From New York Magazine:
Is New York’s Real Estate Bubble About to Pop?
A bubble’s destiny is to burst. Otherwise, it’s not a bubble. This year, however, the New York housing bubble—the ominously overinflated market that experts have been warning us about since the current run-up in housing prices began—has begun to seem more like a protective sphere. West of the Hudson, things are looking bleaker by the day: 180,000 homes fell into foreclosure nationwide in July alone, with up to eleven times that figure feared by the end of 2008. Sales of existing homes were down 17 percent in the second quarter; for the fourth quarter, Goldman Sachs forecasts a 15 percent nationwide price decline. “We’re in the worst housing recession in 40 years,” says Nouriel Roubini, professor of economics at NYU. “It’s an absolute disaster.” In our charmed city, meanwhile, the weather—for the moment, anyway—appears to be fine.
…
As Gyourko’s colleague, Harvard professor Edward Glaeser, puts it, New York’s boom is “driven by the reinvention of the city as a center for idea creation in finance and a playground for the prosperous.”But what if the prosperous stop prospering and don’t feel like playing? Though some experts believe that the current subprime-mortgage mess will be contained, it points directly to our Achilles’ heel: what Inman calls “the deadly marriage between New York City real estate and Wall Street.” Housing-wise, financial types are a dream demographic—they generate wealth for clients and snap up extravagant abodes for themselves—but it’s easy for the market to get addicted to yearly infusions of investment-bank bonus cash, and the withdrawal can be painful. After the 1987 stock-market crash, Manhattan median home prices plummeted by 26 percent. Should the current liquidity crisis spread, New York real estate could theoretically crash without a single subprime foreclosure in the five boroughs: Others’ grief could catch up to us via bad brokerage-house bets and the plummeting profits and pink slips that come with them.
…
There are other, wonkier, reasons to be afraid. If we look at the instruments economists use to take a market’s temperature, many point to an imminent bust. For one thing, we appear to be reaching the peak of a so-called Minsky cycle. In Hyman Minsky’s ingenious model of asset bubbles, economic stability breeds riskier and riskier investors: First come the “hedge borrowers,” who play with their own money; they are followed by “speculative borrowers,” who have enough cash flow to keep the lender at bay but not enough to cover the principal investment, and finally “Ponzi borrowers,” who are, as the name suggests, borrowing to refinance other debts they can’t meet, in the wild hope that the market will keep climbing. The Minsky model is remarkable for having been proved the way we like our economic models proved: recently, the hard way, and twice. We cycled through it in the eighties with junk bonds, and in the nineties with tech stocks. As it happens, the latter-day brownstone-flippers, financing each new property with the last one’s equity, are the dictionary definition of Ponzi borrowers. In fact, it’s almost unbelievable that the obvious junk-bond and dot-com analogies would ever pass us by. But such is the boom mentality. First you think the bust isn’t going to happen, then you think it’s not going to happen to you.
http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=FT&Date=20070916&ID=7479183
#1- Read my lips
the glaring omission in this article, a fascinating read – is that Greenspan does not describe his own role in creating this ‘froth’. He’s been definitely quick to the gate to put himself in a strong defensive position. Still doesn’t get him out of it, though, does it?
‘He said he still thought froth – a collection of bubbles – was a better description, because of the variation in house price appreciation in different local housing markets. But he said “all the froth bubbles add up to an aggregate bubble”.
The former chairman said the current turmoil in financial markets was “an accident waiting to happen”.
He said the price of risk had fallen to unsustainably low levels beforehand, with investors addicted to asset-backed securities that offered some additional yield over Treasury bonds as if they were “cocaine”. Mr Greenspan said this demand induced the big increase in the origination of subprime mortgages by mortgage brokers.’
From MarketWatch:
U.S. Sept. Empire State index falls to 14.7 vs 25.1 Aug
Manufacturing activity in the New York area slowed in September, the New York Federal Reserve Bank said Monday. The bank’s Empire State Manufacturing index fell to 14.7 in September from 25.1 in August. The drop was somewhat larger than expected. Economists were expecting the index to fall to 18.0. New orders fell to 13.6 in September from 22.2 in August. Shipments dropped to 5.1 in September from 28.8 in the previous month. This is the lowest level of shipments since June 2005. However, the employment index rose to 18.2 from 11.6 in August.
From MarketWatch:
National City sees nearly $160 mln mortgage loss
National City Corp. in a regulatory filing Monday said it expects to see a third-quarter loss around the high end of its previous estimate of between $130 million and $160 million. The bank said loan-sale revenue will include the effects of marking down the value of Alt-A and closed-end second mortgages held for sale. The company has had difficulty selling mortgage-backed securities as a result of the turmoil in the credit markets.
From Reuters:
Merrill Lynch’s subprime unit cutting jobs
Merrill Lynch & Co. Inc.’s $1.3 billion bet on subprime lending hit a sour note on Monday, when the world’s largest brokerage confirmed job cuts at its First Franklin Financial Corp. unit.
Merrill Lynch bought San Jose-California-based First Franklin in December amid a meltdown in the market for risky subprime mortgages. Analysts have questioned the timing of the deal and the rich premium Merrill paid for the company.
Merrill Lynch declined to say how many jobs were being cut. Recently filed reports with U.S. banking regulators show that Merrill Lynch Bank & Trust Co., where a lot of the First Franklin franchise is housed, lost $111 million through the first half of 2007.
“We have adjusted our staffing levels to be in line with current business requirements,” the company said in a statement.
JB-
wow, half the experts in this article feel that Manhattan will continue to appreciate, short and long term?
It’s confusing.
I’d love to revisit this article a year or two from now and compare.
Also seems like shades of what Clotpoll referred to are beginning now, with the major magazines now referencing the bubble pop.
Fasten your seat belt, it’s going to be a bumpy ride!
#6 wow, half the experts in this article feel that Manhattan will continue to appreciate, short and long term?
Yeah, but not too long ago, all of the so called experts, would have felt that Manhattan would continue to appreciate both long an short term.
#7 Comrade
Yeah, thanks for the reminder.
Gotta ask … why is everyone looking to pin the blame on SOMEBODY for this unmitigated disaster?
What happened to a little thing called accountability? What about the idiot buyers who allowed themselves to get sucked into something like this? If it seems too good to be true, then it probably is.
If you make a mistakes – we all do – you pay the price.
You can lay blame on the realtors, shady mortgage companies, Greenspan, Bernake, Wall Street, etc … but at what point does the greedy American public shoulder some of the burden?
#9 Bloodbath: its the new American way. WAHHHHHHHH its not my fault!!
anyone have any News on the KHOV sales deals over the weekend ? I hear Toll brothers are going to do the same thing ?
#9 bloodbath
It’s also a matter of what came first
Greedy americans wouldn’t have been able to come to the table in such droves if it hadn’t been set so easily for them in the first place.
“What about the idiot buyers who allowed themselves to get sucked into something like this?”
blood [9],
Buffoon # 1.
#13 BC Bob: Well I guess if only people knew that froth=Bubble, perhaps we could have avoided this.
comrade [14],
It’s odd that Greenspan speaks in plain English now.
12 – It’s all a temptation. You either fall for it or you don’t. It’s like someone coming up to you and saying, ‘hey, i’ve got free money! It’s a lock. You can have it. Just sign this stuff – nothing big, dont worry about it – and it’s yours.’
‘Everybody’s doing it!’
You wouldn’t ask questions? Yes, i do feel bad for a lot of these people. Especially the under-educated ones.
i’m not a greenspan defender, but i believe that even if he used the term bubble, people would have ignored him anyway.
there was so much easy money being made, that people would have rationalized it by coming up with all sorts of pretzel logic to point to reasons it’s different this time. i think they would have thought of him as old school –
the bottom line is no one likes a party pooper.
(just my psych. 101 opinion)
#16: What is an “under-educated” person? That is new one.
The time it takes to pop a bubble is local. I wouldn’t be surprised if a year later the NY real estate bubble pops. I think the impact of outsourcing of jobs is finally going to be felt once the home equity bank dries up.
#15 BC Bob: True, kind of scary too, the fact that he was deliberately vague.
Kind of funny though, Greensapn on 60 Minutes last night, his book goes on sale today, and the Fed meets tomorrow.
anyone seen any drastic drops this weekend at open houses in BC? i saw one home that was fsbo priced in at 560K when another home (realtor) down the block was reduced to 510K! FSBO disconnect? when i mentioned it, the homeowner started to get upset and pointed out how the 510K home is 200sqft less! and how it doesnt have a ‘new’ kitchen…actually, the 560K home had a kitchen from 1980…the 510K home’s kitchen was from 1950s!!!! i didnt consider that kitchen new!
t c m Says:
September 17th, 2007 at 10:22 am
i’m not a greenspan defender, but i believe that even if he used the term bubble, people would have ignored him anyway.
I agree with this statement. However Greenspan’s crime was not what he said but his failure to raise rates.
the sale of the “century” was a big COME ON ….they did not redice pricess at all for 100K..they only trew in 60K of upgrades.Is this legal COME ON????
in my limited experience, fsbo is no bargain for the buyer.
from what i’ve seen, they don’t factor in the savings into the price, in fact, the price is usually higher.
“his book goes on sale today, and the Fed meets tomorrow.”
comrade [20],
He is signing books tomorrow at noon at Border’s, Broadway. I may say hello to Alan, ask him why he touted adjustables, in an environment of rising rates.
re: Greenspan
too much emphasis on one man’s opinion isn’t a healthy thing. Especially when so much faith is put into words and logic of a self-described, first-class bullshit artist.
Even Manhattan has to suffer:
“GLOOM WITH A VIEW AS RITZY APARTMENTS $LUMP
By BRADEN KEIL
September 17, 2007 — A slump in Manhattan residential real-estate prices is beginning to take place in an unlikely place: the top of the market, where apartments cost more than $7 million. ”
http://www.nypost.com/seven/09172007/news/regionalnews/gloom_with_a_view_as_ritzy_apa.htm
‘under-educated’ …
sorry, should have been more specific … on real estate.
#24 BC: That is rigth across the street from me, I may pay him a visit too. I wonder if he signing his books before or after the 2:15 PM announcement?
12:00 pm
That is a big foreclosure sale!
Immediate Sale Ordered: November 15, 2007 1:00 PM
120,000 Sq Ft Building – 70 Acres – 3,000′ Frontage on I-95
Redevelopment Opportunity
Located at: 24-26 Brick Yard Road, Cranbury, N.J.
Click Here For More Detailed Information
Re AGS:
Too bad that is so far uptown…
#31 I thought it was the Borders on lower Broadway (Wall St).
I am no lover of RE agents but I feel I must say one thing. The one thing they do well is the good ones grease the wheels of a transaction. In a FSBO, it is up to the seller alone to have a clue. A lot of times without access to MLS and viewing homes 5-7 days a week this just does not happen. Information disconnects kill most deals and a lot of times it is just not worth it to try and deal with a FSBO seller. I looked at a bunch of homes that were FSBO but I did not even bid on one of them because the prices were high and I did not feel like arguing with the seller directly. “It is just business” does not work too often with FBSO sellers. They get too emotional.
This I think is one of the major downfalls of FSBO.
#28 3B
We used to be neighbors
The whole pro fed chairman/anti fed chairman argument is tired. Two years before the tech bubble burst, Greenspan warned everyone that it was coming. The majority just chose to ignore him. As the market continued to soar, they made him a god. Of course after it collapsed, they blamed him for not warning the public about it.
The RE bubble is going through the same motions. No one is willing to take personal responsibility for their errors in judgment. When seeking the opinion of a handful of Europeans over the years, most site this unwillingness to take responsibility as mostly an American attribute. They often site our propensity to sue for personal injury as a prime example of this behavior.
It is easy to play Monday morning quarterback, it is much more difficult to have the discipline to realize that the rules don’t change!
#34 NJ; Its kind of dreary down here, but it is what I am used to since I have been here so long.
When I go to mid-town for meetings etc., its like a whole different city in many respects.
re 32:
Right.
From the Boston Globe:
Price it right
When Paul Rappoli Jr. put his four-bedroom Colonial on the market for $449,900 in June 2006, he felt good about its chances of selling. After all, it had an updated kitchen, a finished basement, and a winning backyard.
Eight months later, the house finally sold for nearly $75,000 less than the initial asking price.
“It was a long, drawn-out, frustrating ordeal, and it was unfortunate,” said Rappoli. “I felt like we were constantly chasing the market, just constantly chasing it.”
Why didn’t the house sell sooner? That’s easy: the price.
“It was a beautiful house in a great neighborhood. There was absolutely nothing wrong with it. In the home inspection, nothing came up,” said Jeffrey Ledin, a broker with Century 21 C&S Properties in Stoughton who stepped in after Rappoli’s contract with his first broker expired. “The problem was the price.”
When Ledin took over the listing, he repriced the house at $379,900. Just nine days later, it sold for $375,000.
“We had eight showings in the first three days,” Ledin said. “The price sold it.”
You hear it again and again from brokers, the notion that even in this sluggish real estate market, a house will sell if it’s priced right. But what, exactly, does that mean, to be priced right?
“Too bad that is so far uptown…”
boken [31],
Broadway and Wall.
re 36:
I like it. Since we moved here from mid-town, I have not regretted it. I can go there if I feel the need to be crushed.
The view of the harbor out the office windows makes up for a lot.
#35 stu: I agree, but Greenspan does bear soem responsibility for this, first of by keeping rates too low for too long.
Second its kind of ingenous for him to now say, well I said one thing, but I really meant another.
He could just have easily said nothing;contrary to what he now says, he most certainly did enjoy all the attention.
But it does prove at the end of the day, people should do their own reserach, amek tehri own decesions, and use Common Sense.
re 39:
I was joking.
#39 BC: So it is the one near me.
The NY Magazine article is indeed interesting. But as another blog noted (see link below), this is the 3rd year in a row that NY Magazine has warned of a bubble burst. I guess they will be right one of these years…
http://curbed.com/archives/2007/09/17/new_york_takes_aim_at_surging_market_again.php
#9 – Not everyone in the media is looking to point the finger at just one…
If you overborrowed for a house, you can blame yourself
Ever see those three card monte schemes? Guy shifts around three cards, all you have to do is follow one. You point to it, you double your money.
That’s a con. So is – in many ways – the subprime mortgage world. Get a loan. Pay below-market rates. Don’t worry. By the time the rates go up, you’ll find new money somewhere else. But in the mortgage game, as in the three-card shuffle, there is one basic truth:
Nothing forces you to participate.
Except maybe greed.
This is hard to hear, in a world where homes are being lost and lives are being ruined – and it does not apply to people losing houses because of job layoffs – but let’s be real: Not all the fingers in the housing market crisis can be pointed at mortgage brokers, lenders, builders or credit rating agencies.
Oh, they were greedy, for sure. They were rabidly hungry for more money, new money, and because there wasn’t enough in safe, qualified home buyers, they went after the pockets of the poorer and riskier.
But they didn’t reach inside those pockets. Instead, they lured people to reach inside themselves. And while some of those people were desperate, in need of a home, and should never have been taken advantage of, many others got stung by a seductive American philosophy:
If you want it and you can’t afford it, don’t let that stop you.
…
If so, then you have to pay when it goes backward. This is not to be unkind or insensitive. But as we now watch borrowers suing banks and banks suing lenders, it is worth remembering the Three Card Monte rule.
It takes two to play the game.
#38 JB: Price right, is what the sellers have to understand.
How many sellers in good BC right now are going to want to go from 450k to 375K, although I think we will see a lot of that and more come next Spring.
#44 Imus: A lot has changed in 3 months, not to mention 3 years.
I would say they are far closer to being right now, that in the past. Perhaps they were just early.
#39 BC: So it is the one near me.
comrade [43],
I’m right down the street.
#48 BC: I am defintiely going to take a walk over there, should be interesting.
I bet most of us tend to look at houses in the same couple of towns, but try doing a county-wide search in a narrow price range and look at all of the amazingly overpriced crap that pops up. It truly is shocking.
Now I can sort of understand the people who are in over their heads financially. They need to hit these laughable prices otherwise they are toast— foreclosure, bankruptcy, end of story.
I can also sort of understand the trade up sellers. They can’t afford to trade up unless they sell their current place for an absurd price.
What I don’t understand are these old people who have lived in their homes for a long time. They can afford to cut their prices to realistic levels but just don’t. I think these people are the most delusional at all and I imagine that they are the most annoying sort to deal with regardless of whether you are a buyer, agent, appraiser, etc
re 48:
If I were any further South, my feet would get wet getting to the office.
When you go, will you be wearing your NJRERE secret decoder ring?
Let me throw some bloody scraps out to the vultures out there. Many have been emailing me, asking me to point out potential deals that I see. I don’t usually do so, unless you are my client, but I thought this one was interesting enough to share with the group:
MLS# 2444676 – 7 Birch, Mendham NJ
LP: $439,000
REM: Bank Foreclosure – Being Sold As Is – Bank Addendum and Pre-Qual / Proof of Funds with all Offers
This property was purchased on 8/2/2005 for $568,000. Granted, the buyer grossly overpaid in 2005, but the market is the market. If so, we’re trading at roughly 23% under 2005 pricing here.
jb
Mike NJ(#33)Concerning- FSBO’s
I happened to go on an estimate yesterday in Hawthorne. This customer’s house is in contract now and needs some insulation work that he feels should be done before the buyer takes posession.
He tells me about putting the house on the market with a realtor @ 799k at beginning of this year–No results———-Try’s another agent and drops to 750k–no bites–takes it off market and goes FSBO—Some young couple loves the house and he finalizes the price at 679k
It’s a 1930′s all brick cape-style home with a rear addition;large lot/three-car garage/quiet dead-end street very close to border with Glen Rock and Ridgewood—-This house (what little I had seen) seems to need a good amount of work to bring it up to par in general…
The seller has a house all ready to go to—Where else ?–North Carolina of course –(LOL !!)
The Birch property was taken REO by Countrywide on 6/28/2007. For those who care, the case number is 99376, docket F-16499-06, and judgement was $496,155.60.
Outstanding lien was for $496k, Countrywide is selling for $439k. Good example of being “underwater”.
jb
from the Globe article:
Now, he advises buyers, “Forget about what you want, about what you could have gotten a year ago, what your neighbor got two years ago – those days are gone.”
Can’t wait to see these quotes in the Star Ledger or Bergen Record (i imagine they read this site, so hopefully they do an article like this one!) Wonder how the greedy NJ sellers will react to this quote.
#53 Commander 679k in Hawthorne? Ouch
Sellers who have been in their houses a while should be the ones willing to negotiate down since they have a fair amount of equity by earning a real rate of return on their house. They should be asking themselves the hard question ‘Do I continue to pay an obscene monthly property tax payment in NJ that is now almost 1.75-2 times what my monthly 30 yr payment was, in the hope to earn more if I hold off on selling’?
#53 Commander Bob: I wonder what kind of financing this couple is going for?
30#, John,
That is a commecial property (warehouse). Here are two residential properties I posted in the weekend: one for parking the money and one for potential income generation.
> bi Says:
September 15th, 2007 at 10:47 pm
Here are two real deals.
1) $0.5M price reduction from OLP: #4965627
2) $0.5M price reduction from OLP: #4966714
#57 dream: Many times they are the absolute worst.
I’d be pulling my money from Northern Rock too (from WSJ)…
******
The U.K. has meager insurance coverage for bank deposits compared with U.S. federal insurance, which covers most deposits up to about $100,000. The Financial Services Compensation Scheme, the U.K.’s fund of last resort for financial-services customers, covers 100% of the first £2,000 ($4,000) and 90% of the next £33,000, for a total of £31,700.
Just amazing, a BBC report on the bank run at Northern Rock..
http://www.youtube.com/watch?v=I20lMyYW83E
jb
i guess everything doesn’t suck after all.
U.S. household wealth rises to $57.86 trln in Q2
http://www.reuters.com/article/marketsNews/idUKWBT00759020070917?rpc=44
from WSJ editorial page:
“The housing recession has caused the overall economy to slow, and recession worries are rampant. Many on Wall Street want their bubble back, and they are begging the Fed to reflate. But inflation also remains near the upper limit of the Fed’s comfort level, the dollar is weak, gold is back above $700 and oil briefly popped above $80 a barrel last week.
For those of us who remember the economics of the 1970s, one abiding lesson is that trouble comes when the Fed is asked to spur economic growth. The job of a central bank is price stability. The Reagan-Paul Volcker policy mix was tight money combined with tax cutting, which reversed the 1970s’ mix of easy money and tax increases. Washington is in danger of drifting back, almost unconsciously, to that 1970s’ policy.”
>The seller has a house all ready to go to—Where else ?–North Carolina of course –(LOL !!)
just don’t get sick down there. the quality of health care compared to up here is a joke.
#52,
“The buyer grossly overpaid in 2005″
They did not overpay, they gambled with others money and lost, ohhh well. Countrywide has loaned them too much and lost big time.
#62 jb
I love it: “I’m not panicking. I’m being totally rational. I’m just moving my money somewhere else.”
Hard to argue with that.
Oil over $80.
They’ll be slugging the vodka in Russia!
bi Says:
September 15th, 2007 at 10:47 pm
Here are two real deals.
1) $0.5M price reduction from OLP: #4965627
2) $0.5M price reduction from OLP: #4966714
Bi – how is that a ‘deal?’ If the new asking price is $1.1 million, do you realize what 10 or 20% down is?
And then clearly you’ll need one of those hefty jumbo mortgages … maybe you find one for 7%, maybe you have to settle for 7.5.
So you’re looking at a mortgage in the neighborhood of … $5,000-$6,000 a month. Some steal!
From MarketWatch:
Homeowners’ equity falls for 1st time in 13 years
With mortgage debt climbing faster than market values of their homes, U.S. homeowners’ equity in residential real estate fell by $6 billion in the first quarter, the first decline since 1994, the Federal Reserve reported Monday in its quarterly report on the flow of funds.
Homeowners’ equity in real estate fell to a record-low 51.7% of the total market value of their homes.
Overheard a RE agent in Target on his cell phone reassuring his client about the falling value of his home.
Richard Says:
September 17th, 2007 at 12:30 pm
>The seller has a house all ready to go to—Where else ?–North Carolina of course –(LOL !!)
just don’t get sick down there. the quality of health care compared to up here is a joke.
It is still USA, still the same doctors who go to the same med schools. IN NJ quality of healthcare is one of the worst in the country!!!, because of overcrowdiness and workload on doctors.
#70 JB : I guess thery are feeling that welathy any more. Oh well, guess they are just going to have to earn and save it;everything old is new again.
#72 There was a big article on NJ health care in th Star Ledger last week, addressing just that.
# 72: “It is still USA, still the same doctors who go to the same med schools. IN NJ quality of healthcare is one of the worst in the country!!!, because of overcrowdiness and workload on doctors.”
Don’t forget NJ hospitals were found to be among the worst for uneccesary deaths (can’t remember the source, sorry).
RE mendham
I was running around mendham over the weekend and saw 5 open houses within a couple of blocks of each other, all in the same neighborhood. There were still more fore sale signs in the same area. why so many sales in such a small area people in financial trouble or something else???
MLS# 2444676 – 7 Birch, Mendham NJ
LP: $439,000
REM: Bank Foreclosure – Being Sold As Is – Bank Addendum and Pre-Qual / Proof of Funds with all Offers
GASP!!!!!
IN MENDHAM!!!!!!!!
That place is even more haughty than Brigadoon!!!
If Mendham isn’t immune to this, no town in New Jersey is including Westfield.
Skeptic
For those of us who remember the economics of the 1970s, one abiding lesson is that trouble comes when the Fed is asked to spur economic growth. The job of a central bank is price stability. The Reagan-Paul Volcker policy mix was tight money combined with tax cutting, which reversed the 1970s’ mix of easy money and tax increases. Washington is in danger of drifting back, almost unconsciously, to that 1970s’ policy.”
Please correct me if i am wrong, but my understanding (i was but a wee lad in the 70′s)but Volckers policies were effective in achieving an end to the 70′s stagflation. So is the WSJ complaining about? In a stagflation environment, or in the current economic environment there is no way to correct the issue without negatively impacting one segment of the market. I am no expert, but the history i know seems to say that the WSJ is full of crap here. While there were negative impacts to Volckers policies due to the high interest rates (the construction industry was not happy) inflation peaked at 13.5% in 1981, and was lowered to 3.2% by 1983
#64 Skeptic,
It seems to me tat the WSJ editorial is suggesting we ignore any lessons from the 70′s and run right back into stagflation. Which we have already done anyway
#77 X: That place is even more haughty than Brigadoon!!!
Don’t tell them that.
Home Pricess need to fall 25-40% ..and inventory will be absorbed.
#68 NJ Oil over $80.
Yeah but its going to $40.
Thought this piece was interesting, mostly because it’s a dynamic/mode that I hadn’t thought about.
Ailing lender’s checks bounce
Checks sent out by the troubled American Home Mortgage Investment Corp. to pay the property taxes of more than 70 homeowners in the Baltimore metropolitan area have bounced, local officials said yesterday.
Baltimore City received bad checks for 53 properties – a total of about $63,500. Baltimore County said American Home Mortgage checks bounced for 21 properties, totaling $41,000. Taxes are due at the end of the month.
…
“This is just another chapter in what is a very difficult time for the mortgage industry,” said Donald I. Mohler III, a spokesman for Baltimore County, which no longer accepts checks from American Home Mortgage.
“It’s an unfortunate situation and we certainly hope these individuals will be able to work out some kind of agreement with their mortgage company,” Mohler said.
Anthony McCarthy, a spokesman for Mayor Sheila Dixon, said the city does not plan to notify the affected homeowners. They will get a notice in November along with all other delinquent taxpayers if the problem isn’t resolved by then.
Baltimore County said it has sent bills directly to the property owners to alert them.
…
Ultimately, though, property owners are on the hook for those payments – even though the bad checks were not their fault.
“For homeowners, that’s a rotten deal,” said McBride. “The homeowner in that situation has done everything right. … They’ve made their payments, and they were relying on somebody else to send it along.”
“Yeah but its going to 40.”
Sorry, I keep forgetting.
#50 skeptic
‘What I don’t understand are these old people who have lived in their homes for a long time. They can afford to cut their prices to realistic levels but just don’t. I think these people are the most delusional at all and I imagine that they are the most annoying sort to deal with regardless of whether you are a buyer, agent, appraiser, etc’
I just found out that the neighbor across the street from me, who’s elderly, has been carrying a reverse mortgage for a while now.
I wonder how many elderly sellers are impacted as well by 2nd mortgages/equity from their homes?
It would be interesting to see the data on those numbers as well.
#79
kettle– I think the WSJ is saying the opposite. That by cutting rates, the Fed is heading down the same failed path of the 70s that lead to stagflation.
I emailed my friend who worked at the Fed for 15 years a few minutes ago to ask for his estimate about how many rate cuts we will get, his response did not look good for housing.
“The fed will not have too much flexibility in cutting rates too much. The dollar very weak against the EUR, and there are inflationary concerns. Rates will have to go up to protect the dollar….even if we head into a recession. Your president dug us a deep hole.”
The stage is set for an exciting day tomorrow.
The last few FOMC meetings have largely been non-events. Tomorrow, we’ll have all eyes on the Fed.
jb
#87 JB FOMC meetings have been non-events since 2004.
Reech (65)-
UNC Medical Center
Duke Medical Center
Wake Forest/Baptist Hospital
The problem with these is? Please elucidate.
Why would healthcare be any better- or worse- in a state that is growing in population and wealth…that also has a gazillion hospitals and medical schools?
lisoosh (71)-
“Overheard a RE agent in Target on his cell phone reassuring his client about the falling value of his home.”
This is the new scuzzy Realtor gambit du jour. Find expiring/withdrawing long-time listings, take them at any insane price the seller wants, promise some sort of new, improved marketing system…then just bash the seller for price reduction after price reduction.
It ain’t easy
Sep 13th 2007
From The Economist print edition
It is dangerous for the markets to expect too much from the Fed
LAST month’s jobs figures were depressing but useful: they clarified what the Federal Reserve needs to do when it meets on September 18th. Not only did the American economy shed 4,000 jobs in August (rather than gaining some 100,000 as most forecasters had predicted), but revisions to earlier figures showed that the pace of employment growth has been slowing sharply for several months. The numbers suggest that America’s economy was sputtering well before the credit crisis.
America needs to create at least 100,000 jobs a month merely to absorb the growing working population. Now that the growth in employment seems to have stalled, the economy looks vulnerable. Add a credit crunch on top and the risks of a sharp slowdown, even a recession, are uncomfortably high. With inflation under control, the country’s central bankers clearly ought to counter that risk by lowering their benchmark interest rate.
But there’s a further danger, which America’s central bankers need to watch out for. The pressure is building on them to sort out the problems in both the economy and the markets, and to do it soon. Listen to the clamour for a rate cut from investors and—more ominously—from some of America’s politicians, and it is clear that many people expect far too much from the Fed.
In the short term, lower interest rates will not achieve all that much. Given that the central bankers do not know exactly how weak the economy is (the jobs figures, although important, are only one piece of evidence), let alone what damage the credit crunch will wreak, it would be irresponsible of them to slash the Fed funds rate. Any responsible rate cut will solve the problems of neither the markets nor the economy.
Start with the financial markets. Lowering the benchmark price of money will make other assets more attractive. It will counter investors’ risk-aversion by reducing the odds of a truly nasty economic meltdown. But cheaper money will not, by itself, remove the source of the recent turmoil: worries about who holds the losses from the sub-prime mess and the uncertainties over banks’ balance sheets. Assuaging those concerns will take time—time to work out what illiquid securities are worth, who bears the ultimate losses and how much capital banks will need to clear up the mess. A Fed funds rate at 4.75% or 5%, rather than today’s 5.25% will make that process easier, but it will not make it painless.
Nor will a moderately lower Fed funds rate do much to stop the economy from slowing. It normally takes months for interest-rate changes to affect spending. And it may take even longer now because one of the most direct routes from lower interest rates to more spending may be clogged: a disproportionate share of the effect of lower interest rates on overall spending comes through housing, and with house prices falling amid a glut of unsold homes, that channel looks as if it will be weak. The effect of a gloomy housing market will be offset by strong corporate balance sheets and the falling dollar (see article) but the mechanism that cushions a slowdown may work less efficiently than it has in the past.
An opening bid
Given these uncertainties, next week’s interest-rate decision is no more than the Fed’s opening bid. To the economy, it matters little whether the bankers cut by a quarter or half point. If the slowdown is serious, more cuts will be needed. If it is not, the loosening can, and should, be reversed.
By rights, Wall Street should react only modestly to the size of the cut. But history suggests it may not. In September 1998 the Fed cut interest rates by a quarter point during the turmoil that followed the implosion of Long Term Capital Management, a hedge fund. Disappointed at such caution, financial markets plunged, prompting the central bankers to pile on more rate cuts within weeks; a loosening that, with hindsight, was unnecessary.
The parallels are not perfect (the economy today shows clearer signs of weakness), but the lesson of 1998 is that the Fed needs to stand up to the markets. It should be guided by the economics and stick to its guns—that is, on September 18th it should cut the funds rate by a quarter point, to 5%, and cut further later only if that is what the economy demands.
A piece by greenspan written in 67 supporting a gold standard. More interesting reading.
http://tinyurl.com/2udj5p
I’ve taken the median price in my area (My Laurel, NJ) available via graph. I’ve drawn a line along the trough(s) between 2001 and 2003 (7.55 degree slope) and projected it out to today.
Just a general question, I believe that this line should be the projected price for the next couple of years. Anyone agree?
Graph is attached.
This is the graph…. from above.
http://img117.imageshack.us/img117/8257/cityguidematrixgraphrowcs4.png
Hayak on the gold standard:
http://www.reason.com/news/show/33304.html
Hayek: The trouble is, in the mechanical system what forces politicians is the gold standard. The gold standard, even if it were nominally adopted now, would never work because people are not willing to play by the rules of the game. The rules of the game that the gold standard requires [say] that if you have an unfavorable balance of trade, you contract your currency. That’s what no government can do–they’d rather go off the gold standard. In fact, I’m con- vinced that if we restored the gold standard now, within six months the first country would be off it and, within three years. it would completely disappear.
Bad news for AC jobs and tax revenues..
Governor Proposes 3 Mass. Casinos
Gov. Deval Patrick has proposed licensing at least three full-scale casinos in Massachusetts, in a move he says would generate billions of dollars in revenue and thousands of jobs.
Under the plan, the casinos would be distributed in the western, southeastern and greater metropolitan Boston regions of the state. The licenses would be put up for bid in a competitive process open to Indian tribes and casino companies.
09/17/2007- 2:39pm S&P REITERATES SELL OPINION ON SHARES OF HOVNANIAN ENTERPRISES ( HOV 11.35 ) : HOV says that the special sales campaign over the weekend drew 2,100 gross orders, with more than 1,700 contracts and 400 sales deposits for contracts to be filled. Besides a big jump in traffic to communities, the website received a seven-fold boost. Buyers have 7 days to review contracts before they risk their deposit. In our opinion, HOV may have hurt its brand but created contract deliveries for early next year. However, we see high contract cancellations, asset write-offs and weak demand for the rest of ’07. We estimate losses of $3.00 in FY 07 (Oct.) and $0.75 in ’08. /K. Leon-CPA
93/94
No. You only included bubble years. You need to extrapolate back and even then, projections are pretty subjective. What are you trying to prove with the graph?
Justin Says:
September 17th, 2007 at 2:41 pm
I’ve taken the median price in my area (My Laurel, NJ) available via graph.
Yo’J: Was in your neck of the woods this weekend. When are they going to open the friggin’ Westin on 73 and Fellowship?
John Says:
September 17th, 2007 at 2:19 pm
Listen to the clamour for a rate cut from investors and—more ominously—from some of America’s politicians, and it is clear that many people expect far too much from the Fed.
In the short term, lower interest rates will not achieve all that much.
John-john: Yes. Yes. Yes. Also, yes.
#98 lisoosh:
I wasn’t really trying to prove anything. I was just trying to determine how overpriced current prices are in my area.
I’ve heard some people say, 2001 + inflation and others say 2001 + inflation + 3/4 percent.
So, knowing that bubbles are regional, I wanted to see how overpriced my area currently is. I used 2001/2003 because it was a fairly consistent rise and it was about inflation+3/4%.
Basically, I was bored and felt like crunching some numbers. What is came down to was, in 2002 median was 163k today median is 234k. Taking the 7.5% into consideration, the median should be around 200k.
#97 Chgo : wonder what these buyers do if KHOV has another sale next month etc, at even lower prices. Seems like catching a falling knife to me.
I found a house in the community I like will be auction tomorrow.
It was identified as sherriff sale.
What the nest step I need to do? What do I need to prepare for the auction?
Also, where can I find more information about this house?
Thanks
#99 chicagofinance:
No idea, Any reason why you are waiting on the Westin? There more hotels in that area of 73 than cars sitting in traffic on 73.
Any updates on Bush’s proposed bailout? Has it reached congress yet?
xiaolu,
IMHO, with less than 24 hours until the auction, and less than an hour and a half of normal-business-hours left in the day, I don’t think you have sufficient time to perform the necessary due dilligence.
What county is the property located in?
jb
I just found out that the neighbor across the street from me, who’s elderly, has been carrying a reverse mortgage for a while now.
I wonder how many elderly sellers are impacted as well by 2nd mortgages/equity from their homes?
My parents (68 and 57) took out a small one $20,000. Seeing as their house is a mother/daughter (that they can’t sell)with a second eat in kitchen/living room/bedroom and full bath me and my wife have decided to help them out for the next year. We get to wait the market out and put A LOT of money in the bank. It’s a little more complicated than that but it’s a long story.
On a different note, everyday i drive by this house in Clark that’s being listed for $429,900. It’s been up for MONTHS! It was originally listed at $449,999 and after that $439,999. For the longest time i’ve been wondering who’s trying to sell it. Well yesterday i happened to drive by while the owner was outside cleaning the driveway. You guessed it, VERY elderly.
For the longest time i’ve been wondering who’s trying to sell it. Well yesterday i happened to drive by while the owner was outside cleaning the driveway. You guessed it, VERY elderly.
—————————–
You need not have waited to see the owners. The 1940′s era reading lamps in the bedroom should have been the dead giveaway. Although, they do deserve props for the foosball table in the basement.
Dear JB,
The house is located at basking ridge. I found the lot size and assessed value from housefront.com. But don’t know anything else about it. I might can take a look at the house tomorrow noon. Where else can I found more information.
Also, is the judgement value on the foreclosure information will be the bidding price?
Thanks
Xiaolu
Justin Says:
September 17th, 2007 at 3:19 pm
#99 chicagofinance: No idea, Any reason why you are waiting on the Westin?
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Although, they do deserve props for the foosball table in the basement.
“No son of mine is gonna play any foos-ball.!”
#96 Everything’s ‘boken Says:
September 17th, 2007 at 2:53 pm
Hayak on the gold standard:
Thanks for the link, that was an interesting read!
If I had a serious problem , Duke, vs.Hackensact medical? I would be pleased
to be admitted to Duke anytime.
HMC is like a foreign country.
#113 chicagofinance:
Understood :-)
You want to sell your house lower your price and lower it quickly below comps. Comps are going lower and lower. so in a few months expect an even lower price. Next summer-fall watch out.
From the AP:
Hovnanian claims discounts snagged buyers
The sales promotion dropped prices by up to 25 percent, with the largest discounts typically offered on the most expensive homes.
Such discounts included a three-bedroom condominium by the Hudson River in West New York, which was reduced $240,000, or 22 percent, to $862,000. A 25-percent discount was being offered on a two-bedroom home in Jackson Township, N.J., which lowered its price tag to $300,501.
Speaking of elderly, I had a most amusing foreclosure a few blocks from me a few months ago. A waterfront split built in 1954 on a 100 by 120 lot that was owned by the original owner who paid 20K for it in 1954. The old couple cashed out over 880K in home equities loans on the house before the bank took it back this summer.
Been a couple of articles in the paper about how AHM went cold calling retired people with financial problems and let them cash out 100% equity with an ARM. The old folks have blown thourgh the money can’t afford the reset and the house is now worth less and they are walking away from their homes of 30-50 years and sticking the bank with the loan.
did those buyers have a pulse? even at
300k in Jackson , Junk.
claus,
Might have been a bad deal, but that is one less buyer in the NJ existing homes market.
Even worse, if buyers that signed contracts have properties to sell, we’ve got additional inventory coming.
When builders compete, homeowners lose.
jb
The HOV discount sale creates dropping comp trend that other buyers can use to leverage future purchases.
#119 JB Mr. Otteau is quoted as saying in the article that the challenges are price driven, which will sort themselves out with time as prices stagnate and income rises.”
I wonder if stagnate means drop, because we have just had it confirmed from Mr. Greenspan that froth means bubble.
On another note I wonder how many of these KHOV sales are going to actually close?
never confuse selling with installing. takes
a long time to close a deal.
who’s doing the finance KHov, captive?
On another note I wonder how many of these KHOV sales are going to actually close?
I’m wondering just how many cancellations this “fire sale” caused…
…and the long-term damage done to the brand.
jb
http://bp2.blogger.com/_wFWqWIH-WFU/RuuUY4JaadI/AAAAAAAACNY/mfzz-Ft2UYY/s1600-h/chart20050527.gif
claus,
I believe khov financing was a requirement for the deal.
jb
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want a milkbone?
I do. actually, I need one
#130: What is the actual “rule” for monthly home payments vs monthly income..
I have heard no more than 35% and 1/3 of monthly income should be spent on housing.. is this gross or net income? Anyone know?
Thanks..
JB :I’m wondering just how many cancellations this “fire sale” caused…
Good point, I had not thought of that.
I’ve eaten dog treats before, specifically the 3 Dog Bakery kind.
They are actually pretty good. My wife was considering a licensing/retail opportunity a few months ago, so we went out to visit a few.
jb
Their RE construction may go up and down, but what will stand the test of time will be Trump’s and Hovnanian’s hairdos.
Hovnanian and Al Sharpton account for 5% of the country’s hair gel consumption.
From MarketWatch:
White House opposes key parts of housing bill
Bush administration is speaking out against key provisions of a bill aimed at reforming the Federal Housing Administration as the House prepares to vote on the legislation.
Both the White House and Congress are attempting to fashion responses to problems in the hard-hit subprime-mortgage market. However, the administration is clashing with the Democratic Congress over loan limits, an affordable housing fund and other issues.
The White House is strongly opposed, for example, to a planned amendment by House Financial Services Committee Chairman Barney Frank, D-Mass. Last week, Frank said the amendment would raise the limit on the size of loans that could be insured by the agency, with a provision that would allow more growth based on market conditions.
Frank’s amendment would raise the limit to $500,000. The White House calls for raising it to $417,000 from $362,000.
In a policy statement released Monday, the White House said that the Frank proposal was a significant concern.
Hov’s fire sale will not be their last nor will it be the industry’s largest “Crazy Eddie” markdown. Going forward, what’s the chance of buyers signing on the dotted line without massive price reductions. The seeds have been planted. Once you introduce it, there’s no going back. Indigestion for existing home sellers?
#137 BC: maybe this will gove soem impetus to existing home ooners to have their own fire sales.
Instead of Crazy Eddie’s shouldn’t it have been called Greasy Ara’s?
http://bp2.blogger.com/_pMscxxELHEg/Ru65wPJ-giI/AAAAAAAAA5Q/R0eZSfCljrc/s1600-h/Household+Percent+Equity.jpg
Bank of America Expects `Meaningful Impact’ From Market Turmoil
By Steve Dickson
Sept. 17 (Bloomberg) — Bank of America Corp., the second- biggest U.S. bank, said “unprecedented dislocations” in the credit markets will have a “meaningful impact” on third-quarter investment-banking results.
The capital markets and advisory services business “is being adversely affected by all of these conditions,” mostly in trading, Joe Price, chief financial officer of the Charlotte, North Carolina-based bank, said at a company-sponsored investor conference today.
That percent of home equity is much better than I thought it would be. If interest rates tank, stocks tank and housing tanks in 2008 the best place to park your money in 2008 may be pre-paying your mortgage, maybe just what Big Ben wants.
#139 Hehehe
Its not grease, its sweat. Ara put his Rumson mansion on the market over the weekend. He knows how bad its going to be
Actually, I think he readying the ax, and doesn’t want to be in the area when the masses come to disembowel him……
Its not grease, its sweat. Ara put his Rumson mansion on the market over the weekend.
Details please? Is this the property on River?
jb
#137 BC Bob,
I think HOV know’s full well the implications of their fire sale. Unfortunately, they have no other option since sales have tanked to this level, along with their market cap.
Rich52 [146],
I agree. It’s all about survival.
#145
James Bednar Says:
September 17th, 2007 at 5:03 pm
Its not grease, its sweat. Ara put his Rumson mansion on the market over the weekend.
Details please? Is this the property on River?
jb
Not sure where it is, but the MLS # is 20738770
Let me know what you find…..
#79,
To hedge stagflation you want to buy real-estate, a lots of it. Forget bonds or stocks.
#148
http://homes.realtor.com/search/searchresults.aspx?mlslid=20738770&ml=3&typ=7
Yes, that is the property on River. Tax records show that the property was purchased 8/2005 for $6.75m (currently listed at $7.24m).
jb
So, how can he sit here and tell the public that ‘we are at the bottom’……..
From the WSJ:
E*Trade Warns of Mortgage Fallout
By SUSANNE CRAIG
September 17, 2007 5:15 p.m.
E*Trade Financial Corp., best known for providing cheap trades to individual investors, this afternoon warned investors that it has been badly stung by the recent fallout in the mortgage market.
The company says it expects profits to come in 31% below the most recent guidance it had given analysts — partly due to its exposure to the mortgage business.
The news, weeks ahead of its scheduled third-quarter earnings report, provided Wall Street with a glimpse of what may be in store tomorrow when the country’s biggest brokerages, beginning with Lehman Brothers Holdings Inc., start reporting third quarter earnings. After years of blowout profits, traders are bracing for a rough quarter as firms like Lehman grapple with the effects rising mortgage defaults have had on their business. Wall Street firms, including E*Trade, have many tentacles in this business.
For E*Trade, which is scheduled to release earnings in mid-October, the pain is significant. It warned it will earn approximately $1.10 a share this year, down about 31% from the $1.60 or so it was forecasting.
“We want to get this issue behind us and put the focus solely back on our core retail customer,” E*Trade Chief Executive Officer Mitch Caplan said in an interview. He stressed that despite the recent issues, the company does not have a liquidity problem and released detailed information about its current financial picture along with today’s announcement.
While most people associate E*Trade with online trading, the mortgage business was a big driver of E*Trade’s earnings growth over the past few years. E*Trade, a buyer of mortgages from third parties, plans to get out of that business altogether and has set aside $245 million, up from $70 million, to cover related losses over the next four quarters. This provision will cover both losses on mortgages the company has made and bought from third parties as well as home-equity lines, a trouble spot for E*Trade. The firm says that as of the end of August, 2% of its $17-billion mortgage portfolio was comprised of delinquent loans while 2.8% of its $12.6 billion home equity portfolio is at increased risk.
From Bloomberg:
NovaStar Can’t Pay Dividend, Forfeits REIT Status
NovaStar Financial Inc., the subprime home lender trying to survive by conserving cash, scrapped plans to pay a dividend on 2006 profit and will forfeit its real estate investment trust tax status as a result.
The mortgage company, one of more than 110 that have halted lending or left the business since the start of 2006, said in a statement that the loss of REIT status will have a “significant adverse impact” on third-quarter results. Kansas City, Missouri- based NovaStar is reviewing its listing requirements with the New York Stock Exchange.
“Clearly, we did not anticipate the drop in market value or the level of demands on liquidity caused by the market turmoil this summer,” said Chief Executive Officer Scott Hartman in the statement. “Canceling the previously planned dividend is the only reasonable and prudent course of action.”
From TheStreet.com
http://www.thestreet.com/pf/newsanalysis/homebuildersconstruction/10379940.html
As well, Hovnanian could now be facing a situation similar to the one at Apple (AAPL) , which faced buyer backlash after drastically cutting prices on its iPhone only two months after its launch.
Imagine having bought a home a month ago and now seeing these price cuts. …
“If a buyer is in their backlog currently, he is not going to be happy with this,” says one homebuilding analyst who follows the company.
Of course, if you listen to Ara Hovnanian, the company’s chief executive, the sales promotion exceeded expectations.
…”However, with all of the negative publicity about the housing market, many homebuyers were hesitant to buy because they worried that even lower prices might be offered later.”
This last sentence is particularly intriguing, since Hovnanian’s campaign may have just forced the entire country to the sidelines waiting for the next builder fire sale.
I would say generally its important to keep in mind not to underestimate (or fight) the Fed. Bernanke is known as Helicopter Ben since he has said he will drop dollars at the first sight of deflation…that means houses simply won’t go down in price..they will go up along with everything else
The Fed knows the only way to pay off these large loans is with cheaper dollars for everyone..i.e. massive inflation…he’ll think he can manage it…not sure if he can..but in any case you definitely want to own a house..or have your money in another substansial asset..i.e. gold, commodities etc…and definitely not in bonds or cash…
my humble opinion..
Hey Mr T, I don’t think anything is going up in price anymore, as, no one is willing to loan any serious money out anymore. Credit crisis means drop in asset prices, helicopter or no helicopter, that my read anyway.
New York Times to Suburban Parents: Good Call on Leaving the City
It’s too bad folks up in Westchester don’t receive the City Section because they would have been happy to read about the 11 uniquely messed up 17 year-olds raised in the city featured in this week’s section.
After reading about the music prodigy who uses the piano to entice “hot girls” and the Queens lesbian who was harassed by her classmates, the lack of culture in the suburbs finally seems worth it.
Even kids raised in stroller friendly neighborhoods don’t turn out so great. David Helene of Cobble Hill talked some smack about Park Slope.
I don’t go to Park Slope much. I have friends who live there, but I think the kids who go to Berkeley Carroll are kind of cocky. The partying is also way more intense there than over here. They drink a lot more than we do, and I’ve heard that the drug use may be a little more.
And that’s South Brooklyn. On the Upper East Side and in Sunday Styles, things are worse. Intrepid Times reporter Ruth La Ferla watched Gossip Girl with real Upper East Side private school girls. One girl said the show “is not just a fantasy.”
Maybe the fantasy is a well-adjusted kid raised in this city.
Essex Says:
September 17th, 2007 at 10:48 pm
Maybe the fantasy is a well-adjusted kid raised in this city.
E: FU