From Bloomberg:
Bernanke, Paulson Were Wrong: Subprime Contagion Is Spreading
Federal Reserve Chairman Ben S. Bernanke was wrong.
So were U.S. Treasury Secretary Henry Paulson and Merrill Lynch & Co. Chief Executive Officer Stanley O’Neal.
The subprime mortgage industry’s problems were contained, they all said. It turns out that the turmoil was contagious.
The $2 trillion market for mortgages not backed by government-sponsored agencies is at a standstill. That’s just the beginning. Other types of mortgages are suffering. So are firms and banks that package the debt for investors. The ripples were felt in Europe and Asia, where central banks offered cash to banks amid a credit crunch. And some corporations, from countertop makers to railroads, are blaming the mortgage meltdown and housing slump for earnings shortfalls.
…
“Housing created a lot of ancillary economic activity and jobs, and now we are in the reverse process,” says Paul Kasriel, chief economist at Northern Trust Corp. in Chicago and a former Fed economist.
…
The European Central Bank yesterday loaned 94.8 billion euros ($130.2 billion) to banks to alleviate a money shortage sparked by concerns over investments in U.S. mortgages.The unprecedented move followed the freezing of three funds managed by BNP Paribas, France’s largest bank, because the bank couldn’t calculate how much the funds’ holdings were worth due to a lack of buyers.
Today, the Bank of Japan made similar moves to supply cash.
…
“The subprime mess is now spreading to banks,” says Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts. “A lot of international banks, especially those in Europe, did invest a lot in the collateralized debt markets, especially the subprime situation here in the U.S., so they’re suffering.”Peter Lynch, chairman of private equity fund Prime Active Capital Plc in Dublin, said the ECB was “treating this like an emergency.”
Bernanke told Congress on March 28 that subprime defaults were “likely to be contained.” The Fed chief, who declined to comment for this story, changed his assessment last month.
…
Within the week, he was contradicted by a team of Bank of America analysts, who called losses in the mortgage market the “tip of the iceberg” and predicted “broader fallout” from adjustable-rate loans resetting at higher interest rates.David Olson, president of Wholesale Access Mortgage Research & Consulting Inc. in Columbia, Maryland, is blunt about his current outlook. He says a third of the U.S. home-loan industry will disappear.
…
.S. housing prices will fall this year, the first annual decline since the Great Depression of the 1930s, according to the National Association of Realtors, based in Chicago.The inventory of unsold U.S. homes in May was the largest since the realtors group started counting them in 1999. Defaults and foreclosures may increase because about $1 trillion of payments on adjustable-rate mortgages are scheduled to rise this year, hitting a peak in October, according to Credit Suisse.
Housing and related industries generate almost a quarter of U.S. gross domestic product, according to the Joint Center for Housing Studies at Harvard University in Cambridge, Massachusetts.
The mortgage fallout “ensures the economy will grow well below its potential through the remainder of the year and next,” says Mark Zandi, chief economist for Moody’s Economy.com in West Chester, Pennsylvania, who predicts GDP growth of 2.5 percent this quarter and next. Second-quarter growth was 3.4 percent.
…
As for the faulty initial predictions by Bernanke and others, go easy on them, says Josh Rosner, managing director at the New York investment research firm Graham Fisher & Co.“There’s no model for what’s happening now in the housing and mortgage industries,” Rosner says. “We have to give Bernanke a chance. He is a reasoned and traditional central banker. He knows how to manage crazies.”
From Bloomberg:
ECB Starts 3-Day Refinancing Tender to Provide Cash
The European Central Bank said it will launch a three-day quick tender today to add cash after concerns over U.S. subprime mortgage losses continued to roil credit markets and drove overnight interest rates higher.
“This liquidity-providing fine-tuning operation follows up on the operation conducted yesterday and aims to assure orderly conditions in the euro money market,” the Frankfurt-based ECB said in a statement. The minimum bid rate for the tender will be 4 percent, the ECB added. Bids for the liquidity-providing operation are due by 10:50 a.m. Frankfurt time.
The ECB’s announcement comes after the bank yesterday pumped 94.8 billion euros ($130.2 billion) in cash into markets. The overnight euro rate rose as high as 4.27 percent today, compared with the ECB’s benchmark refinancing rate of 4 percent.
“Today’s `normal’ tender will tell us a lot more via the total bid size and the rate about the genuine underlying liquidity need,” said Kevin Gaynor, head of economics and rates strategy at Royal Bank of Scotland Group Plc. “Funding from the ECB yesterday must have drawn firms into overbidding to access the cheap cash to lend on at even healthier-than-normal spreads.”
From the AP:
Japan injects 1 trillion yen into marke
Japan’s central bank injected 1 trillion yen ($8.4 billion) into money markets Friday amid a Tokyo stock plunge and growing global worries about dubious U.S. mortgages.
The Bank of Japan joined similar overnight moves by the U.S. and European counterparts—the first time the central banks took such action together since the Sept. 11, 2001, terrorist attacks. The Australian central bank also followed suit.
But Japanese Economy Minister Hiroko Ota tried to allay fears about a fallout on the Japanese financial system, calling the damage from U.S. subprime mortgages here “limited.”
“It’s hard to tell how the subprime issue will affect the Japanese economy right now,” she told reporters. “Its impact on the country’s real economy is limited, but I will closely monitor its effects.”
The Bank of Japan’s move, designed to curb an overnight jump in a key interest rate, came as the Nikkei 225 index plunged more than 2 percent in early trading, following a sharp decline on Wall Street overnight. The benchmark for the Tokyo Stock Exchange lost 2.4 percent, while the broader Topix dropped nearly 3 percent by the end of session.
The impact in Japan from the credit market problems in the U.S. was more widespread than initially thought, said Takahiro Tazaki, head of structured credit and securitization research, Japan, at Barclays Capital.
“This is a very serious problem,” he said, adding that the exact extent of the problem in Japan
EUROPEAN CENTRAL BANK ADDS 61 BILLION EUROS IN LIQUIDITY
ECB injects further 61 billion euros into jittery markets
LONDON (MarketWatch) — This time, however, it didn’t meet all the demands made of it. The ECB said it received 62 bids totalling just over 110 billion euros.
http://www.marketwatch.com/news/story/ecb-injects-further-61-billion/story.aspx?guid=%7B39FD3C25%2DD538%2D407E%2D9A8B%2DA1AA5E2658B5%7D&dist=hplatest
From the Wall Street Journal:
Impact of Mortgage Crisis Spreads
Dow Tumbles 2.8%
As Fallout Intensifies;
Moves by Central Banks
By GREGORY ZUCKERMAN, JAMES R. HAGERTY and DAVID GAUTHIER-VILLARS
August 10, 2007; Page A1
Fallout from the intensifying credit crisis stretched from a French bank to the largest home-mortgage lender in the U.S., triggering unusual central-bank interventions and driving the Dow Jones Industrial Average to its second-worst drop this year.
The troubles demonstrated both the global reach of the crisis and its impact on a widening circle of markets and companies. The first jolt came from French bank BNP Paribas, which said early in the day that it was freezing three investment funds once worth a combined $2.17 billion because of losses related to U.S. housing loans. That prompted the U.S. and European central banks to inject cash into money markets to keep interest rates down. (See related article.)
The unease accelerated in the U.S. with news that several hedge funds were in the red and selling off assets. Apartment and condominium builder Tarragon Corp. raised doubts about its ability to remain in business amid weak demand and an inability to raise new financing. After markets closed, mortgage-lender Countrywide Financial Corp. said “unprecedented disruptions” in credit markets could affect its financial condition.
…
After the close of trading, Renaissance Technologies Corp., a hedge-fund company with one of the best records in recent years, told investors that a key fund has lost 8.7% so far in August and is down 7.4% in 2007. Another big fund company, Highbridge Capital Management, told investors its Highbridge Statistical Opportunities Fund was down 18% as of the 8th of the month, and was down 16% for the year. The $1.8 billion publicly traded Highbridge Statistical Market Neutral Fund was down 5.2% for the month as of Wednesday.
Meanwhile, Countrywide, of Calabasas, Calif., said in a Securities and Exchange Commission filing that it was shoring up its finances and had “adequate funding liquidity.” (SEC filing) But the company, the nation’s largest home-mortgage lender in terms of volume, warned that “the situation is rapidly evolving and the impact on the company is unknown.” Reduced demand from investors is prompting Countrywide to retain more of its loans rather than selling them.
…
What started late last year as worry over a sharp rise in defaults on subprime mortgages has mushroomed into a crisis for the entire home-loan industry and investors world-wide. By March, late payments were reaching worrisome levels on Alt-A mortgages, a category between prime and subprime that includes many loans for which borrowers “state” rather than verify their incomes. Most prime loans continue to perform well, but Countrywide has reported a rapid rise in delinquent payments on certain prime home-equity loans that were used by people stretching themselves to buy homes with little or no money down.
Payments were at least 30 days late on about 20% of “nonprime” mortgages serviced by Countrywide as of June 30, up from 14% a year earlier, the company said. Nonprime includes loans to people with weak credit records and high debt in relation to their income, as well as to people who don’t document their income or assets. On prime home-equity loans, the delinquency rate was 3.7%, up from 1.5% a year before. For all loans, the rate was 5%, up from 3.9%.
In a sign of the growing difficulty in selling loans, Countrywide said that it transferred $1 billion of nonprime mortgages from its “held for sale” category to “held for investment” in the first half — meaning they will stay on the books instead of being sold. Countrywide marked the value of those loans down to $800 million. Despite its current woes, the company argues that it is well-placed to gain market share from weaker rivals.
Rattled by a constant stream of bad news, investors in recent days have been shunning nearly all mortgages except for those that can be sold to Fannie Mae and Freddie Mac, the government-sponsored investors that guarantee payments on loans that “conform” to their standards. That has prompted lenders to boost rates on prime “jumbo” loans — those totaling $417,000 or more, too big to be guaranteed by Fannie or Freddie — to as much as 7.25% or 8%. Usually, such loans cost only about a quarter percentage point more than “conforming” mortgages, but the gap has ballooned to as much as 0.8 point during the past week.
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From the Wall Street Journal:
A New World Disorder for Debt Traders
System of Risk Dispersal
Proves to Be a Bit Erratic
By JOANNA SLATER and CRAIG KARMIN
August 10, 2007; Page C1
Welcome to the new world of finance.
As tremors from the U.S. subprime-mortgage meltdown shake markets around the globe, investors are getting a lesson in how unexpected stresses could emerge in a global financial system that has changed significantly in the past few years.
Markets have taken on an increasingly important role since the financial crises of the 1980s and ’90s. When banks make loans, they are now often bundled into securities that are sold in pieces to investors around the world, changing hands many times. It spreads risk, which policy makers believe keeps the overall financial system sound and stable.
But the downsides to this system could be serious. A financial architecture that dispersed risk also helped to create it. And when troubles emerge — as they have in the U.S. housing market — they can show up just about any place in the world and in ways nobody predicted.
Those troubles continued yesterday as rattled investors shied away from U.S. corporate debt, with some traders saying they had difficulty finding buyers. Both investment-grade and so-called junk bonds suffered: The spread between the returns on both types of bonds and that of U.S. Treasurys widened.
In the past few weeks, shaky mortgage loans to Americans have emerged in the portfolios of hedge funds, banks and investment vehicles in Australia, Germany, France, Singapore, Korea, China and elsewhere. Investors are also discovering that subprime loans were used as collateral for some short-term commercial loans that are part of a $2 trillion market that banks and investors turn to regularly for quick doses of cash when they need it.
The European Central Bank and Federal Reserve pumped liquidity into the system yesterday to hold down their target short-term interest rates, which had been disrupted by turmoil in the commercial-paper market.
Until a few weeks ago, many central bankers expressed confidence that subprime problems were contained.
“The downside of spreading the risk is that when the problems get big enough, it affects all markets regardless of the fundamentals,” says Christopher Mayer, a real-estate expert and professor at Columbia University.
Back in the 1980s and ’90s, when financial stress turned up in places like Mexico, Thailand or the U.S., the problems often resided close to home in banks. Now banks often sell their loans after making them. They end up in investments such as collateralized debt obligations or residential mortgage-backed securities and sold to investors around the world. In the process, it might have made investors and lenders complacent about monitoring borrowers to make sure they could pay off their loans or were using borrowed money wisely.
“We’ve created these new instruments, and people with a wink and a nod claimed that these were just as safe as traditional safe assets,” says Christian Stracke, a bond analyst at research firm CreditSights.
Mr. Stracke points to the commercial paper issued by IKB Deutsche Industriebank AG, which German bank officials had to bail out after its investment arm’s holdings went bad. Commercial paper is normally considered a very safe investment, but in this case the bank used the paper to buy a host of credit instruments, including some backed by dicey subprime mortgages.
Another problem: The same framework that disperses risk to different corners of the globe can also spread fear in times of uncertainty.
“Credit went belly up, so people got nervous,” says Tim Krochuk, managing director of GRT Capital Partners, a Boston investment manager. As a result, investors began looking to pull money out of hedge funds with exposure to the sector. They pulled their money out of other places, too. “Because some of the exotic securities aren’t really tradable now, people are getting liquidity by going to other markets” to sell assets and raise cash, he says.
Census: Bergen, Passaic trail N.J.
From MarketWatch:
CENTRAL BANK ACTIONS
Bank Injection
ECB $131 billion (Aug. 9)
Federal Reserve $12 billion (Aug. 9)
Bank of Canada $1.1 billion (Aug. 9)
Japan $8.5 billion (Aug. 10)
Australia $4.2 billion (Aug. 10)
ECB $84 billion (Aug. 10)
Total $240.8 billion
Hard times for agents
Real estate agents advised to go back to sales basics
By KATHLEEN LYNN
McCLATCHY NEWS SERVICE
HACKENSACK, N.J. – Anyone who got into real estate thinking it was easy money certainly knows better by now.
After boom times in the early part of the decade, the housing market has slowed dramatically in the past couple of years. And real estate agents must learn how to deal with it.
BW Article,
Is Your Mortgage in Trouble?
Your lender may have disappeared but (sorry) your mortgage isn’t going to. Here’s what does happen—and why you should worry
how will adding more liquidity to the markets help? isn’t this more debt to be paid back? more leveraging?
this is what caused the trouble so how can it help other then a temp. fix?
From the WSJ:
Seeking Hidden Losses,
Regulators Comb Books
Of Wall Street Titans
By RANDALL SMITH and SERENA NG
August 10, 2007; Page C1
Securities regulators are checking the books at top Wall Street brokerage firms and banks to make sure they aren’t hiding losses in the subprime-mortgage meltdown, said people familiar with the inquiry.
The SEC is looking into whether Wall Street brokers are using consistent methods to calculate the value of subprime-mortgage assets in their own inventory, as well as assets held for customers such as hedge funds, the same people said. The concern: that the firms may not be marking down their inventory as aggressively as assets held by clients.
While the issue is a technical one, and such checks occur routinely, it is sensitive for the markets. That is because, at least through their latest earnings reports, few big Wall Street firms have reported big subprime losses despite the turmoil roiling the markets.
The SEC checks are expected to include the top five Wall Street firms and the securities units of major commercial banks. Among the first firms to be looked at are Goldman Sachs Group Inc. and Merrill Lynch & Co., according to people familiar with the inquiry.
Some analysts and investors have raised questions about whether firms have experienced as-yet-unreported losses in markets such as subprime mortgages and collateralized-debt obligations. The checks may also yield information about whether the hedge funds themselves have reported their results accurately to investors, according to one person knowledgeable about them.
Cross-checking to see whether the firms use the same methods to mark their own positions as they do to mark those of their customers could increase the accuracy and clarity of how the firms report their earnings to investors. Some firms “don’t come clean” about such losses in earnings reports, said analyst David Trone of Fox-Pitt, Kelton. “You don’t know when people take losses; it’s buried.”
Marking subprime assets to market is controversial because unlike stocks or bonds listed on an exchange, they can’t be readily bought or sold. That makes it hard to establish an accurate price for them. Fund managers have broad discretion in attaching a value to these assets, and often don’t reveal many details of their trades.
“No one really knows how to price asset-backed securities and CDOs and that’s a real problem in the market now,” says Ann Rutledge, principal of R&R Consulting, a structured finance consultancy in New York.
6- Grim- Is that why the troll wasn’t on last night?
Seemed like a good premier on MBS.
Make More with Mortgage-backed Securities
From Bloomberg:
Overnight Dollar Libor Gains to Highest Since 2001
The British Bankers Association said the overnight lending rate banks charge each other for dollars rose to 5.96 percent, the highest since January 2001.
The so-called London interbank offered rate climbed from 5.86 percent yesterday as losses related to U.S. subprime mortgages roiled credit markets. The European Central Bank loaned 61.05 billion euros ($83.6 billion) to banks today after yesterday injecting 94.8 billion euros, the most ever.
“The market is starting to get dysfunctional,” said Andrew Bosomworth, executive vice president of portfolio management at Pacific Investment Management Co. “There’s talk of more banks under pressure.”
Three-month dollar Libor rose to 5.58 percent from 5.5 percent, the BBA said. The ECB said today it would continue to “closely monitor” the conditions on the euro money market in response to a sudden demand for cash.
“This liquidity-providing fine-tuning operation follows up on the operation conducted yesterday and aims to assure orderly conditions in the euro money market,” the Frankfurt-based ECB said in a statement.
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The Management
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Norwegian central bank injects extra liquidity into banking system
http://www.forbes.com/business/feeds/afx/2007/08/10/afx4007380.html
“OSLO (Thomson Financial) – Norway’s central bank said on Friday said it had injected extra funds into the banking system to ensure sufficient liquidity and that it could not rule out doing it again.
‘Yesterday we had a regular F-loan auction (central bank paper loan to commercial banks) and the supply was 45 bln nkr,’ said Norges Bank chief of monetary policy, Jan Qvigstad.
‘This is about 15-25 bln nkr more than normal and was to ensure there is ample liquidity in the system,’ he told Thomson Financial News.”
“After boom times in the early part of the decade, the housing market has slowed dramatically in the past couple of years. And real estate agents must learn how to deal with it.”
Right, which is why I don’t feel sorry for them because they had 5 + years of record profits. What was sales data like before the “boom”? I would think it is as it is now, no?
UPDATE: Countrywide: “unprecedented” poor conditions in the secondary-mortgage market are causing it to retain a greater proportion of mortgage loans than it sells.
http://money.cnn.com/news/newsfeeds/articles/djf500/200708100004DOWJONESDJONLINE000009_FORTUNE5.htm
I understand that builders (hov,tol,etc)
are a little better at giving discounts
and incentives, at this point in the
cycle.
Of course please do not insult the
Realtor with a low ball offer.
and always remember “The Titanic Had A Band”
“There’s no model for what’s happening now in the housing and mortgage industries,”
Let’s not make this too complicated. Why not?
James Bednar Says:
August 9th, 2007 at 3:15 pm
Richard,
Seems to me that you might be confusing little Timmy falling off his BMX bike and skinning his knee for “blood in the streets”.
What a coincedence, the same thing happened to Hans, Pierre, Sven, Ian, Raj, and Suki – all at the same time
I checked out the ecostar website (slate roof discussion from yesterday) Very real looking. Too bad I have a new roof.
thatBIGwindow Says:
I checked out the ecostar website (slate roof discussion from yesterday) Very real looking. Too bad I have a new roof.
How much does this cost vs. plain asphalt shingles? I love slate roofs but wouldn’t touch a real one.
and always remember “The Titanic Had A Band”
pesche,
I heard the Boss was playing;
After he finished Badlands, “Poor men wanna be rich, rich men wanna be kings,
And a king aint satisfied till he rules everything.”, Then;
http://www.youtube.com/watch?v=xyscCIzK3zo&mode=related&search=
From MarketWatch:
Fed fund futures point to emergency Fed rate cut
Fed fund future prices suggest the U.S. Federal Reserve will be forced to do an emergency inter-meeting rate cut within the next week, Merrill Lynch analyst Joseph B. Shatz said in a note to clients late Thursday. Fed Funds futures appear to be pricing in a substantial risk that the Fed may make the move after a series of recent events, including a move by the European Central Bank to inject $130 billion into banks. On Friday, the European Central Bank injected 61 billion euros ($84 billion) in a tender auction.
To me its all very simple. Housing was bumming with unrealistic 15%-30% annual growth in home prices’s for almost 10 years. So, all the flippers, agents , builders, mortgage co., estimators and “profit takers” had a great run up.
Now is time to give some back. Reduce prices of homes to more acceptable levels (25-40%) and we be happy campers again.
From MarketWatch:
Countrywide tumbles as mortgage market seizing
Shares of Countrywide Financial Corp., the largest U.S. home lender, fell more than 15% in pre-market trading on Friday after it said problems in the U.S. mortgage market poses a serious threat to its earnings and financial condition.
The company, which makes money providing mortgages and then reselling them to investors, said the markets’ reluctance to buy mortgages right now is causing it to retain a greater proportion of mortgage loans than it sells.
…
Countrywide shares fell $5.11, or 17.8%, to $23.55 in pre-open trading Friday.
From Bloomberg:
Fed Funds Begin Trade at 6%; Highest Open Since 2001
Federal funds began trading at 6 percent, the highest opening rate since January 2001, as demand for cash increased amid concern that losses in U.S. subprime mortgage debt will trigger a global credit crunch.
Fed funds traded above the central bank’s 5.25 percent target for a second straight day. The Fed’s benchmark was 6 percent the last time fed funds opened at this level. Stocks dropped worldwide today on speculation the losses in mortgage investments will hurt economic growth and earnings.
“The fact that the fed fund rate opened at 6 percent is a signal that markets are very nervous,” said Ken Kim, an economist at Stone & McCarthy Research Associates in Skillman, New Jersey. “It means that the banks are asking for a premium for the excess funds they are willing to lend. The Fed will continue to pump in reserves to try and get the funds rate down.”
From MarketWatch:
HomeBanc Mortgage corp files Ch 11 bankruptcy in Delaware
HomeBanc Corp. Thursday filed for Chapter 11 bankruptcy in Delaware, listing assets of $5.1 billion and debts of $4.9 billion.
The Atlanta-based company, which earlier announced it would sell some retail mortgage operations to Countrywide Financial Corp. , joins a parade of failed lenders caught in a market stuffed with sellers of mortgage paper.
The list of big creditors likely to be hit in HomeBanc’s collapse includes JP Morgan Chase Bank, KeyBank, Commerzbank Aktiengesellschaft New York (CRZBY), US Bank NA, BNP Paribas , DB Structured Products Inc. Fortis Capital Corp., Bank Hapoalim , Fannie Mae and Freddie Mac, court documents say.
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I object, I have multiple personalities. I can not control them all.
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From MarketWatch:
US Rep Baker cautions against raising GSE portfolio limits
U.S. Rep. Richard Baker, R-La., said Thursday that the federal agency controlling the size of mortgage portfolios at Fannie Mae and Freddie Mac should be cautious before raising the caps on the portfolios because of the amount of potential risk both companies could face.
Baker is a senior member of the House Financial Services Committee and was one of the first lawmakers to call for tighter oversight of the housing government-sponsored enterprises.
Both companies are emerging from sizable accounting scandals, and neither have returned to timely filing of financial statements.
Because of the accounting problems, Fannie Mae isn’t allowed to grow its portfolio above $727 billion, and Freddie Mac has a limit on the amount its portfolio can grow each year. But problems in the subprime mortgage market, followed by a credit crunch, recently led Fannie Mae to request that it be allowed to increase by 10% the cap on its portfolio, an idea embraced by some prominent Democrats.
Baker said such a scenario could be dangerous.
“We have to weigh whatever marginal liquidity they would add to the market against this greater concentration of credit risk – in other words, is it worth increasing the potential risk to the American taxpayer, and will it even be helpful?” Baker said.
Why the uproar? Remember, there is no RE bubble. The sidelines are full of pent up demand.
Hedge fund implosion? I don’t believe it. After all the derivatives market has blown out from approx $1 trillion, notional, to over $30 trillion, notional, in the past 5 years. That’s approx 3X GDP. Remember, this is a good thing. It helps disperse risk and everybody is hedged. What the hell is all this noise? I’m getting a damn headache and it’s not even 8:30.
“It means that the banks are asking for a premium for the excess funds they are willing to lend.
[30],
HMMMNNN? Banks asking for a premium for overnight loans? Banks are not confident in their counter party risk? Well, overnight loans are bank to bank. Anybody else scratching their head?
From the Washington Post:
Low-Risk Borrowers Now Feel Crunch
Nicholas Schor and Liza Losada-Schor were ready and willing to spend up to $850,000 on a house in Maryland. That was a month ago, when the rate on their mortgage would have been as low as 6.25 percent.
But a sudden shift in the mortgage market means that the couple — he’s a psychiatrist, she’s a clinical nurse psychotherapist — now face a rate of more than 7 percent, reducing their buying power even though they have solid credit. That’s because in the past few days, rates on loans for more than $417,000, known as jumbo loans, have shot up.
“I’m sort of surprised that even though we have excellent credit and excellent income and are putting down a 20 percent contribution that the banks aren’t able to offer better rates for folks who seem to be a more reliable investment,” Schor said.
…
As of yesterday, lenders were charging an average of 7.34 percent for prime, 30-year, fixed-rate jumbo loans, according to financial publisher HSH Associates. That was up from an average of 7.09 percent last week.
It was also 0.75 percentage points more than the 6.59 percent they were charging for conforming loans. In mid-July, the difference between the two types of loans was 0.20 percentage points .
“A sizable disparity in prices has shown up in the last couple of days,” said Keith Gumbinger, vice president of HSH.
The leap in rates comes even as 10-year Treasury bond yields have been falling. Typically, mortgage rates follow the Treasury.
But experts say investors are now shying away from mortgages that are not backed by Fannie Mae or Freddie Mac. Those include jumbo loans as well as others in which the terms or borrowers’ credit histories don’t meet the rules of those government-sponsored enterprises.
“The reason, plain and simple, is concern about the subprime problems has spilled over into non-agency backed securities,” said Guy Cecala, publisher of Inside Mortgage Finance Publications.
Much of this problem could have been avoided if our political leaders and memebers of the Fed had just been honest with the public all along and admitted that there were economic problems.
If they had said look we made a mistake and let housing prices inflate way to far they could have come up with some programs to help the situation out.
Now we are in crisis mode and the people who had no idea that there was a problem are going to throw money at the bankers who caused the problem to solve the problem.
That is great solution.
The Government needs to help the people who are homeowners by helping them make debt payments.
Helping the bankers so they can continue to make money is not going to solve this problem.
Cut rates? Sure, they can cut rates, but would the damage to the dollar and skyrocketting inflation be a worthwhile tradeoff?
From MarketWatch:
U.S. July import prices rise 1.5%, biggest since March
U.S. import prices rose 1.5% in July, the sixth straight monthly increase and the biggest gain since March, the Labor Department said Friday. Economists were expecting import prices to rise 1.1%. Imported petroleum prices rose 7.0% in July, also the largest gain since March. Imported natural gas prices fell 7.6%, the largest drop since January. Prices of imported foods rose 1.6% and are up 9.8% year-on-year, the largest yearly increase since May 1995. Prices of imports excluding petroleum rose 0.2%. Import prices excluding all fuels rose 0.3% and are up 2.2% in the past 12 months. Meanwhile, prices of U.S. exports rose 0.2%.
The Government needs to help the people who are homeowners by helping them make debt payments.
What? With my tax dollars? You’ve got to be joking. Why should I be the lender of last resort for these reckless risk-takers? Nobody bails me out when my investments flop.
Privatize gains, socialize losses!
jb
With LIBOR rates going up, can we expect better Money Market returns?
The Government can’t even help itself.
with cfc down 16% and oil going under $70, my prediction at the end of last month hit 3 over 3:
1) long homebuilders short lenders;
2) long gold short oil betting oil down to $40+;
3) long PPH betting 90% of bloggers here need medication for depression next year.
Here i reiterate my other 3:
1) RE will be up 10% in certain NJ towns;
2) 10 year yield will be under 4.5% by year end and under 3% winter next year.
3) Dow goes 13K south before 14K north
U.S. July import prices rise 1.5%, biggest since March
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B099CE0D2%2DA5EE%2D401B%2DA287%2DF7AB36D62357%7D&siteid=mktw
“Privatize gains, socialize losses!”
I am not proposing socializing losses I am trying to come up with ideas that mighthelp to stabilize property values for all.
Proposal
1. Tax credit for anyone who purchased or refinanced a home a home between 2004 and March of 2007. The credit would be based on the purchase price of the home and be more heavily weighted towards lower priced homes.
2. A tax credit to lenders in exchange for an 1 year freeze on adjustable rate loan increases. The credit would be based on a percentage of funds lost due to payments not adjusting
3. An immediate ban on mortgage pre payment penalties retroactive to 2004
4. A tax credit for anyone who buys a home in the next 18 months. Again this would be based on the purchase price of the home weighted towards lower priced homes
5. Tax credit to Freddie and Fannie for any refinances they complete of mortgage that were originate for loans made between 2003 and March 2007. An additional credit could be made for refinancing a delinquent mortgage.
Possible Funding Sources.
1. Excess profit taxes on companies who have benefited on the war in Iraq ( Defense contractors such as Halliburton)
2. Partial withdraw of forces from Iraq with funds earmark for Iraq sent to fund this program.
3. Excess profit tax on private equity Funds such as Blackstone taxing at normal corporate tax rates.
4.Taxes on Wall street firms who originated MBS pools.
5. Excess profit tax on oil companies.
6. Make Saudi Arabia pay for the defense that our military provides.
7. Temporary Federal Tax on all MBS pool related trades including CDO’s and ABX’S
States could also get into this by providing subsidies at local levels by declaring temporary tax credits to people hurt by the events here.
These proposals clearly would not solve all problems but it would perhaps help to put a floor on the problems facing the credit markets and also help the consumers that have been directly hurt by this crisis.
It would be nice to see our potential leaders and current legislators address or at least try to help people who have been hurt financially by this crisis.
>>Hedge fund implosion? I don’t believe it. After all the derivatives market has blown out from approx $1 trillion, notional, to over $30 trillion, notional, in the past 5 years. That’s approx 3X GDP
true. what’s different this time around is the issues aren’t with specific entities but with the entire system. the best case outcome is we have a couple of events and the markets calm down. the next best outcome is there’s a massive repricing of securities (which i fully believe needs to happen due to people’s disregard for risk) and we establish a new baseline. this is the 2nd down day in a row and more hats are being thrown into the mix. we’ll have to see how far down the rabbit hole we go.
Real Estate and West Nile
Boooooooooyaaaaaaaaa
http://www.bloomberg.com/apps/news?pid=20601103&sid=ay5phLgwezYw&refer=us
>>That’s because in the past few days, rates on loans for more than $417,000, known as jumbo loans, have shot up.
yep while conventional rates are down with bonds. strange times.
Fed adds $19b in temporary reserves.
jb
2) 10 year yield will be under 4.5% by year end and under 3% winter next year.
bi,
You are the bearest of bears. If this occured, it would be the result of a major crisis. Be careful what you wish for.
How can you not love this?
Fed Adds $19 Billion to Banking System
The Fed added a total of $68.5 billion to its reserves this week, compared with a total of $50.25 billion last week.
The Fed said all of the collateral accepted in the 3-day repo on Friday was mortgage-backed debt. The repurchase was the largest 3-day operation in at least a year.
#37 Mtg Obs “The Government needs to help the people who are homeowners by helping them make debt payments.”
No bail outs for home owners. Even Busg acknowledged it the other day, wehn he said, and I quote, they just did not read the fine print.
“the situation is rapidly evolving and the impact on the company is unknown.”
oofa.
#38,#39 Amen to that, James. Cutting rates will just prolong the inevitable and hit everyone in the pocketbook immediately. Am I the only one who sees inflation everywhere I look? Let the markets take care of themselves – everything reverts to the mean. It will be short-term ugly, but we’ll get thru the swamp a lot quicker without government meddling.
JB [50],
No surprise. Bailout.
49#, for ordinally people, there are 5 classes of assets to invest: CD, Stocks, Bonds, RE, and small business. with lower yield in CD and bond and volatility in stocks, the money will flow to RE and small business. i expect small business boom in next 5 years: doctors selling cosmetics, fired BSD traders open swing clubs, BC bob importing fake viagra from china…
#47 Richard Conventional, with of course a down payment. The down payment is key. Everything old is new again.
BC,
Who do you think priced those assets so that they could be used as collateral?
jb
Yes, of course, bail out the effing bunch that pilfered in the first place. And I think record bonuses should be distributed to Goldman Sachs’ management for engineering this “save”.
JB [55},
The fed’s quant.
49#, with inflation rate less than 3%. there is no point to keep fed funding rae at 5.25%. it does not make sense
#58 bi; You are rambling and incoherent again. So lets just cut the FF’s rate back to 1% again, which started the mess in the first place.
JB [55]
Sounds like somebody is getting a cash infusion to reduce their asset to capital ratios. Hell even utilize it for a stock buy back. Maybe even turn the quants model inside out and now employ the proper risk/hedge strategy.
it does not make sense
Actually, it is your statement that doesn’t make sense.
Are you sure you understand how these variables play into the entire macroeconomic picture? It boggles my mind how you could possibly make such a statement without also addressing, at the absolute minimum, both growth and productivity. Even then, the picture would be a naive simplification of the factors involved. We’d need to also add pricing pressures, inflation expectations, commodity and energy demand, inventory levels, trade balances, government debt, geopolitical issues, etc.
jb
bi [58],
You should work at the bls.
Fed Adds $19 Billion by Buying Mortgage-Backed Debt
Aug. 10 (Bloomberg) — The Federal Reserve added $19 billion in temporary funds to the banking system through the purchase of mortgage-backed securities to help meet demand for cash amid a rout in bonds backed by home loans to riskier borrowers.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aWvmnW7kB4rM&refer=home
>>The fed’s quant.
don’t forget all the other quants with vested interest in certain outcomes on pricing. all this @#$% is mark to model.
Well I’ve been periodically taking my money out of stocks over the past two weeks. This is getting way too crazy. What the f are they flooding the market for liquidity for when the indices are still up for the year. Isn’t this an overreaction by these central banks? Hi cash say hello to inflation protected bonds.
>>Fed Adds $19 Billion to Banking System
not sure how liquidity helps when you need someone to borrow it and who wants to do that in such turbulent times plus it’s a repo so in a couple of days we’re back to square one.
http://www.federalreserve.gov/boarddocs/press/monetary/2007/20070810/default.htm
RentinginNJ Says: -(66)
August 10th, 2007 at 9:17 am
Fed Adds $19 Billion by Buying Mortgage-Backed Debt
Let’s see how Gold does, I think they may dump some gold reserves to keep it in check.
“don’t forget all the other quants with vested interest in certain outcomes on pricing. all this @#$% is mark to model.”
Richard,
Thanks. I have been saying this for the past year. Nobody was listening then.
“RentinginNJ Says: -(66)
August 10th, 2007 at 9:17 am
Fed Adds $19 Billion by Buying Mortgage-Backed Debt
Let’s see how Gold does, I think they may dump some gold reserves to keep it in check.”
Does the Fed even still have Gold?
64#, adding the parameters you mentioned will only enhance my arguments: inflation pressure is only parameter for setting higher rate for fed now.
sap [71],
You have the central banks of the world and the ppt pegged to a T.
[45] How do you justify all of your proposed measures? Under the “Do over!” clause of the Constitution?
Bush and the Fed are having none of that. It’s going to be a clean sweep this time. An old friend of mine is a risk analyst at a major bank/mortgage lender. He tells me there are tumbleweeds blowing around under the mortgage trading desk, and the traders say that the big investors are planning to sit out at least six weeks while they review the risk in the various products. So the best case might be five more weeks of no credit for other-than-prime borrowers.
But experts say investors are now shying away from mortgages that are not backed by Fannie Mae or Freddie Mac.
I don’t know why above is true. Don’t Fannie & Freddie also sell ARM loans? I believe they also has Subprime borrowers?
Also Jumbo loan is based on dollar amount (more than $417K), which may be actually be enough to buy Mansion in Ohio, Indiana, Michigan etc… You could still have subprime borrower from these states, over pay for a house, took ARM or IO loan that resets higher and face foreclosure. So as it does not mean that all Jumbo are risking, it also does not mean that all non-Jumbo are less risky.
>>Am I the only one who sees inflation everywhere I look?
there are deflationary forces all around us. if a credit crunch becomes more widespread look out.
wonder where the next growth engine of the economy is going to come from. the stock market fueled the last 2 decades and housing the last 5-7 years. business spending can’t possibly pick up all the slack. the american consumer has been spending more than he’s made for a long time now. at some point it’s got to tip. it’s been what 25 years and it hasn’t yet but you have to wonder is the consumer finally running out of chips?
I don’t know why above is true. Don’t Fannie & Freddie also sell ARM loans? I believe they also has Subprime borrowers?
Fannie and Freddie are government sponsored enterprises. Investor’s believe that the govt. would them bail out and would not allow them to default.
BC Bob, take a look at gold… Was going up then …. suspended in midrise. We are going to have a heck of a day in the market. Let’s see if the short sellers can cope with the Fed’s intentions.
It will be interesting if Bush and co will let GS and the rest of the finance industry hang on this one like they did with Enron etc or if they are going to step in at some point. Having Paulson where he is does not appear too promising.
And what happens when the first wave of these resets occur in October/November?
Ben, Paulson they never doing the right thing–just lip service. They have no choice.
Mortgage Observer [45] must have awoke this morning and thought he was posting at Daily Kos or the Huffington Post. What a list of ignorant tripe. I especially like that this proposal of good will is meant to “stabilize property values for all.”
And what the hell is an excess profit tax? Really, where do these people come from?
Eff GS and the rest of them. If you drink too much, you’re going to get a hangover.
Richard, I have been thinking the same way.FED Should rates in my book .:)
“suspended in midrise.”
sap,
Until…..
from article…
`Use a Credit Card’
For one self-employed borrower in Pennsylvania, with a 626 credit score, just above what’s considered subprime, Hebert says he contacted three lenders. Last year, the borrower would have qualified for a 7.99 percent loan, Hebert says. This week, he received one offer for a 10.5 percent loan with a three-year prepayment penalty, meaning that if the borrower refinanced during that time he would be required to make six months of payments to the original lender.
“It would have been cheaper to use a credit card to pay for his house,” Hebert says.
When it came time to lock in the rate, the lender pulled out, Hebert says.
“It was a hard thing to do, an emotional thing, to tell my borrower he was turned down for a rate that was high to begin with,” he says.
bc bob,
how about ur quant models?
“Nothing seems to be working,” Liodakis wrote. “Previously uncorrelated factors have recently been falling with the same pace, leaving investors with very few places to hide.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=a3xa5ABlNlbA&refer=home
RentinginNJ: Fannie and Freddie are government sponsored enterprises. Investor’s believe that the govt. would them bail out and would not allow them to default.
I meant the investors who are buying MBS’s from these 2 GSE’s. My understanding is once the investor (Hedge guys, pension funds, banks etc…) buys MBS from Fannie or Freddie, the risk is now transferred to them, right? That is if there is foreclosure, the risk is to buyer of MBS security. So if GSE’s are also doing sub-prime and ARM, they could default as well, and hence investor buying those MBS should be worried as well.
The only thing I think that may be different is, If MBS buyer thinks GSE’s are better at checking loans before securitizing it, compared to their private brethern.
I am not an expert, but just trying to understand the observation that why GSE’s are now considered safer for Investors.
Uggh Dow down 130 already on high volume. All the summers gains are just about wiped out. Could August 10th be another black Friday?
BC Bob, wow…look at Gold go!
SG,
One additional mode that you may have missed.
Freddie and Fannie can issue bonds, backed by the faith and credit of each agency. They use the proceeds from those issuances to purchase mortgage debt, which is then retained in their own portfolios. The risk associated with these loans is retained by the GSEs.
jb
Gary – at this rate forget OCT/NOV. what happens when all the rates start to reset over the next year and half!
its going to be a bloodbath!
this is what happens when you assume risk! thats why they call it risky!
From Reuters:
Benchmark ABX subprime indexes fall 1 to 3 points
Benchmark ABX subprime mortgage indexes, linked to loans made to risky borrowers last year, fell one to three points at Friday’s open with higher-tier indexes leading the way down, traders said.
The ABX 07-1 “AAA” and “AA” indexes traded down 2-1/2 points to 87.50 and 68.50, respectively, while the “A” index fell by three points to 46.50, traders said.
The bottom-tier ABX 07-1 “BBB-” index was down one point to trade at 35.50, traders said. The index has fallen over 60 percent this year as the subprime mortgage crisis intensified.
[91]
Buy fear, sell greed? Of course avoid anything with mortgage exposure like the plague. It seems a nice buying opp for global technology, materials, industrial, and health care companies.
So far I was kind of comparing current RE bubble to the last one in 88. But now I think we are in different era all together.
In late 80’s (84-88), Interest rate remained low compared to early 80’s, that I believe was one of the main factor in RE boom. When the bust finally happened (89-93) , the rates were actually falling and still could not prevent RE from going down.
Compare that to current scenario. During the boom the rates went down from 8% to 5% and stayed low for long time. This part is similar to late 80’s, giving rise the RE Boom. But now in the bust cycle (06 onward), the rates are creeping up as well (6% to 7% now). In early 90’s, even lowering rates did not help bust, I think we are in even more shock this time as rates are rising higher.
Remember for same mortgage payment, if rates goes up by 1%, the amount of loan you can take goes down by whopping 10%. Just by that simple math, since the rate has gone up at least 1% for jumbo loan, the price should comedown 10% to keep same mortgage payment. I think this Jumbo loan percentage increasing by 1% will basically kill market for any house that is listed above 500K in NNJ & CNJ.
I need a Roubini fix. Where is he?
SG,
were the same products around in the late 80s as this recent boom? Meaning, were people buying houses with less than 20% down? my recollection was that in the 80s the 20% down still ruled. If so, with the mortgage companies now taking the 0% down product off the shelf it’s going to compound the problem even further.
He was on CNBC last night.
And the smiles on everyone’s faces… were nonexistent.
bi Says:
August 10th, 2007 at 9:57 am
bc bob,
how about ur quant models?
bi,
I’ve been stating what my quant model has said for the past year. No need to bore the regulars with details. Go back into the archives.
One note of caution, my model did not employ monte carlo simulations, trend nor pattern analysis. That was left for the phd’s from mit. My model was based on pure fundamentals and psychology; greed/fear.
Perhaps we need a Houdini fix instead :)
>>deflationary forces all around us
Now that’s a scary statement but you may be right, Richard. Maybe the inflation I see is just a short-term blip before deflation kicks in. Home prices dropping, credit crunch worsens, no market for some products, consumer finally realizes he’s tapped out…
Yes, deflation is a much scarier prospect than inflation. Tumbleweeds blowing through the streets of lower Manhattan…
Roubini Blog,
http://www.rgemonitor.com/blog/roubini/
To Mr. Bernanke:
“No man, for any considerable period, can wear one face to himself and another to the multitude, without finally getting bewildered as to which one is true.”
Nathaniel Hawthorne
First time buyers have evaporated from the
market. Even with 20% down payment, I would not buy today. I think too many people have
90+% of net worth tied up in real estate because of leverage. The RE
90 crash will be more painful than dot com for some people. Atleast, one can sell
stocks today, take a loss, and have IRS share the pain a bit.
In RE, no way to hedge if someone bought
a house at high price, except sit tight and keep paying down principal. Or sell at
a loss if you have to sell and add insult to injury with the huge transaction costs, it’ll kill you. If people walk away, IRS will come after them since lender sends a 1099 as forgiven loan. Talk of a double whammy….
JBJB Says:
August 10th, 2007 at 9:52 am
Mortgage Observer [45] must have awoke this morning and thought he was posting at Daily Kos or the Huffington Post. What a list of ignorant tripe.
All I’m proposing here is that instead of bailing out the banks and big businesses as we usually do. Help the people who are being most harmed in a way that could do all of us some good.
Stabilzing real estate will help stabize the financial sector by reducing delinquencies on mortgages.
Clearly, people are losing money in their real estate investments. Now they are losing money in their financial investments as well.
My proposals were aimed at trying to put a floor into some of these markets and maybe get the mortgage market moving again.
These proposals are better then Federal officials telling us that these problems are contained to Sub-Prime and doing nothing about them.
SG Says:
August 10th, 2007 at 10:23 am
Roubini Blog http://www.rgemonitor.com/blog/roubini/
HILARIOUS
All I’m proposing here is that instead of bailing out the banks and big businesses as we usually do. Help the people who are being most harmed in a way that could do all of us some good.
Stabilzing real estate will help stabize the financial sector by reducing delinquencies on mortgages.
This is, for all intents and purposes, the same as bailing out the lenders. By helping debtors pay back debts that they otherwise couldn’t, lenders are implicitly being granted a “put” on losses from risky loans. This behavior will create a moral hazard in the marketplace that leads to lenders create even more risky loans. And why not? Is there anything better than a goverment guarantee? This does nothing but perpetuate the cycle and create an even more dangerous environment.
jb
Clearly, people are losing money in their real estate investments. Now they are losing money in their financial investments as well.
I don’t understand the point you are trying to make.
Isn’t this the nature of an investment?
Who ever guaranteed that the only direction was up, and that every investment should be risk free?
jb
Why would anyone expect housing to rise in the short term is beyone me. RE taxes are way up, heat and electricity is way up and insurance is way up and this year a ot of storms are expected. That on top of re-adjusting rates galore and higher mortgages with the average raise predicted to be 3% in 2008.
Consumers spent more than they earned for two years in a row, that has not happended since the great depression.
Houses currently cost much more to own than to rent so their is a negtive rate of return. The bubble has burst or at least leaked and this needs two or three years to work its way through. A million dollar home three years ago can with a 5% mortgage and 10K in taxes. Today a jumbo is 8% and 2008 taxes are shooting to 18K on a million dollar home. If prices stay the same that would be an increase of $3,600 a month on a no down loan for the same priced home just three years later. How the heck can it go up, how the heck can it stay the same. Prices need to adjust and then let salaries and lower interest rates kick in 2-3 years from now to once again start appreciating.
dow down 203. 60 pts over 13K mark
Unless I’m mistaken back in ’88 you gave somebody a loan you kept it on your balance sheet so you kind of gave a crap if they were worthy of the loan.
#110 John: there are some who will deny to the bitter end that the party is over. Its not even worth discussing it with those people any more.
Everything you said is 100% true, it really is that simple.
In the end the market will be healthier for it.
Bailouts will crush our dollar.
>Prices need to adjust and then let salaries and lower interest rates kick in 2-3 years from now to once again start appreciating.
i don’t know price adjustment and salary part. but interest will be lowered shortly. fed fund futures point 100% rate cut in September, even 58% rate cut in an emergency meeting next week.
let the whip come down. all this bogus “value” created by BS lbo’s, cdo’s and the like. for chrissakes, we havent’ created anything of value for the last 20 years. let it all fall.
Relax this is typical dog-days of August in the stock market. Ask Larry Kudlow and Ben Stein.
#110 – John
Exactly! On top of all this mess, property taxes are exploding – with no end in sight.
If the govt. really cared about the homeowner, they’d get off our backs and do something real about property taxes.
Like I said, the current breed of homeowners have become slaves to their homes by buying more than they can bite. Work slaves, work..
where’s the whip!
This is an opinion question. I have had my condo on the market for 2 months. I have one offer (non-represented buyer) on the place (a bit of a low ball) but I will make a little bit of a profit. Going to bank the profit and move into a rental. Question, Take the offer and get out of Dodge? or Hold out a bit long and see if another offer comes in? I have a feeling what the answer should be. Thank for your input.
JB
Stabilzing real estate will help stabize the financial sector by reducing delinquencies on mortgages.
This is, for all intents and purposes, the same as bailing out the lenders.
The fed has already made the decision that they will bailout the banks by increasing liquidity.
The next step is to lower rates which most likely will come next week.
The banks will now have margins increased even more because they have already raised rates on mortgage and other consumer debt.
Rates on consumer loans will not be reduced in the near future because of the “New Credit Risks in the Market”.
So in effect the Fed is going to help banks out by forcing consumers to pay higher rates to while giving banks money at lower rates
This is a great plan for the banks. It is rotten for consumers.
My proposals were aimed at directly helping consumers rather than banks.
In the end the consumer pays for the bail out anyway why not let them get the money directly for once instead of subsidizing big business.
Jb #108
haven’t we already crossed into moral hazard?
On the one hand, they’ve poo-pooed any idea of bailing these players out by lowering interest rates, but on the other, they’ve been adding more liquidity and taking on mortgage backed securities.
Sounds like a bail out / put to me.
check out this guys reason why the RE market took off. it’s a new twist for sure.
http://www.gopusa.com/commentary/tsowell/2007/ts_08081.shtml
Fed adding additional reserves.
jb
#40
What JB said, with emphasis
>>all this bogus “value” created by BS lbo’s, cdo’s and the like. for chrissakes, we havent’ created anything of value for the last 20 years.
hard to argue with you.
Ernst & Young analyst talking on CNBC on Real Estate in New York. Some salient points,
* RE markets is cyclical, with Booms and Bust.
* RE market in US has gone up so much, it is now only comparable to Japanese market.
* The boom is not as much as Japan but is comparable.
* NY Shiller index showing downturn. Even Manhattan showing down signs.
Counterpoint was giving by someone.
* in NY we have lot of foreign money coming in.
* Most don’t have to go to big bank to finance housing.
They had nice chart comparing US market with Japan market.
[121]”This is a great plan for the banks. It is rotten for consumers.”
The “consumer” is an a$$, who in my opinion, deserves to have his head handed to him as much as any over-levered hedge fund manager. He doesn’t deserve sympathy or a public bailout. I say let the chips fall where they may.
Escape From NJ,
i will give my two cents worth on your question…know that i am a first time home buyer sitting on the sideline with good cash in hand and excellent credit…
as this unravels, i would expect that prices would come down further…if you need to sell (within the next 5 years) then take what you can get now and leave
if you dont need to sell, (you can wait 5+ years) then wait! live in your condo, weather through the storm and you will probably come out ok in the end
the problem today is that there is large percentage of homeowners that dont have the the luxury of choice…
Good luck
rachel was asking for a resource a few days ago
http://www.360financialliteracy.org/
From MarketWatch:
Fed takes second action to liquidity into banking system
Fed accepts $16 billion in three-day repurchase agreements
#115 bi It wont help, the funky financing is gone. And I would not be too sure if the Fed cuts in Sept, if it does, symbolic at best, 25bp.
Anything more scares the markets? Fed loses creditibility, things are OK this past Wednesday, now its the end of the world?
There is nothing here that bodes well for houisng prices, nothing. Prices are on the way down, no 10% increase in prices in any area.
“I am not proposing socializing losses I am trying to come up with ideas that mighthelp to stabilize property values for all.”
NO
There ia a massive bubble.
Prices must fall. Period.
No bailouts for irresponsible speculators that make it impossible for responsible people to buy a first home.
Prices should NOT be “stabilized” at bubble levels for the benefit of those who caused the bubble!
From MarketWatch:
Fed repurchase agreements target mortgage-backed securities
REM- “It’s the end of the world as we know it”
Fed fund futures point to emergency Fed rate cut
http://www.marketwatch.com/news/story/fed-fund-futures-point-emergency/story.aspx?guid=%7B4980A95B%2DE742%2D442C%2DA339%2DDBC45441BE5D%7D
What happened in the course of the past 24 hours to warrant all of this???
What happened in the course of the past 24 hours to warrant all of this???
Seems that somebody threw a Twix into the punchbowl.
jb
jb,
LOL!!
“What happened in the course of the past 24 hours to warrant all of this???”
The skeletons, which we have been discussing for the past year, have come out of the closet.
#138
Nope a really really big BabyRuth bar!
And wow does it stink!
sl
#135 BcBob,
And I feel fine :)
Renting sure is a nice hedge right now till the storm blows over.
Fed purchase applies only to agency MBS.
The skeletons, which we have been discussing for the past year, have come out of the closet.
Kind of like what happened when the EPA inspector turned off the power grid at the containment facility (Ghostbusters)?
Sorry, I’m in a 80’s movie mood today.
jb
Gold baby, GOLD! How long before they shoot it down…
Dealbreaker Rumors:
Unprecedented volatility and record trading volume is one sign of capital markets gone wild. Another one is when the central banks fire up the printing presses and start pumping liquidity into the markets. But perhaps our favorite is the increased volume of rumors.
We hear rumors all the time, and most of them we don’t publish. But with all the uncertainty in the capital markets, widespread rumors themselves can move markets regardless of their accuracy. In short, while they might not necessarily be true themselves, they start creating their own truth.
Hedge fund stories have been flying faster than we can check them. All of these are totally unconfirmed, unsubstantiated and even unchecked stories that have been making the rounds of Wall Street email inboxes. Exercise the greatest of caution while reading below.
Quant Bloodbath Continues: Here are the whispered latest whispered numbers. AQR’s Global Stock Selection HiVol fund said to be down as much as: -33%. Tykhe’s results as of yesterday: down 27%. Rennaissance’s new fund, Institutional Equity Fund, down 8.7% as of yesterday. Caxton shutting all of it’s quant strategies.
Bloodbath, Bloodbath, Bloodbath: They keep going. DE Shaw is said to be taking serious losses, some are saying as much as 20%. SAC is supposedly running “running algorithms in reverse” to profit from the confusion.
Merger Arb Bloodbath: Rumors and price movements in big buyout targets suggest that a huge event driven, merger arbitrage fund is selling off it’s positions. No names yet.
Internal Subprime Investigations: Several Wall Street banks are said to have set their internal financial control and risk management teams to work to get a better handle on subprime and credit derivative exposure following the move by
Goldman De-Listing: Has the Goldman Sachs Total GTAA Strategy Fund been delisted from the Irish Stock Exchange? That’s what we’re hearing.
Still not had enough? Check out FT Alphaville for even more rumors.
We’ll make this an open rumors thread. Post what you are hearing in the comments section below. Or email us at tips@dealbreaker.com.
Can we stop pretending we’re central banking experts who know more than the Fed and instead begin discussing our plans for making $ out of the current mess in the residential real estate markets?
When I visit this site, I am interested in people’s ideas for making lots $ through real estate investment in New Jersey, not what people think about the federal government.
I expect a couple of years of flat prices around here, but the bargaining power that buyers possess today is powerful, and I plan to take advantage of another desperate seller. For example, I bought my primary residence last year for 21% below asking. A condo down the hall with an identical layout but without my Manhattan and river views just sold for more than I paid 10 months ago – evidence that savvy buyers can find super deals today.
Unbelievable how the over-stretched American home owner is roiling international credit markets.
Wonder what Mr Greenspan think of the monster he created?
147#, 21% below original list price (OLP) or final listing price?
Apparently the Tykhe rumor is true.
When I visit this site, I am interested in people’s ideas for making lots $ through real estate investment in New Jersey, not what people think about the federal government.
Eastern Europe. Look to EU countries whose real estate is soon to be denominated in Euros. My foreign real estate holdings have more than doubled in the past year alone (when priced in dollars).
jb
bi #149,
21% below the listing price when I first saw it was for sale, which could’ve been the OLP. Listing price was reduced but I still got it for a double-digit discount compared to the final listing price.
I’m not arguing that I bought the place for a double-digit discount to market value – I think it was closer to a high-single-digit discount to market.
#147
To take adventage of the situation, I want the fund to snatch up a property when value comes alone.
As a result, I want to hold something liquid, with purchasing power that is less dependent on the value of the dollar. But I’m not seeing such creature out there. I horde cash now, but the printing press is making me wary. Any suggestions?
JB,
Go for it. You are 10x as smart as the real estate people over there. Do the research then trust your instincts when making investment decisions, and I think you will make lots of $.
Sell $$$
Buy Gold, Euros
“Zack Says:
August 10th, 2007 at 11:47 am
Sell $$$
Buy Gold, Euros”
You think the dollar is going to fall much further against the Euro?
Re Post 9: (with apologies if anyone noted this already, I skipped down)
JB, the Fed’s participation was apparently a bit higher than you indicated:
From Bloomberg (story’s 4th update)
“The Federal Reserve added $19 billion in temporary funds to the banking system through the purchase of mortgage-backed securities to help meet demand for cash amid a rout in bonds backed by home loans to riskier borrowers.”
Please note also that the Fed seems to be making a specific bailout here. By purchasing mortgage-backed securities it is quite likely that they are letting the hedge funds that are desperate to sell these bonds off the hook. Even worse, it is very likely the fed is overpaying for these bonds, absorbing the loss that rightly belongs in the market. Once again, something that is a disgusting and disgraceful bailout of people at the top, while the suckers at the bottom are going to end up in bankruptcy and foreclosure because they were dumb enough to overreach. It really is shameful.
RE i don’t know price adjustment and salary part. but interest will be lowered shortly. fed fund futures point 100% rate cut in September, even 58% rate cut in an emergency meeting next week.
Who says that a rate cut is going to help mortgages. Sure the people with ARMs tied to short term rates might get relief. But most of the subprime 2/28 or 3/27 is toxic with big penalties for early refi and agreed upon hikes. Lets say it is a prime + 2% reset on a 4% teaser, a 1/4 point cut in rates won’t do Jack. Plus there are a lot of bozos who did AMH teaser Neg Am loans where the 2/28 reset will result in a balance higher than the original loan. People this has to work its way through. That is it. It is kinda like after 9/11, there was no magic potion to cure the market we hit bottom in 10/02 retested the bottom in 3/03 and we moved forward. There is no bargains in buying a house right now unless it has a positive rental cash flow. You can’t time the come back.
Duckweed,
Check out publicly traded real estate companies with exposure to western Canada. The economic growth there is off the charts and corporate governance is better than other natural resource economies, such as Russia and African countries, so your investment would not be expropriated.
“Obviously anybody who loses their home is somebody with whom we must show an enormous empathy,” Bush said. Asked whether he would champion a government bailout? Bush responded: “If you mean direct grants to homeowners, the answer would be ‘No, I don’t support that.’ “
I don’t trust Euro necessarily. Doesn’t Euro zone have the same structural problem as us? (inflated RE value, and just now Euro CenBank is churning it’s printing press even faster). I feel it’s pot calling kettle black.
For those in the know, what are the difference of characteristics between physical gold, gold contract, and a gold based fund?
I like bank based economies as suppossed to market based economies. I am short US and Canadian markets and buying into european and asian economies
#97
Can’t compare current RE bubble to previous ones. In late 80s, for instance, everybody and their uncle did not own multiple investement properties as part of their portfolio. Now they do, and that #$^^%$# will all get dumped on the market, as opposed to previous deflations where folks only sold if they died or got transferred.
Like I said, until I hear about the RE market in the State of th Union address, this thing will not be over. Max pain is when president talks about it. That is when you look for opportunities
#123 Richard
First off, stop making sense today – you’re freaking me out.
Secondly, that’s a pretty damn funny article. My favorite bit: “But why were housing prices going up so fast, in the first place? A number of studies of communities across the United States and in countries overseas turned up the same conclusion: Government restrictions on building.”
All of a sudden Kramer’s rantings seem justified no?
bi Says:
August 10th, 2007 at 11:13 am
Fed fund futures point to emergency Fed rate cut
bipolar: so what
stuw6 Says:
August 10th, 2007 at 11:57 am
All of a sudden Kramer’s rantings seem justified no?
stuw6: no
SEC is scrutinizing banks with regard to whether they are accurately disclosing losses on their subprime loans. I see more pain to come.
110 and 113
Yeah.
The FED needs to offer liquidity to the market, which it is doing. The answer is not cheaper money.
For semantics sake, the FED is offering cheaper money, because the overnight rate would be 6.00%+ without $40B they are dumping on the market.
chicagofinance Says:
August 10th, 2007 at 12:01 pm
stuw6 Says:
August 10th, 2007 at 11:57 am
All of a sudden Kramer’s rantings seem justified no?
stuw6: no
hear,hear.
#120
Bank and RUN!
I assume the Real Estate market is closed this weekend.
#135
“and I feel fine”
re post 38, 40, 45, etc.
Once again, apologies if this has been said before.
There is no reason for subsidies of any kind, other than short term lending to maintain stability (on the way down) in the financial markets. Lending that maintains the status quo, or God forbid, allows another credit bubble to inflate should be avoided at all costs.
As far as those at the bottom, the remedy is strictly legislative. Let them get out of their housing mortgage obligation w/o a black mark or any other financial penalty, i.e. no tax hit for debt forgiven in any workout. They lose their house, but the only other punishment is moving and finding a place to live that is within their means.
The lenders bear the burden for their foolish decisions, and people who should have known better, but clearly didn’t are left where they started, hopefully a bit wiser for the experience.
Considering the situation, (that is banks holding property they very much want to get off their hands and other sellers faced with all that competition) the market is likely ready to meet their needs. It may not be a McMansion, but it will be a roof over their head (probably with cable and high speed internet too).
“Bush responded: “If you mean direct grants to homeowners, the answer would be ‘No, I don’t support that.’ “”
#159 – if you read that with strong emphasis on the word “direct”, it sounds like Bush will happily bail out homeowners in the good, old-fashioned trickle-down way.
Re my post at 176:
no surprise that JB (post 51) was on top of the situation and BC Bob, made the bailout call at post 55.
Once again, apologies for my redundancy.
#175 that’s what I’m thinking, too.
Housingpanic.com has a video clip from Comedy Central where one of their comedians interviewed Cramer about his rant on CNBC.
In the comments, someone said that Cramer sold his house and is now renting :)
From Reuters:
Alt-A pioneer lays low as mortgage market seizes
Peter Paul, known by some as the father of the residential mortgages market that bridges the gap between subprime and prime, is “hunkering down” as he watches the market he helped create dry up.
The predicament for the veteran mortgage banker is a far cry from how he imagined the market would develop as he worked with Bear Stearns Cos. (BSC.N: Quote, Profile, Research) in 1996 to pool some of the first “Alt-A” loans into securities.
The partnership with Wall Street fueled growth of a market valued at $722 billion, with loan quality leaning perilously close to subprime in later years.
A rapid drop in investor demand for the loans due to soaring delinquencies and implosions at big lenders and hedge funds has forced Paul, 63, to revert to making loans one-by-one at his Paul Financial, LLC, with buyers lined up in advance.
The move is a shift from “bulk” transactions done with the confidence the loans could be sold in aggregate later on.
“We’re hunkering down,” said Paul from his office in San Rafael, California. “Instead of having six weeks inventory, we have six days.”
…
The credit pullback “is happening quite fast and every day it’s a little bit more,” Paul said. “There’s no appetite for any degree of risk.”
About 5.8 percent of Alt-A adjustable-rate mortgages were delinquent by at least 60 days in June, up from 1.8 percent a year earlier, according to Credit Suisse. Subprime ARM delinquencies were close to 18 percent, compared with 7.7 percent in June 2006.
Jim Cramer paid asking price…
jb
Cramer did sell all his homes, his quote was “I recently sold the last one for a 200K loss and I feel sorry for the idiot who bought it”
Let’s put this in perspective. It’s a temporary freeze of credit. The whole gamut will be repriced. Bankers asleep at the wheel and investors chasing yield are getting hammered. It is a much needed adjustment. The madness went on for too long. The ship will straighten out. The question is twofold; Does the fed sit tight and let the market work it out. If yes, lean times ahead. Does the fed inflate and try to put out the fire with the torch that got us here? If yes, the longer term ramifications will be worse. No easy answer.
Currently, many will have long lasting effects. Housing is done, kaput. Years of declining prices. Hedgies credit lines will be cut back dramatically. Deals will be priced realistically. Spreads will now quantify that risk. Jobs on the street will be lost; mbs, derivatives, lbo’s. There is a reason private equity was pushing to go public. Living on asset appreciation is gone with the wind. Our only hope is to become a nation of producers and savers. Try to put a fork into our current account defecit. Why don’t we extend tax credits and incentives to producers and tax consumption? It’s time to suck it up.
I happened to catch the spectacle of Donald Trump by phone on CNBC this morning demanding the Fed cut rates a full percent by next week at the latest. If Bernanke doesn’t get the message, according to the Donald, we need to bring back Greenspan.
Funny stuff.
“I recently sold the last one for a 200K loss and I feel sorry for the idiot who bought it”
As far as I can tell, he hasn’t sold his home in Summit.
jb
Cramer = liar.
Shocked.
183#, it is just a show.. it is not real. don’t take it too serious.
bi Says:
August 10th, 2007 at 12:38 pm
183#, it is just a show.. it is not real. don’t take it too serious.
bipolar: you are just a show.. you are not real. I won’t take you too serious-ly.
185#, but i hit 3 over 3. it has been a good show.
“Our only hope is to become a nation of producers and savers”
“..ho,ho,ho,ho”
-Jabba the Hut
man, I can’t even get my apologies right, though I am clearly in moderation hell today. My apology refers to post 157, not 176.
#166 chgo: he believes that if the Fed cuts, prices will go up 10% in those cetain areas. He is simply howling at the moon.
bi Says:
August 10th, 2007 at 12:42 pm
185#, but i hit 3 over 3. it has been a good show.
bipolar: you hit 6?
“-Jabba the Hut”
bystander,
Don’t know squat about Jabba. That said, I am cognizant of the state of our dollar.
Story just posted at cnn
NEW YORK (CNNMoney.com) — The outlook for the housing market looks even bleaker than it did a week ago. Last Friday we reported that foreclosures were skyrocketing, home prices falling and recovery forecasts were being scaled back.
And now this week, the mortgage meltdown spread to the financial markets with ebola-like speed, sparking fears that tighter credit will have a broader impact on consumers, markets and the economy.
Current Mortgage Rates
Type Overall avgs
30 yr fixed mtg 6.23%
15 yr fixed mtg 5.90%
30 yr fixed jumbo mtg 6.94%
5/1 ARM 6.06%
5/1 jumbo ARM 6.45%
Find personalized rates:
Mortgage Meltdown: 2007
Mortgage Resets: Record bill due
Billions in subprime ARMs will be subject to higher payments. (more)
Hardest hit zip codes
Foreclosure clusters are on the move from industrial centers to coastal and southern states. (more)
Jumbo rates on the rise
Financing a home in some of the nation’s priciest areas just got more expensive. (more)
TalkBack
Mortgage Meltdown
What will be the impact of the subprime crisis? (more)
Video More video
The U.S. government continues to downplay the danger. When the Federal Reserve met this week, the central bank said that inflation is the greatest threat to the economy, not the mortgage crisis.
Yet, Countrywide Financial, the nation’s largest mortgage lender by volume, reported Thursday that “unprecedented disruptions” in the mortgage market were forcing it to cut way back on the number of loans it was securitizing and selling in the secondary markets.
In the financial markets, credit, including corporate bonds, has become harder to get. Mark Zandi, chief economist of Moody’s Economy.com, had been loath to call it a “credit crunch.” Instead, he called it a “liquidity squeeze,” that had spread to corporate bond and other financial markets. The difference: In a crunch, nobody can get a loan; in a squeeze, only the riskier borrowers are cut out.
http://money.cnn.com/2007/08/10/real_estate/mortgage_meltdown_crushing_other_markets/index.htm?postversion=2007081011
Mortgage Meltdown spreads
Comrade 3b Says:
August 10th, 2007 at 12:47 pm
#166 chgo: he believes that if the Fed cuts, prices will go up 10% in those cetain areas. He is simply howling at the moon.
Comrade: what he doesn’t get is that if the Fed cuts, gas will be $4 and your grocery bill will jump 10%, then the economy will go into recession, and his housing crap will be worse off. Face it, we are f—ed. You want a sugar high? go ahead
You know….the ARM resets couldn’t have come at a worse time…..if you need to fix up your situation in the next 8 weeks, you are screwed
Hurricane Chip…it still isn’t here, but it looking at least Category 3 and it is bearing down on us for an almost direct hit.
192#, gas will be under $2, cheaper than water. chi, 3b, bob and all fat bears, i see you all smiling now since you will pay less to feel ur fat suvs than your big stomach. but wait.. re bust go up. cant afford bergen will be cant afford merser, njpatient needs to be more patient to wait bloodbath in summer 2700.
#194 bi All fat Bears? Driving Hummers, and big stomachs. You are raveling again. The party is over bi, its as imple as that.
OT: I just happened to visit the State of NJ official website and on the left below the navigation is a nice fat advertisement for New Jersey Lottery – Give your dreams a chance.
Wonderful…..
#194,
Anybody? Interpretation?
FINalternatives.com
Published on FINalternatives (http://www.finalternatives.com)
Hedge Fund Fiasco Growing In Breadth, Depth
It’s not 1929, exactly, but hedge fund managers might be forgiven for the hyperbole.
The carnage and catastrophe wrought by the collapse of the sub-prime market continue to hit hedge funds particularly hard. And hedge fund misery is now spreading to previously immune sectors of the market.
Quantitative funds, in particular, are having a rough go of it. Previously untouchable names, including Goldman Sachs’ Global Alpha and Renaissance Technologies are taking big hits, with the former down about 16% this year, and the latter dropping 7% in just the first few days of August. Highbridge Capital Management’s $15 billion multistrategy fund is down 4% this month already, and some of Tykhe Capital’s share classes are down between 17% and 31% through Aug. 9.
Goldman’s troubles, however, are no longer limited to the erstwhile Cadillac of Hedge Funds. Its North American Opportunities Fund, an equity market-neutral vehicle, was down 15% through July 27, before the market bloodbath of the last several days. The once $767 million was down 11% in July. And the troubles in its hedge funds are no longer Goldman’s alone.
Both North American Opportunities and Global Alpha have been selling positions, contributing to the downward spiral in equities markets. Sources told Financial News that Goldman, hit with a massive redemption request—unloaded some $9 billion in positions. Its moves, along with those of other troubled hedge funds, sent large-cap names into a tailspin yesterday.
“Part of the reason you saw the [General Electrics] and [Proctor & Gambles] and stocks like that getting crushed today is that those were relatively liquid stocks,” buyout king Wilbur Ross said on CNBC yesterday. “Those were things that hedgies could sell because a lot of them know they need to build up cash reserves to deal with what probably will be some big redemptions.”
At the same time, an economist with the New York Federal Reserve Bank told securities analysts that hedge fund losses could be a predictor of trouble for investment banks.
“There is indeed such a predictive relationship,” Tobias Adrian said, though he warned that it was difficult to tell whether hedge funds increased or decreased the chances for a Wall Street disaster.
Meanwhile, in the face of the Dow Jones Industrial Average’s almost 400-point drop yesterday, Adrian’s bosses at the Federal Reserve said today the central bank would pour enough money into credit markets to keep them afloat. In a statement, the Fed said it is “providing liquidity to facilitate the orderly functioning of financial markets.”
The Fed was simply following the lead of the European Central Bank, which both yesterday and today moved to prop up the faltering credit markets, injecting tens of billions of euros. The ECB move came as the U.S. sub-prime disaster, already wreaking havoc in its own country as well as in Australia, reached the Old World. BNP Paribas, one of France’s largest banks, froze redemptions in three funds holding some €1.6 billion (US$2.2 billion).
“The complete evaporation of liquidity in certain market segments of the U.S. securitization market has made it impossible to value certain assets fairly, regardless of their quality or credit rating,” the bank said in a statement. “BNP Paribas Investment Partners has decided to temporarily suspend the calculation of the net asset value as well as subscriptions/redemptions, in strict compliance with regulations, for these funds.”
BNP said the trio of funds—Parvest Dynamic ABS, BNP Paribas ABS Euribor and BNP Paribas ABS Eonia—had seen their asset level fall by almost a quarter over the past several weeks, primarily due to redemptions.
Meanwhile, on the other side of the pond, London-based Man Group, the world’s largest publicly-traded hedge fund manager, shelved plans for the first listed hedge fund in the U.S. for the time being.
Man had planned to list its Man Dual Absolute Return Fund on the New York Stock Exchange in September, but has postponed the listing indefinitely, spooked by the sub-prime disaster, tumbling stock markets and the poor performance of Fortress Investment Group and Blackstone Group shares since their initial public offerings earlier this year.
Man may also have been concerned about the performance of the two funds in which it planned to invest the proceeds: Its own AHL Core strategy, which has suffered losses this year, and the aforementioned and unfortunate Tykhe Capital.
But don’t think that the widening disaster hasn’t forgotten its first high-profile victim: Bear Stearns was hit with the first bona fide client lawsuit this week, as one of its limited partners decried the “meager steps” Bear took to prevent the collapse of two of its hedge funds with big sub-prime exposure.
New York-based Navigator Partners had more than $700,000 invested in the Bear Stearns High-Grade Structured Credit Strategies Fund—the less leveraged, and thus less catastrophic, of the collapsed pair. The lawsuit, filed in state court in Manhattan, said Bear “failed to disclose to investors the significant challenges facing the partnership, and the meager steps they were taking to face those challenges, while at the same time reaping substantial fees.”
Bear pooh-poohed the complaint, saying in a statement, “The plaintiff is an experienced investment firm and, as described in the fund’s materials, this was a high-risk, speculative investment vehicle.”
——————————————————————————–
Source URL:
http://www.finalternatives.com/node/2287
Mortgage Observer–
Bailing out debtors is no different that bailing out their creditors. Their creditors have liens on the debtors’ property. The debtors are personally liable for their debt. Any money they receive will go directly to their creditors, or else the creditors will foreclose and sue them for any deficiency left over after the foreclosure sale. This is how secured debt works.
Of course, based on your other comments, you may not care about maintaining a consistent rule of law. It seems you believe that laws should be enforced on behalf of poor people, but we should just throw the book out when it comes to rich people and corporations (which, incidentally, employ far more ordinary people than rich people).
BC,
Oil at $40 and the Fed Funds at 3%, seems to me he is calling for one hell of a recession in the next few months.
jb
OT,
Sen. Menendez was caught in a traffic jam on Wednesday, like many of us, floods. He was on his way to a seminar in New Brunswick, “Stemming the Tide”. Subject, flooding problems in Jersey. You can’t make this crap up.
http://www.njslom.org/NJFloodFlyer.pdf
“Oil at $40 and the Fed Funds at 3%, seems to me he is calling for one hell of a recession in the next few months.”
JB,
He better stock up on canned goods.
#197 BC: I will take a stab.
Translated it menas I bought a house at the peak of the bubble, becasue I believed prices would continue to go up.up, and away. (everybody told me so)
You stupid fat Hummer driving Bears, will not buy houses, so it is making prices go down.
All the informaiton out there now is pointing at serious trouble,like you fat Hummer driving Bears have been saying.
So now I have to admit (even though I will not), that you are right, and I am wrong.
But if you fat big stoamch Hummer driving Bears who cannnot afford in Bergen & Mercer, who are patient in waiting for the bloodbath in 2700, would just go out and buy now, all would be well.
Especially in those certain areas(the one I bought in), that would have gone up 10% a year over the enxt 5 years.
(That was exhausting, but I think I got it.)
I think Bi is either a primitive artificial intelligence program or Maria Bartiromo.
Chifi,
How about possible insider trading by Tarragon’s CEO and wife?
http://seekingalpha.com/article/44144
http://www.sec.gov/Archives/edgar/data/1038217/000120919107047162/xslF345X02/doc4.xml
http://www.sec.gov/Archives/edgar/data/1000226/000120919107047161/xslF345X02/doc4.xml
Good ol’ Hoboken politicians know how to pick em
MO (38)-
That is one of the more asinine posts I’ve ever read here. So wrong, on so many levels. I wish I had more time to pick it apart.
Politicans and the Fed did not “let housing prices inflate way too far”. Politicians and the Fed don’t control housing markets. Buyers and sellers do. There are any number of influencers to the market, but “control” is in the hands of the principals.
Following from that, it is incumbent upon NO ONE to bail out ANYONE from the consequences of his own bad decision. And…”debt relief” to the poor, downtrodden homeowner IS a de facto bailout of the big, bad banker that he owes!
203# i thought maria bartiromo is one of the smartest women in the industry.
202#, drop “stupid” the translation passed.
What’s happening on Wall St.
What’s happening at the Stock Exchange
I want to know
What’s happening on Squawk Box
What’s happening with my stocks
I want to know
I watch you on the TV every single day
Those eyes make everything okay
I watch her every day
I watch her every night
She’s really outta sight
Maria Bartiromo
Maria Bartiromo
Maria Bartiromo
What’s happening with Yahoo!
What’s happening with AOL
I want to know
What’s happening with Intel
What’s happening with Amazon
I want to know
I watch you on TV every single day
Those eyes make eveything OK
I watch her every day
I watch her every night
She’s really outta sight
Maria Bartiromo (5x)
What’s happening on Wall St.
What’s happening at the Stock Exchange
I want to know
What’s happening on Squawk Box
What’s happening with my stocks
I want to know
I watch her at the big board every single day
While she’s reporting you best stay out of her way
I watch her every day
I watch her every night
She’s really outta sight
Maria Bartiromo (3x)
-Joey Ramone
MO (45)-
“I am not proposing socializing losses I am trying to come up with ideas that mighthelp to stabilize property values for all.”
Here’s an idea:
Let everybody out there who has no business being a mortgagor FK, BK or otherwise go belly up. At the same time, let all the chop shops and mortgage fraudsters do likewise.
Then, in 2-3 years, prices will be stabilized just fine.
I typically lurk here just for the info. I guess it is better to be quiet and thought a fool than to speak up and remove all doubt. I’ll roll the dice on that one now.
Anyone have a thought on how townhomes will fare vs. homes over the next few years? I’m recently married and we’ll probably be looking to sell the townhouse and start to look at homes in about 18-24 months.
My gut reaction is that people still have to buy a place and a $210K townhouse is going to be more affordable for someone then the $350K POS cape. Hence it will be less likely to fall in price as fast as homes. Any major flaw in my thinking?
Is anyone aware of a similar site that has more of a Monmouth / Ocean county emphasis as oppsed to NNJ?
208#, you may find general info in other forums but not so much news update and bearish outlook:
one place is:
http://www.nj.com/forums/monmouth/
the other is:
http://www.city-data.com/forum/new-jersey/
#209 Hughes Traditionally SFH’s hold theri value value better than townehouse,coops/condos
From what I have heard, townhouses are always less valuable (there are 10 others just like yours on the market when you are trying to sell in a down market).
Also, just like I did not believe the broker-speak hype in the “up” market, I am not buying the doomsday, blood-in-the-street scenarious of a “down” market. Don’t let the media yank you around people…they are just seliing papers and webads. The truth is somewhere in between….
MO (38)-
That is one of the more asinine posts I’ve ever read here. So wrong, on so many levels. I wish I had more time to pick it apart.
Politicans and the Fed did not “let housing prices inflate way too far”.
I beleive the Fed did contribute to housing inflation in three ways.
1. Alan Greenspan encouraged borrowers too get ARM loans in various statements that he made.
2. The fed cut rates way too far (dow nto 1.00%)
and allowed rates to stay low for too long. This facilitated the the availability of cheap mortage money. This clearly helped fuel the rise in real estate prices.
3. Inflation numbers do not include price of home apperction or costs relating to housing. In my opinion this gives a distorted view of what the true inflation numbers are. In the past years it was underestimating what the inflation numbers were in 2002 to 2006.
The Fed knew perfectly well that housing was the train to pull the economy out of the slump after 9/11 and poured all the fuel it could into it to make it run as fast as possible.
Now that they burned out the engine they are left with few options.
I’m not for bailing bankers out either. I don’t like to see the value of my home and investments dropping like everyone else.
I thought I would throw out a few suggestion that might help.
Sorry to have offended you so much.
Anyone have a thought on how townhomes will fare vs. homes over the next few years?
Hughes,
If this cycle plays out in the same way as the last real estate decline in NJ, condos and townhomes will fare worse than detached single family homes.
I attribute the greater declines to competition between sellers. It is very difficult to compare the relative values of two single family homes, it becomes much easier to do so when we’re discussing similar units. Given two similar condos or townhomes in a development, it’s likely that the lowest priced unit will sell first, typically establishing the new comp.
Have you seen this?
New Jersey Condos – A Look At The Last Crash
jb
MarketWatch: Fed takes third action Friday to add liquidity to markets
I suppose we could also discuss the scenario as a type of prisoner’s dilemma.
jb
#211 Mtg: You are right on your observations, IMHO. However, at the end of the day, nobody forced anybody to sign on the dotted line. Common sense should have prevailed.
As Bush said maybe some of these people “did not read the fine print”.
The problem with bailing out homewoners, is that that you are rewarding/forgiving those that were reckless, and penalizing the prudent.
Also bailouts will condone reckless behavior in the future.
If you know you can do whatever you want, and be saved in the end, than that just encourages more reckless behavior.
Sorry to say, these people must be disciplined, the same way one would discipline a child.
Escape (120)-
Nah. Stick around. Turn down the offer. In a few more months, you’ll be upside down, and then you’ll need to do a short sale to get out.
Short sales are exciting, and you can learn a lot by doing one. Sounds great, doesn’t it?
MarketWatch: Fed takes third action Friday to add liquidity to markets
Another $3b added.
16 + 19 + 3
jb
Third Fed injection spooked the market this time…
Clotpoll – He didn’t say he “had” to sell, just wanted to know if he should.
Fourth time a charm?
jb
#210 Imus There will be blood in the streets, there always is when these things end, it is a simple as that.
And away from all of this I would point out to you the absolutely sad and pathetic financial state of affairs of our once great state.
Don’t kid yourself, that too will negatively impact real estate values in NJ.
Third Fed injection was $3B, not $35 for a total of $38B
hughesrep,
Anecdotally speaking, in my town townhomes are losing more percentage value than SFHs are.
Part of the reason here in this town is that last few years have seen LOTS of new townhomes built but comparatively fewer SFHs.
Next (this is in P’way) they’re going to build two more high-density developments. One will be low income rental units and another 55+ condo complex. All near Pway border with middlesex boro. This will drive price of my townhome into the toilet, I fear. Who wants to live 1/2 mile from low income rentals?
I guess my point is, SFHs do better but location matters the most.
i dont get it…how is injecting all this money into the market going to help with this downswing?
why didnt they just put in the 35B in the first place? tells me that even they dont have a handle on what is going on and why!
comments?
Corrected.
jb
“This will drive price of my townhome into the toilet”
Sync, western or Indian sytle? :)
James-
Thanks for the link, I had not caught that.
syncmaster-
Thanks for the input.
dreamtheater,
??
i agree TH/Condo will lose more than SFH in percentage but you measure your net worth in total ammount. i would buy TH/Condo to limit my total loss if i thought the market would go down as most bloggers here suggested.
bi Says:
August 10th, 2007 at 2:07 pm
i agree TH/Condo will lose more than SFH in percentage but you measure your net worth in total ammount. i would buy TH/Condo to limit my total loss if i thought the market would go down as most bloggers here suggested.
what is the meaning of the last post??
Is bi drunk or under the influence of drugs??
I am sorry but Bi posts today does not make any sense…
I think what bi is saying is if you start with less invested in RE, a downturn in RE hurts less.
Hughes,
Townhomes in suburban New Jersey are close substitutes for single family detached homes. These townhomes typically feature similar amenities (separate entrances, off-street parking, a couple thousand square feet of living area, backyards) as detached single family homes nearby, and enjoy identical community benefits, such as access to the same public schools.
In suburban New Jersey, townhomes perform best at the peak of the residential real estate cycle, when single family home prices are least affordable. At the peak, a rising proportion of homebuyers who prefer detached homes can’t afford them, causing a surge in demand and a sharp rise in prices for the more affordable alternative, townhomes.
In suburban New Jersey, the bottom of the cycle is approaching, meaning that demand for townhomes had diminished as single family detached homes have become more affordable. I am currently checking out townhome investments, with the goal of stealing one from a desperate seller, renting it, and flipping it in 5-8 years at the top of the next cycle.
Hughes,
Townhomes in suburban New Jersey are close substitutes for single family detached homes. These townhomes typically feature similar amenities (separate entrances, off-street parking, a couple thousand square feet of living area, backyards) as detached single family homes nearby, and enjoy identical community benefits, such as access to the same public schools.
In suburban New Jersey, townhomes perform best at the peak of the residential real estate cycle, when single family home prices are least affordable. At the peak, a rising proportion of homebuyers who prefer detached homes can’t afford them, causing a surge in demand and a sharp rise in prices for the more affordable alternative, townhomes.
In suburban New Jersey, the bottom of the cycle is approaching, meaning that demand for townhomes is diminishing as single family detached homes have become more affordable. I am currently checking out townhome investments, with the goal of stealing one from a desperate seller, renting it, and flipping it in 5-8 years at the top of the next cycle.
I am sorry but Bi posts today does not make any sense…
Just today?!
hughesrep,
Next (this is in P’way) they’re going to build two more high-density developments.
I live off Possumtown Rd. Where are these condo’s going? I’m just renting fortunately
Why not rent now and buy SFH after the market goes down, bypassing condo/townhouses. Remember, they are the first in pecking order of POS.
Imus,
It seems that you have this general dislike for the media and how it is impacting the market. Can we analyze this for a minute?
By media, I am assuming you mean mainstream media and not njrereport.com. Mainstream media is usually about 6 months behind on reporting any sort of market trends. It is reported just in time for Joe Six Pack to realize that something may be up. Whether good (housing prices double/triple!!!) or bad (subprime fallout!!!). Also, I have not seen one major media outlet claim that housing prices are falling, will fall in the next few years or that doomsday is ahead. They are still stuck on the subprime meltdown and since Joe Six Pack really can’t put two and two together, they do not want to go as far as to explain why this will cause RE prices to fall.
That being said, if you consider njrereport or any other internet blog to be the media outlets spouting doom and gloom, that is a very sad assessment. For the most part, most everyone on this board is not Joe Six Pack and is not a miserable RE bag holder that comes on here to place blame on others for being the source of your problems. Most of us understand standard economics and we understand upswings and downswings and the better of us can capitalize from both. All we are saying is this major upswing in which most Joe Six Packs w/o college educations getting half a million to fix houses was due for a major down swing.
In suburban New Jersey, the bottom of the cycle is approaching, meaning that demand for townhomes had diminished as single family detached homes have become more affordable.
I still can’t comfortably (i.e. on my income alone) afford a SFH in Pway (not exactly a great town) and we’re already near the bottom?
How do you figure we’re near the bottom?
Famous Irrational Exuberance Speech
Remarks by Chairman Alan Greenspan
“But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?” At the Annual Dinner and Francis Boyer Lecture of The American Enterprise Institute for Public Policy Research, Washington, D.C. Dec. 5, 1996
pre,
As long as the cap rate makes sense.
jb
x-underwriter #245,
The low income rentals – 120 units in total, they will build four 4-story buildings – will be at 1 Possumtown, on the current site of Rheometrics. Basically right next to Birch Glen and Maple Grove.
The 55+ will be on William Street, where the greenhouse is right now.
Bottom or top?
Given the Goldilocks day Bi is having, it is entirely plausible that he is seeing the charts upside down.
x-underwriter-
Sorry for the confusion. My wife and I currently have a townhome in Brick, NJ, on the east side of town close to Point Pleasant.
She bought it for $170K three years ago. Comparable ones seem to be going for about $205K now, only a few have gone on the market over the last year in our neighborhood.
We will be looking to sell it when we buy a house, probably 1.5-2 years away. We have 4 years left on the 7 year ARM.
My question was more geared towards anticipating if home prices drop by X, does a townhome typically drop by drop more or less than X.
So you may ask when did I realize something was awry, as a college graduate who understands economic fundamentals?
Late 2004, when I was about to “extend” myself on a property that was owned my that woman who is a maid with two children that cleans my parents house. Of which, at the time, my combined income was more than my parents (who owned a now 600K house) and definately more than the maids. And to boot, the guy who outbid us by (25K) was a few years younger, fresh out of school and in the position that I had originally started.
#243 The bottom? The serious decline is just getting underway.
22 days until Sept 1st.
Can anyone give us some advice regarding the town houses on the hills in basking Ridge? Thanks in advance! ML
You want a rate cut?
Not sure if this was posted;
“U.S. import prices run hotter in July
Food imports tally biggest yearly increase in over 12 years”
http://www.marketwatch.com/news/story/us-import-prices-run-hotter/story.aspx?guid=%7BDD19D78B-CF6E-43D9-9F3E-099D7B501D35%7D
i wonder if Open Houses this weekend will be any different? wonder is RE Agents will beg more!
i have noticed more and more houses on the MLS in the BC Area now also listed as ‘for rent’ except the rents are like $3500 to $4000 per month! ouch…i am guessing that no normal/sane person would go out and rent these homes – these prices HAVE to come down – i dont think you even need to understand any economics for this one!
PATIENCE….deep breaths….in….out….in….
I’m thinking about changing careers:
https://www.americanhm.com/index.html
ML Says:
August 10th, 2007 at 2:28 pm
Can anyone give us some advice regarding the town houses on the hills in basking Ridge? Thanks in advance! ML
HAHA!!! My 2004 story was based on a condo in the Hills.
I have been watching Basking Ridge, Bedminster RE for 3 years now. I can tell you all about condo prices in the hills. Stories to come.
Please Do Tell….TJ!
Summer 2006 – The hills
2 bed 1 bath – Average price (about 350K)
2 bed 2 bath – Average price (about 395K)
2 bed 2 bath w/ garage(s) – Average price (about 450K)
3 bed 2 bath – Average price (about 500+K)
Today – The hills
2 bed 1 bath – Average price (285K)
2 bed 2 bath – Average price (325K)
2 bed 2 bath w/ garage – Average price (360K)
3 bed 2 bath – Average price (400K)
These are estimates based on mental notes and intense inventory searches over 2 or 3 years. But I am sure you will find them pretty accurate. There are also deals to be had in the Hills. I still follow Hills condo RE, but I am now looking at houses as there are deals to be had in the next year.
I took a look at this property this week in my freetime. What a joke! If you are from the area, check it out. FSBO
http://cnj.craigslist.org/rfs/377458419.html
If you want to know more about this property please ask.
Currently we are looking for the info for town house on the hills. For example, there are some townhouses for sale in Amherst & Patriot Hill, etc. We are wondering why the fees are so different among them, what was the law sue again the Amherst developer …Do you have any info, TJ?
hughesrep,
very similar situation. recently married, looking monmouth/central jrsy.
prices are coming down, generally, on all non-coastal-central areas. townhouses will hold, and the median prices will hold…but only the best on the market will get sold. you need to look for ‘situations’… older couples, overleveraged…. but the overall market will move flat and/or slowly down IMHO.
i do agree with someone else stated here…that the 500-700 range will get hit especially hard now that jumbos are priced well above the
Time to yank out our chaos theory manuals again.
The stench of our markets has really foul things up overseas.
Guess we can expect to be booed again at the next Miss Universe pageant.
ML,
My suggestion on Basking Ridge RE is to wait it out if you can and by and SFH. I have been in corporate housing for a while, so I have somewhat of an added luxury. Most of the older ranches are owned by the elderly in the “less expensive” parts of town. I was just looking at a ranch, for 450K. Sold for 350K last month, on half acre in BR (MLS# 2342040)! These older folks don’t care much about the run up as they have lived there for years, just check out the garage sales around here, you can pick up some really cool vintage stuff. Anyway, I digress. You are probably in the same boat as I am. I am going to be making a lot more cash in 5 years, will have a kid or two by then and will want to sell and obviously by something bigger, but are afraid to buy anything now because I don’t want to loose my hard earned 20% down payment or pay the difference that I owe.
My advice, save more. Subprime fallout will stop all of these idiots from paying 50% or more than a starter home is worth and you will be sitting pretty in 5 years when you upgrade.
Seem to recall some doubters on this blog saying that the ‘high end’ houses were moving quickly earlier this year. Don’t recall much talk about the jumbo loans, but I assume that is why.
Any thoughts on how much this jumbo loan leap will have on the sales of houses in the 600k-800k range?
ChiFi (193)-
Sept. 1 approaches. Category 5 expected.
“The stench of our markets has really foul things up overseas.”
Something like that cheese at a tailgate in Tiger Paw land?
I was just looking at a ranch, for 450K. Sold for 350K last month, on half acre in BR (MLS# 2342040)!
last month, is that right?
#271 refers to TJ’s #267
From Reuters:
What happens on Wall Street may hit Main Street
Credit spreads and collateralized debt obligations may not mean much to the average U.S. consumer, but if market gyrations persist, Wall Street’s pain may come home to hurt Main Street.
Consumer spending, the driving force behind the U.S. economy, has slowed in the past few months, although it did prove remarkably resilient through a series of gasoline price spikes and the early stages of the housing market slump.
Easy credit terms have underpinned that spending, and this week’s wild ride in financial markets shows how deeply the global economy depends on that free-flowing cash too.
The problem is, the easy money is drying up.
First it was mortgage-related markets where credit tightened as home prices fell and subprime mortgage defaults hit a record high.
The root of the problem can be traced back to U.S. home loans made to people with poor credit histories. But it became a global market problem when the investment community bundled those loans and sliced them up into risky, riskier and riskiest pieces that were resold to investors such as hedge funds and banks.
Homeowners had little to do with that — and were often unaware that someone other than their mortgage companies held their notes.
But in recent weeks, the pain has spread to corporate debt as credit markets have tightened up, and some businesses are starting to hoard cash.
If consumer credit availability shrinks too — beyond the mortgage market — spending will suffer.
“Not all liquidity problems are created equal and the drying up of short-term liquidity to financial institutions in recent days is a far more serious concern to central banks,” said Bruce Kasman, chief economist at J.P. Morgan.
“If left unchecked, it can produce a widespread withdrawal of funding that can quickly transform a liquidity squeeze into disruptions for the normal activities of businesses and households,” he said.
Clot [269],
You said; just walk away Rene back in May. Did you see it forming off the Lesser Antilles, at that time.
Scribe:
Sorry I was looking at the experation date – Sold 3 months ago.
UCD: 03/30/2007
CD: 04/30/2007
OLP: $499,000 LP: $459,000 DOM: 137
SP: $355,000
MO (221)-
I am not offended. I am stupefied. Evidently, you view influencers on markets as controlling factors. I think most people who participate in markets are of the feeling that when they’re at their most extreme highs or lows, pretty much no one is actually in control.
Kinda like today.
hughesrep Says:
x-underwriter-
My question was more geared towards anticipating if home prices drop by X, does a townhome typically drop by drop more or less than X.
In my personal opinion, it boils down to a privacy thing. Do you want to live the rest of your life sharing a driveway and a common wall(s) with other people? Especially if you have children. We rent a condo right now and it gets old having people walking over our heads with heels on and a moving truck in the driveway every weekend. SFR’s usually hold their value better than condo’s and townhouses because they’re just more desireable in the long run. Everyone wants his/her own chunk of dirt.
dreamtheaterr Says:
August 10th, 2007 at 2:01 pm
“This will drive price of my townhome into the toilet”Sync, western or Indian sytle? :)
yan: greek style – no toilet paper in the bowl; throw in the trash bin
251 syncmaster Says:
x-underwriter #245,
The low income rentals – 120 units in total, they will build four 4-story buildings – will be at 1 Possumtown, on the current site of Rheometrics.
Nice!!! I can hit Rheometrics from my place with a golf ball. My wife will love to hear that!!!!!
We’re not totally crazy about the area anyhow. I was working in Englewood Cliffs and her in South Brunswick so it was a half way point for both of us when we moved in together. I can’t say I feel like I live there. (go to local merchants, hang in local bars, etc.)
Bloodbath in Winter 2007 Says:
August 10th, 2007 at 2:59 pm
Any thoughts on how much this jumbo loan leap will have on the sales of houses in the 600k-800k range?
BBW07: I don’t know if the prime jumbo stories are just anecdotes. However, assuming credible sources, just a freeze. People will be making offers not realizing that they don’t have financoing to back it up. Especially those that have been shopping for months and have not checked in with theor lenders in the past 6 weeks.
I’m sure we will hear stupid stories such as “….I have the money and I can afford this house, but no one will give me a loan…’ ugh STFU!
#267 TJ Good Advice, but IMHo, it will nto take anywhere near 5 years.
ML,
From what I understand, while working with a realtor back in the day the fees are a compilation of many different services. Some sections of the Hills have garbage and sidewalk maintenance in the fees, while others don’t. These are just some of the factors. Also fees are dependent upon the age of the unit; the units may need new roofing or other major repair. http://www.thehillsnj.com is where you can find some good information. I am not sure about the lawsuit either.
I not sure which snapper-head was foaming at the mouth yesterday, but here is the answer to your question……..the upshot? you know nothing so crawl back into your hole please….
Short-Seller Crowd Singing the Blues After Taking a Hit Bets on Share-Price Skids Fail to Pay Off for the Bears;
Blame ‘Quant’ Fund Action
By KAREN RICHARDSON and JUSTIN LAHART
August 10, 2007; Page C3
On a day when stock prices tumble like they did yesterday, short-sellers — investors who make big bets on declines — should be grinning.
But in a twist, some of the day’s best-performing shares were ones that these bearish investors love to hate. As a result, even short-sellers took it on the chin.
Shorting involves the sale of borrowed securities by an investor who hopes to make a profit by buying back an equal number of shares later, at a lower price, to replace the borrowed ones.
Yesterday, the Dow Jones Industrial Average fell 387 points, but beleaguered stocks popular among short-sellers — for instance, those of home builders — posted double-digit percentage gains. At the same time, long-suffering Vonage Holdings Corp., a telecom stock that has fallen 85% since it went public last year, jumped 10%.
Online retailer Overstock.com Inc., stun-gun maker Taser International Inc. and Krispy Kreme Doughnuts Inc., three popular issues among short-sellers, all closed higher.
The reason? Blame, or thank, so-called quant hedge funds, sophisticated investment vehicles that use complex computer calculations to pick their investments, then use loads of borrowed money to make their bets. Some of these funds have been forced in recent days to not only sell their regular stock holdings — their “long” positions” — but also their short positions to raise money as bankers knock on their doors with margin calls on their borrowed money.
When investors are forced to exit short sales, they must buy back shares, which can force prices higher.
“The liquidation of these quant funds is serving to produce not only downside pressure on longs but also upside pressure on shorts,” says Douglas Kass, head of Seabreeze Partners Management Inc., a Florida hedge fund heavily involved in shorting.
The result is that some of the worst-performing or most heavily shorted stocks got a boost. Slammed all year by the roiling subprime-mortgage fears, the Dow Jones home builders index edged 0.8% higher. Home builders Beazer Homes USA Inc. and Hovnanian Enterprises Inc. rose more than 10% each. [edit]
Why do people always say we are getting married and need a house we are faving a kid and need a house. You don’t need a house, rent it is cheaper.
Read this, too funny!
http://www.fool.com/investing/general/2007/08/08/still-more-housing-bull.aspx
Aug. 10 (Bloomberg) — Luminent Mortgage Capital Inc., the San Francisco-based mortgage investor, raised doubts about its ability to stay in business after losing access to the commercial-paper market.
“Luminent is exploring all of its alternatives with respect to its loss of liquidity resulting from the unanticipated disruptions in the secondary mortgage and national real estate markets” the company said in a regulatory filing today, “including their impact on the company’s ability to continue as a going concern.” As a result, Luminent delayed its quarterly report to the Securities and Exchange Commission.
Chief Financial Officer Christopher Zyda wrote in the filing that the mortgage market and the sources of financing it relies on “have deteriorated in a significant and unprecedented fashion.” The company is facing margin calls on its highest- quality assets and can’t borrow as much through repurchase agreements, according to the filing.
Last Updated: August 10, 2007 14:20 EDT
#281 Comrade
Sorry, I wasn’t indicating that is when the market will get better as I am not going to make that estimation this early in. I was simply referring to that fact that most people who buy starter homes upgrade within 5 years. So “when” the market starts to bottom, whenever that is, in 5 years you will probably be better off.
BC (274)-
Actually, I saw it forming in a bathtub drain in a vacant 600K POS.
John,
There is a lot of advantages to having a house over renting while having a child. I grew up as a very active child. Fishing, boating, surfing, dirt biking, camping, canoeing, kayaking and the list goes on. I have no idea where I am going to stick all that crap in a rental. I am also very handy around the house and would like to show my kid the same things I learned growing up. So for me, renting with a young kid is not an option. I will more than likely have a baby/toddler living with us in an apartment in the new few years, but not after that.
#287 TJ Agreed.
From Bloomberg:
Dodd Calls for Subprime Mortgage Law to Boost `Accountability’
Senate Banking Committee Chairman Chris Dodd said he is drawing up legislation to strengthen subprime mortgage lending standards amid a credit crunch that has shaken financial markets around the world.
“Clearly, the brokers need to be regulated,” Dodd, a Connecticut Democrat, said during an interview on “Political Capital with Al Hunt,” scheduled to air this weekend on Bloomberg Television. Lending standards need “some accountability here so that people have some sense of a person’s ability to pay.”
#283 Chifi, thanks for the WSJ article.
For the last month, I’ve been following two 130/30 funds that were launched around six weeks to get a feel for their volatility. One of them is down almost 12% – double its benchmark. Longs going wrong and shorts getting squeezed? Longs in their shorts getting squeezed….either way, it’s been painful.
i am just passing what i got in email from a realtor. take it at its face value.
# of active listing at the end of July
2006 2007
Millburn/Short Hills 202 143
Maplewood/SO 180 169
Summit 129 165
Chatham 171 151
Madison 96 100
Livingston 241 197
Glen Ridge 66 61
Montclair 190 208
Total 1275 1194
total percentage change (6.4%)
Now you know why Cramer is so negative to RE.
P.S.: I do not live in these towns and have no intention to make a purchase in these towns in forseeable future.
(I was step away from desk from a few minutes.) Thanks a lot for your input, TJ!
“bi Says:
August 10th, 2007 at 3:41 pm
# of active listing at the end of July
2006 2007
Millburn/Short Hills 202 143
Maplewood/SO 180 169
Summit 129 165
Chatham 171 151
Madison 96 100
Livingston 241 197
Glen Ridge 66 61
Montclair 190 208
Total 1275 1194
total percentage change (6.4%)”
Shouldn’t that be a -6.4%?
John Says:
August 10th, 2007 at 3:24 pm
Why do people always say we are getting married and need a house we are faving a kid and need a house. You don’t need a house, rent it is cheaper.
J: or you rent a house…..believe me…a LOT cheaper….laughably so…
295#, yes. in my spreadsheet i use parens as default for negative. this usage is common in accounting.
bipolar Says:
August 10th, 2007 at 3:49 pm
295#, yes. in my psychotropic druge i use parens as default for negative. this usage is common in psychosis.
“bi Says:
August 10th, 2007 at 3:49 pm
295#, yes. in my spreadsheet i use parens as default for negative. this usage is common in accounting.”
Ah, yes, you’re right. I’m in science and that’s not the accepted standard, but I am aware that is the norm in accouting.
we use reverse Polish around here!!!
http://en.wikipedia.org/wiki/Reverse_Polish_notation
“Clearly, the brokers need to be regulated,” Dodd, a Connecticut Democrat.
You buffoons need to be regulated. More like shipped out.
Bernanke is in a real pickle. On one hand after the last Fed meeting he talked tough on containing inflation. Now in a short amount of time we have a brewing credit crunch that might start screaming for a rate cut. He’s very academic in his inflation targeting approach which could lead to inflexibility when the economy might need the reverse. But if he cuts then he loses credibility. Either way looks like he’s playing a losing land.
Why stop at brokers. RE agents should be regulated. They were selling “investments” for the past 5 years an claiming great returns.
JB #250,
I am not a yield investor, so I do not worry too much about cap rates. I’m an IRR investor concerned about capital appreciation.
If I buy a townhome at say a 2% cap rate and my cash flow is negative during some months due to vacancy or repairs, that is okay with me – I don’t need the income, and I have plenty of cash.
What I’m looking for is price appreciation that is greater than my borrowing costs.
By the way njrereport readers, a cap rate is a valuation metric that measures unlevered yield. The most common definition is: (property revenues – property expenses) / price.
By the way, what is the experience home owners have in general with plumbers disguising themselves as rocket scientists the last couple of years? Are they really that high on attitude?
Syncmaster #248,
Can the residential real estate market get much worse?
Providing the local economy continues to expand, it is only a matter of time before demand for homes rebounds and inventory diminishes. I am smart enough to know that I am not smart enough to predict the exact date of the turning point, but I am confident that it will arrive somewhere between 2009 and 2011.
#221
I agree
Sorry, Clot, for the rare treason.
#221
P.S. except for anything regarding bailing out ANYONE. Like JB, I’m not a believer in privatized profits and socialized losses, unlike, it seems, most of the business community.
On that, I wholeheartedly agree with the third para of Clotpoll’s dissent to your original post at #38.
From the AP:
Worst Is Yet to Come for ARM Shifts
If you think defaults and delinquencies are high for subprime loans now, wait until the next wave of these loans shifts to higher rates.
Investors in mortgage bonds backed by subprime loans – indeed, investors across all fixed-income asset classes – are already feeling the pain as acute subprime credit troubles have caused a sharp repricing of risk, pushing down prices for all types of bonds except super-safe government securities.
But as high as defaults and delinquencies already are for the subprime loans that cater to borrowers with poor credit histories, they are poised to go much higher still. That’s because subprime adjustable rate loans taken out in the second half of 2005 are starting to reach the end of their low fixed-rate period – which typically lasts two years – and shift to much higher floating rates.
That shift will cause monthly mortgage payments to rise for already stretched borrowers. And unlike those subprime borrowers who have already seen their mortgage payments rise, this next wave of borrowers will see monthly payments increase at a time when home prices are likely to be lower than they were when these loans were taken out.
With lending standards tightening drastically in recent months, these borrowers will face problems finding a lender to refinance their loans.
In short, going into the second half and especially the fourth quarter of this year – and on into 2008 – the borrowers who face higher payments for subprime adjustable-rate mortgages with two-year fixed-rate periods are going to be people who took those loans out at “exactly the wrong time,” said Karen Weaver, global head of securitization research for Deutsche Bank (nyse: DB – news – people ) in New York. And they are “just going to get hammered” between the decline in home prices and the clampdown on credit, she said.
From July until the end of 2007, according to Deutsche Bank research, about $150 billion in subprime ARM loans are due to shift to higher, floating-rate payments. And another $250 billion in loans are due to reset to higher rates in 2008.
TJ,
But sold just 3 months ago and back on the market with an asking price of $100,000 more?
Would-be flipper?
I thought the flippers would be gone by now.
This is interesting, usually only risky or brand new companies that are hard up for cash tap the Convertible Bond Market. You never see Citi or Ge doing it or in fact any big bank. Well my friends on the desk told me that Country wide is getting ready to do a convertable bond issuance. They way one thing and do another.
JB,
Real estate booms tend to end in a long period of flattening prices. If the local economic situation remains solid, eventually another boom happens.
We’re 2 years into the the period of flat prices – in retrospect, the peak in northern New Jersey can be observed in late 2005 to early 2006. Between 2009 and 2011, I expect that meaningful price appreciation will begin to reappear.
“Amid all the confusion over subprime lending, it’s worth bringing one fact to the fore: Alan Greenspan was recommending adjustable-rate mortgages in February 2004 — just as short-term rates were making their lows. Then, in a speech on April 8, 2005, he extolled subprime lending”
http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/BlameGreenspanForThisBubbleToo.aspx
Countrywide now has the highest one-year CD rate on bankrate.com – 5.5%.
But it’s also carrying a “U” for “unrated,” which is unusual.
Under Bankrate’s rating system, 5 stars is the best. Very few are unrated.
I don’t know if the “U” is recent or it was always like that – hadn’t been paying attention to Countrywide previously.
He’s very academic in his inflation targeting approach
True. But first and foremost, he is a scholar of Great Depression. He is terrified of deflation and the deflationary spiral that could be precipitated by a severe credit crunch.
If push comes to shove, he will cut rates; accepting the upside risk of inflation over a recession.
He will claim to be “forecast driven”; postulating that a marked slowdown in economic growth, beyond previous forecasts, will work to moderate inflationary pressures, despite the fact that inflation is currently is on the upper end of the comfort zone.
Clotpoll,
Regarding post (226). I bought 6 years ago, I’m doing well chief. Just asked for an opinion not a commentary.
Scribe,
It’s back on the market? Are you serious? Do you have the MLS? I did not see it.
“But if he cuts then he loses credibility.”
Richard [303],
I agree. The fed has placed their stake in the ground. They are talking vigilant, they must stand by it. The worst outcome would be the perception that the fed has lost any credibility. A fed cut, at this time, would send the wrong message to the markets. It would backfire. However, going forward, one never knows.
I doubt he will cut rates. Lack of jobs is what causes a recession. In my case for every dollar my house rises I lose two dollars and for every dollar it falls I make two dollars. I am on the fence waiting to trade up to a house that costs twice as much as my current house. I am in that group of people who bought before the run up in prices and now I am in year seven going on eight in my home and want to move on. For the 35-45 crowd done having kids being squeezed in their homes from ten years ago how does cutting rates to keep the deadbeats in their mcmansions help us? Someone is getting screwed when you play god so let the markets do what they do
“Real estate booms tend to end in a long period of flattening prices.”
[313],
How did the early 90’s fare after a boom?
Can you forward some data that supports your claim.
#313 I think we will see some really significant price decreases and then a period of flat prices for a few years, before we see nay kind of appreciation.
There was too much insanity going on. That has to be cleaned up first.
“Real estate booms tend to end in a long period of flattening prices.”
#313
Sorry – you can’t compare this bust to any other previous RE bust. Never before have so many Joe Six-Packs had substantial “investments” in real estate – i.e., not their homes, but second or third properties, which they will dump like hot potatoes as soon as they get scared. In previous busts, folks just stayed in their homes unless they died or got transferred – hence, prices didn’t move.
The hot potatoes are going to be moving the prices.
It’s gonna be a bleak midwinter (with apologies to Gustav Holst).
#311 Still soem of those cluelss clowns around. Just gotta shake you head.
#320 John
Yeah. Second that.
#320 John; This thing at some point IMHO will casue a recession. Almost every body and all areas had a hand in it.
TJ,
No, no … I thought *you* said it was back on the market.
Oye … I have to scroll back.
It’s late Friday afternoon … time for a mental margarita :)
Scribe,
I don’t believe this property is or was a flip. Just someone who got it for a great price in the current market in Basking Ridge.
UCD: 03/30/2007
CD: 04/30/2007
DOM: 137
OLP: $499,000 LP: $459,000
SP: $355,000
MLS: 2342040
Scribe,
Mental Margharita, 10 more minutes and you can have a real one or six!
#307 pretorius I agree you can have demand, but if the the homes are not affordable, and the financing that put people into those unaffordable homes has dried up, then they can demand all they want, but it will not put them in a home.
For all those buyers who were putting 0 down on a 500k POS cape, now many of those now will be able to come up with a down payment of 10% on that 500 POS cape/ Not many I would suspect.
The only thing that will help is a significant drop in prices. Keep in mind there was no toxic financing during the last down turn.
Hey TJ #247:
I am just saying that the media loves to spin, no dislike of the media here. It is their job. And yes, this is just a blog, no kidding.
But, YOU seem to have a dislike of the “Joe-Six” pack flippers who made money some easy money in an up market. Jealousy and bitterness are such unattractive qualities, yes?
And why diffentiate between people with or without college educations? Not relevant at all.
Perhaps stick to the facts and leave your petty hangups at home, yes? Cheers…
Scribe (327)-
“It’s late Friday afternoon … time for a mental margarita :)”
This Friday, it’s time for a flaming Jager/151 shooter.
Jealousy? Those flippers are all going belly up, just like the stock-picking chimpanzee during the dotcom bubble eventually did.
Jealousy? Nah.
Schadenfreude? Yes.
BC Bob #321,
http://www.ofheo.gov/HPIMSA.asp
Select New York-White Plains-Wayne, NY-NJ or Newark-Union, NJ-PA.
You will notice that prices were, in general, flat from 1989 to 1996. Then prices began to increase at acclerating rate.
It is also notable that the recent boom was mild in comparison to the previous mid 1980s boom.
Imus,
God help you. This does not warrant a response.
All,
If someone else feels that my comment (#247) came off with jealously or bitterness please respond.
gary said:
I’m thinking about changing careers:
https://www.americanhm.com/index.html
Hey – it sounds like a growth opportunity. I went to their investor relations page and their stock is up 3.7% today. It’s a steal at 28 cents/share!
nope
Imus is bi anyway.
njpatient,
I believe you are correct. It’s his bitter, non-college educated bag holding alter-ego.
All of your “college educated”, non “Joe 6 Packs” board buddies, with more than a basic “understanding of economics”, are sure to agree with you. Just try to be open to a new opinion for once, without having to draft a 3 paragraph rebuttal. Have a good weekend.
in terms of personal finance, i believe the less you know economics the more you will be successful. a friend of mine is a Ph.D from princeton and a well-known economist, but he lost shirts in two investments and rescued by his lovely wife, a high school drop-out.
> Most of us understand standard economics and we understand upswings and downswings and the better of us can capitalize from both. All we are saying is this major upswing in which most Joe Six Packs w/o college educations getting half a million to fix houses was due for a major down swing.
TJ,
OK, got it now. Thanks for the clarification.
Bi,
Excellent point and great anecdotal story. I also believe the less you know about anything the better off you. Take driving for instance. I have a friend who was a driving instructor for 30 years. He ran through a red light, got t-boned and almost died. Lucky for him, this guy without a license, who was driving drunk that night, saved his life.
pre [334],
I owned two properties during this time frame. If you bought in 1988, prices for single families dropped approx 20-25%, condos, close to 50%, peak to trough. However, if you want to data mine and plug in 1988-1996 [how convenient], yes you will see that prices were flat. It took you eight years to catch up to 1988 prices, not adjusted for real prices. Why don’t you look at 1988 to 1992-1994.
Today’s insanity? Much, much worse. That pullback was caused by a recession. This bust will lead to a recession. Back then, you actually had to put $ down and qualify. Imagine that?
“The Office of Federal Housing Enterprise Oversight said late Friday it would not allow Fannie Mae to increase its portfolio beyond the $727 billion limit created in May 2006, despite arguments by the company and senior Democrats that a change would provide much-needed stability to the shaky mortgage market.”
http://www.marketwatch.com/news/story/us-agency-rejects-fannie-maes/story.aspx?guid=%7B4E09B47F%2DBE57%2D438D%2D8673%2D3EC59DAE0DF2%7D
John #320
sounds familiar, I bought back in ’99. Since then we have added three kids and a small design company crammed into a 3 bedroom bungalow.
We’re making do, but the space gets smaller and smaller as we grow.
We’ve been making plans to buy land and build a new home/office and we we’re hoping to jump in this spring, but this week has diminished any confidence. Difficult to see the horizon with this kind of weather, especially when the clouds are being juiced.
OK, I would imagine that this has turned up here already, but I need to make sure any misconceptions created by my posting is corrected so from CR:
…the Fed didn’t buy “billions of dollars worth of crumbling bonds”. The MBS is just put up as collateral, and unless the banks go under in 3 calendar days, they will pay the loan back with 3 days of 5.25% interest. No big deal.
Bill is far more informed on these matters than I am, so the idea of a bailout by the Fed, is, at the moment, off the table. I am very sorry if anyone out there is now talking out of there ass because of my foolishness.
And as always, if you’re not reading calculatedrisk.blogspot.com, you should be.
bi Says:
August 10th, 2007 at 5:24 pm
in terms of personal finance, i believe the less you know economics the more you will be successful
bi: go f- yourself
pretorius Says:
August 10th, 2007 at 4:06 pm
JB #250, I am not a yield investor, so I do not worry too much about cap rates. I’m an IRR investor concerned about capital appreciation. If I buy a townhome at say a 2% cap rate and my cash flow is negative during some months due to vacancy or repairs, that is okay with me – I don’t need the income, and I have plenty of cash.
What I’m looking for is price appreciation that is greater than my borrowing costs.
By the way njrereport readers, a cap rate is a valuation metric that measures unlevered yield. The most common definition is: (property revenues – property expenses) / price.
pret-a-manger: I don’t give a crap about your wonderful theories in real estate. By definition, any piece of investment real estate is priced according to a function of rent roll. Even though a “cap rate” is a blunt force instrument of real estate finance, the IRR does not substantially drift from it. If you want to may some kind of “shrewd” swipe at RE speculation…fine, but spare us the lecture. There is no way you can defend buying anything any time soon. You are woefully hyper-optimistic about how things are going to shake out from here over the course of the next five years.
Bednar’s back and the comments are fast and furious. Between work, some freelance activity and this board (plus monitoring my plunging apple stock), I’m playing catch-up.
Great comments today.
Please explain what everyone means by Sept 1 approaching? What is going to happen…..did I miss something..
Daily lurker…do not post hardly ever just love to read all of the chaos!!
Jerseygirl
BC-Bob 270
the cheese is an acquired taste, and like debt, it’s definitely not for everyone…the aroma does linger
btw, came across this thread on one of my team’s boards, overall – BC road trip seemed to get good reviews from the Tigers
http://www.thetigernet.com/forums/message.jspa?messageID=4651366#4651366
#339 Imus And what might that opinion be?
#334 Pretorius:”It is also notable that the recent boom was mild in comparison to the previous mid 1980s boom.”
No it was not, better check your research. This one (real estate bubble) was the biggest and most reckless. Thats why the consequences are going to be so dire.
bi Says:
August 10th, 2007 at 5:24 pm
“…in terms of personal finance, i believe the less you know economics the more you will be successful…”
Yeah, bi. Sure. Didja figure out at any point this week that the HB move was a short-covering rally?
Still getting long HBs? Loving their fundamentals?
If you’re still long these guys 14 days from now, I’ll bet any amount of money on earth you’ve gotten a margin call (at least one) and your broker is well on his way to liquidating all your holdings.
ChiFi (348)-
Cap rate, schmap rate. Make it cash flow positive, or leave it alone. Accepting near-term loss under the guise of being able to overcome it with future gain is the RE equivalent of diving into shaky bonds with the willingness to accept erosion of principal. Any piece of inventory out there right now will only be less expensive in a very short amount of time.
Bath (349)-
All disclaimers, but I’m back in with a vengeance, snapping up all the top-shelf stuff that the hedgies have had to unload over the past few days. These guys are facing credit crunches AND redemptions galore, and the fastest way for them to do it is to dump the best longs and cover the shorts on the worst crap. How else could Vonage have had a 10% pop yesterday?
Look at the market like Alice in Wonderland: down is up, and up is down. Lots of traders are already in the breech, snapping up gobs of the top-shelf stuff that’s being given away.
This is like finding an Armani suit at WalMart. Good times! Gotta learn to love to vol.
Again, all disclaimers.
Cap rate, schmap rate. Make it cash flow positive, or leave it alone. Accepting near-term loss under the guise of being able to overcome it with future gain is the RE equivalent of diving into shaky bonds with the willingness to accept erosion of principal.
Investment versus gambling.
jb