third quarter. KB Home President and CEO Jeffrey Mezger offered in a prepared statement of the obvious, "These difficult conditions have now been exacerbated by the recent, unprecedented turmoil in financial and credit markets, and it is too early to assess whether the federal government’s proposed interventions will be effective."
Through the first nine months of 2008, KB Home has lost $668.8 million, on revenues of $2.1 billion. Through the first nine months of 2007, the company lost $156.8 million, on revenues of $4.35 billion. Although KB Homes' third quarter reports did not bode well, the overall housing market shows some signs of light. Price declines are not decelerating as fast and some metro areas are showing an slight improvement in prices.
The Senate votes tonight on the Rescue Bill and assuming it passes, will move on to the House of Representatives for a vote on Friday.
Whatever the final incarnation of the Bill, it will not have a huge immediate effect on housing. It should however keep the housing market, along with everything else, from completely derailing - a reduction of the downside.
In the meantime, to my five readers, I'll stay in touch between the hospital routines and interminable wait for the doctors to appear. It's a fascinating and scary couple of weeks. Throw in the elections and we have entertainment.