From the Press of Atlantic City:
Local mortgage shoppers find it’s not so easy
A single mother who earns $14.20 per hour at Tropicana has found herself in the same position as the owner of a law practice and three investment properties in Ventnor: Both are having a harder time obtaining a mortgage here than they would have six months ago.
Almost anything went among mortgage lenders and brokers until problems in the industry surfaced publicly early this year. Some lenders freely gave 100 percent financing to people with bad credit who couldn’t document their income. Now, jittery lenders are requiring better credit scores, down payments and documentation of income as dozens of mortgage companies are being forced to close and more people default on their loans.
The tightening credit market is making it harder for some people to obtain mortgages – especially those with no money down – say local brokers, who are scrambling to keep up with guidelines that beleaguered lenders are changing almost daily. Many of them, while acknowledging the distress to their bottom lines and some consumers, see the pullback as a return to standards that should have been required in the first place.
At one end of the homebuyer spectrum is Doris Rodas, who makes sandwiches at Tropicana Casino and Resort and has rented in Atlantic City for 22 years. Her credit score is high, but she cannot afford the down payment that lenders are increasingly demanding. She said she lives “check for check, every week – no extra money for (anything).”
Rodas’ real estate agent, Jose Sinclair of Balsley Losco in Northfield, has a stack of files just like hers.
All these people could be real buyers before,” he said. “That’s why we are so slow.”
Rodas has been looking for a house with enough room for her mother, brother and son. She will not be able to obtain 100 percent financing for a house beyond the $150,000 to $175,000 range because her income is low. Standard loan requirements prohibit her from obtaining a mortgage with monthly payments exceeding about 41 to 45 percent of her income (minus monthly liabilities, such as car payments), her loan officer said.
The Atlantic City area’s median single-family home price is $264,600. Rodas said she likely will have to move to Vineland for an affordable home.
Rodas and others like her six months ago would have been able to obtain loans for pricier houses quickly, no matter what their credit or income, Sinclair noted.
“Buyers need to understand that … in the long term this is good, this is helping to correct the market,” Sinclair said. “It is a good thing, as bad as it seems.”
…
One of those is Atlantic Coast Mortgage. Not long ago, a prospective homebuyer could obtain a second mortgage, “no doc” loan and easy 100 percent financing. Those loans recently comprised 25 percent of the company’s business, but have dwindled to nothing, Vice President Jim Malamut said.The office has “been nuts” during the past month, Malamut said. Atlantic Coast Mortgage has received e-mail notifications of changed guidelines, products being eliminated and assurances from lenders that they are not, like so many others, collapsing.
“It definitely hurt our bottom line. … I’m sure it’s hurt everybody out there. It’s just a reality check,” he said.
…
Tighter restrictions are “certainly going to impede a lot of people from purchasing homes,” said Joseph Heisler, president of the New Jersey Association of Mortgage Brokers. “First-time buyers are going to be more dramatically affected because of the lack of the lower down payment types of programs like FHA or loans with 100 percent financing.”Tougher credit requirements also could hurt local casino workers, noted Karen Thompson, manager of Liberty Mortgage Services in Ventnor. Liberty Mortgage handled a lot of alternative loans for casino workers who relied on tips, making it harder to document their income and build up credit if they used mostly cash.
“There’s a lot of people that expect us to do miracles because that’s pretty much what we were able to do before,” Thompson said. “I mean, who in the world ever heard of, ‘Hey, no money down, your credit score is 580, and no money out of your pocket?’ Now forget it. It’s not happening.”
From MarketWatch:
U.S. foreclosure activity for July reported up 9% from June
U.S. foreclosure filings totaled 179,599 last month, up 9% from June and 93% higher than in July 2006, according to data compiled by RealtyTrac. Five states — California, Florida, Michigan, Ohio and Georgia — accounted for more than half of the nation’s July foreclosure filings, said James Saccacio, chief executive of Irvine, Calif.-based RealtyTrac. But Nevada came in with the nation’s highest state foreclosure rate for the seventh month in a row — one foreclosure filing for every 199 households in July, a rate more than three times the national average. Detroit had the highest metro-area foreclosure rate, up 70% from July 2006. RealtyTrac compiles its data based on the three phases of foreclosure: default notices, auction sale notices and bank repossessions.
How does Rodas even afford a car on that salary?
From Bloomberg:
U.S. Home Foreclosures Almost Doubled in July, RealtyTrac Says
U.S. homes in the foreclosure process almost doubled in July from a year earlier as variable-rate mortgages reset higher, leaving more homeowners unable to make their payments, according to RealtyTrac Inc., a seller of foreclosure data.
Lenders sent 179,599 notices of default, scheduled auctions or bank repossessions last month, a 93 percent increase, with the highest rates per household in Nevada, Georgia and Michigan. California, Florida and Michigan had the most homes caught in the foreclosure process, Irvine, California-based RealtyTrac said today in a statement.
…
“We are estimating that we will see about 2 million foreclosure filings this year,” said Rick Sharga, RealtyTrac’s executive vice president for marketing. “We honestly don’t see it getting much better before it gets a little bit worse.”
$14.20/hr and she’s pissed??!! at 500/week, how the hell can she afford to buy anything??
She’s pooling the money that others in the household make. She’s probably got the highest fico so the loan goes in her name but others are contributing to it.
There is a level of insanity here that is completely consistent with places like the new developments in the Poconos where family bought in, commuted to NYC and the like, and then proceeded to lose their asses on costs like gasoline and transportation….
China’s central bank boosts key rates
An adjustment to lending and deposit rates to curb inflation
http://www.msnbc.msn.com/id/20370600/
The People’s Bank of China said in a statement on its Web site that it was raising the one-year yuan lending rate 18 basis points to 7.02 percent from 6.84 percent, effective Wednesday.
Are we going to see new CAryr trade – dollar – Yuan – dollar is weakening, Yuan will get stronger, with fed’s rates low – it is a win-win.
The Rise and Collapse of Wall Street’s House of Debt
http://agonist.org/numerian/20070819/the_rise_and_collapse_of_wall_streets_house_of_debt
From the NY Times:
2005 Incomes, on Average, Still Below 2000 Peak
Americans earned a smaller average income in 2005 than in 2000, the fifth consecutive year that they had to make ends meet with less money than at the peak of the last economic expansion, new government data shows.
While incomes have been on the rise since 2002, the average income in 2005 was $55,238, still nearly 1 percent less than the $55,714 in 2000, after adjusting for inflation, analysis of new tax statistics show.
The combined income of all Americans in 2005 was slightly larger than it was in 2000, but because more people were dividing up the national income pie, the average remained smaller. Total adjusted gross income in 2005 was $7.43 trillion, up 3.1 percent from 2000 and 5.8 percent from 2004.
Total income listed on tax returns grew every year after World War II, with a single one-year exception, until 2001, making the five-year period of lower average incomes and four years of lower total incomes a new experience for the majority of Americans born since 1945.
The White House said the fact that average incomes were smaller five years after the Internet bubble burst “should not surprise anyone.”
The growth in total incomes was concentrated among those making more than $1 million. The number of such taxpayers grew by more than 26 percent, to 303,817 in 2005, from 239,685 in 2000.
These individuals, who constitute less than a quarter of 1 percent of all taxpayers, reaped almost 47 percent of the total income gains in 2005, compared with 2000.
Edison-based REIT, Hanover Capital Mortgage, posts loss, cuts dividend.
From PR Newswire:
Hanover Capital Mortgage Holdings Announces 2007 Second Quarter Results and Decision Not to Declare a Dividend
Hanover Capital Mortgage Holdings, Inc. reported a net loss for the quarter ended June 30, 2007 of $11.4 million, or $(1.42) per share on a fully diluted basis. The Board of Directors did not declare a second quarter dividend.
For the three months ended June 30, 2007, the Company recognized a net loss of $11.4 million compared to net income of $0.9 million for the same period of 2006. This decrease is due primarily to impairment expense of $11.8 million for other than temporary declines in fair value of the Company’s Subordinated Mortgage-Backed Securities (“MBS”) and a reduction in gains from sales of its Subordinate MBS partially offset by an increase in net interest income on the Company’s Subordinate MBS.
For the six months ended June 30, 2007, the Company recognized a net loss of $10.6 million compared to net income of $0.2 million for the same period of 2006. This decrease is primarily due to impairment expense of $11.8 million for other than temporary declines in the fair value of the Company’s Subordinate MBS portfolio and a $0.5 million legal settlement, partially offset by increased net interest income of $0.9 million on the Company’s Subordinate MBS portfolio and a gain on sale of $1.3 million of its HCP business. The gain on sale of the Company’s HCP business is included in income from discontinued operations.
…
John A. Burchett, President and Chief Executive Officer, commented, “The Company’s Board did not declare a second quarter dividend due to the continued uncertainties in the mortgage industry, the current interest rate environment and our net loss for the quarter. The Board will revisit the dividend issue in the third quarter.”
…
“Although we do not invest in subprime mortgages or mortgage-backed securities collateralized by subprime mortgages, we have been impacted by the significant losses in the subprime sector of the residential mortgage industry that began to occur in the first half of 2007. These losses seem to be due to underwriting deficiencies, increases in interest rates on adjustable rate mortgages, and declining housing prices. These losses and the corresponding fervor of information reported through the media have caused the credit spreads (yield for credit risk) to increase for the industry as a whole and caused overall investor demand for mortgage-backed securities to decrease.”
pre-open indication: 10 year yield down to 4.59%, 9 basis points to my target of 4.5%. oil is going to be under 70 and srs under 100 today…
BI:
Your window is too short term. In the longer term, you may consider jumping out of it ;)
Your window is too short term. In the longer term, you may consider jumping out of it ;)
Priceless!!!
Tighter restrictions are “certainly going to impede a lot of people from purchasing homes,” … “First-time buyers are going to be more dramatically affected because of the lack of the lower down payment types of programs like FHA or loans with 100 percent financing.”
Wait a second. It wasn’t like we were a national of homeless people before the lending industry threw their standards out the window. In the olden days (1999), first time buyers saved for a down payment and purchased a reasonably priced home based on what they could afford.
Tighter restrictions are great news for first time buyers. While it may not seem that way in the short term, tighter standards severely curtailing risky lending is going to mean first time buyers will be able to afford homes without resorting to suicide loans. Home prices will need to readjust to the new (or really old) reality of realistic lending standards.
Saying “eliminating risky loans is going to impede first time buyers” is like a steroid dealer saying, “banning steroids is going to make it harder to become a professional athlete”. When if fact, all steroids really do is raise the performance bar for everyone, so there is no net overall advantage to steroids. At the same time, athletes choosing not to risk their health with steroids are placed at a competitive disadvantage.
09:00 am : S&P futures vs fair value: -1.2. Nasdaq futures vs fair value: -4.8. Early sentiment continues to weaken as S&P 500 futures join the Nasdaq 100 futures below fair value. The flight to quality in Treasuries is again readily apparent as lingering credit concerns continue to foster a more risk-averse mindset. The yield on the 2-year note slipping below 4.00% amid hopes of a Fed rate cut now leaves the curve between 2 and 10-year notes with their widest spread since May 2005.
Equity investors are also weighing reports that The Bank of England’s lending facility to banks was tapped for the first time in about a month while U.S. foreclosure filings rose 9% from June to July and soared 93% year/year.
Northern New Jersey is insulated.
gary,
I believe the term is bubblewrapped.
jb
Thank you, jb.
From housing panic http://www.youtube.com/watch?v=4tZlocBtKqk
NEW YORK (Reuters) – Stock index futures fell on Tuesday, after U.S. Treasury Secretary Henry Paulson said there are liquidity concerns which will take time to play out.
“There’s not going to be a quick solution to some of the issues in the credit markets,” Paulson said.
S&P 500 futures fell 3.90 points, just below fair value, a formula to evaluate pricing taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures slid 29 points, and Nasdaq 100 futures skidded 2.50 points.
——————————————
Hmmm. So the FED is admitting that even a rate cut might not solve the turmoil. Honesty?
RentinginNJ,
That is a great analogy.
jb
This board has level-headed people … how do we put the word out that you must save and not spend?
That you should only purchase needs, and not wants?
How to convey this on a grand scale?
How to convey this on a grand scale?
How do you tell a smoker they shouldn’t smoke? An alcoholic that he shouldn’t drink?
Consumerism is a disease and spending is self-medication.
jb
Bloodbath in Winter 2007 Says:
August 21st, 2007 at 9:43 am
This board has level-headed people … how do we put the word out that you must save and not spend?
That you should only purchase needs, and not wants?
How to convey this on a grand scale?
——————————————–
It is a major psychological shift. Deeply imbedded in our culture and lifestyle. This is the Big Question right now imho. Those who can adapter and are intelligent stand a chance in the coming years. Yet, fate can still hand out cards to even bright people.
how do we put the word out that you must save and not spend?
Have people sit through elementary school classes on differentiating ‘want’ vs ‘need’ ? If those little children can figure it out, so can the rest of us.
It’s hard to say no to a child…..even your inner one.
in regards to the foreclosures, one type of foreclosure is a default notice. does everyone send out notices after X amount of days of not paying or is it set by the institution. i’d also be curious how much of this makes up the pie.
I’ve been reading this book called The Elephant and The Dragon re India and China and the global economy. In any event, the sharp decrease in savings is actually a relatively new phenomenon. As late as the late 90’s the average American had an 8% savings rate. That dropped to a -1% around 2005. Thanks Alan Greenspend.
Richard,
Realtytrac breaks it out, at least at a high level.
New Jersey – July “foreclosure events”
Lis Pendens – 2,813
Notice of Foreclosure Sale – 1,123
Real Estate Owned – 215
jb
Here is 2006, for comparison:
Richard,
Realtytrac breaks it out, at least at a high level.
New Jersey – July 2006 “foreclosure events”
Notice of Default – 2,136
Notice of Trustee Sale – 459
Real Estate Owned – 130
(Note, they changed the reporting methodology)
jb
A questionf or the financial gurus here:
Would it not make more sense for some of these banks and Finance groups holding the ARMs to work out a payment plan with the current owner instead of foreclosing on them? By foreclosing it looks like most of the lenders stand a very good chance of losing ,oney on these homes as the market corrects itself and prices drop?
Would it not make more sense for some of these banks and Finance groups holding the ARMs to work out a payment plan with the current owner instead of foreclosing on them? By foreclosing it looks like most of the lenders stand a very good chance of losing ,oney on these homes as the market corrects itself and prices drop?
Banks are in the business of making cents (money), not “sense”…
Kettle1:
It would make perfect sense and in some cases the banks and mortgage companies are doing this. Unfortunately the Streets creation of Collateralized Loan Obligations and other exotic debt sales devices have made it literally impossible for the home owner to negotiate with the lender since the lender already sold the debt to a group of multiple loan holders who not only are impossible to identify, but in many cases have leveraged that debt to the hilt. This is the root of the subprime mess.
Banks are in the business of making cents (money), not “sense”…
That is very true, but my question stands. wouldnt they make more money keeping the current owner in the houses at the original price they paid instea dof forclosing and eventually selling at a lower prce as well as possibly forgiving part of the loan given to the origianl owner?
Would it not make more sense for some of these banks and Finance groups holding the ARMs to work out a payment plan with the current owner instead of foreclosing on them?
The simple answer is yes. Unfortunately, it’s not so simple anymore.
In the old world, the one where the originate-to-hold model was still true, the lender could “work out” a loan.
The new model is originate-to-securitize. That mortgage, once made, is sliced, diced, and resold as part of other investments. In this environment, a workout isn’t so easy or clear cut.
Why?
Because loan investors might not want a workout, they might prefer a foreclosure, even at a cost. When these loans are securitized and tranched, the higher quality tranche investors receive less yield in exchange for more safety. The lower tranches, get a higher yield in exchange for bearing the risk. When you “work out” a loan, it is at the benefit of the lower tranch holder, who now gets the same level of yield for bearing considerably lower risk. The higher tranche owners, who have basically purchased the future payments on the loan, get punished, since those future payments will be lower than expected. The value of these higher tranches are punished, but the lower tranches are rewarded. If the foreclosure takes place, the lower tranche will take the loss, as they were being compensated to do. The higher tranche, however, wouldn’t be impacted immediately. It would take a significant number of losses before these higher quality tranches began to take losses.
Here, risk has been turned upside down. The “safe” position takes a loss, while the “risky” position gets a “bailout”.
If workouts were forced on these securitized loans, investors might begin to demand additional yield for the higher tranches, making mortgages more expensive for everyone.
jb
re: no 28 HEHEHE
Apropos the book you’re reading, check out this story on Bloomberg that provides a fascinating look at the manpower shortage in India and the psyche of skilled employees:
http://www.bloomberg.com/apps/news?pid=20601109&sid=aNtGr9ytmeYI&refer=home
Would it not make more sense for some of these banks and Finance groups holding the ARMs to work out a payment plan with the current owner instead of foreclosing on them?
It is often possible to agree on modified terms.
However, there are a few issues with work out plans:
1 – In the old days, your friendly neighborhood bank typically held the mortgage. Today, mortgages are chopped-up, reconstituted and repackaged and sold off to investors. This often makes it harder to work out.
2 – It can be an issue of chasing good money with bad money. If the mortgage is not performing, it may be better from an investment perspective to seize the collateral before housing prices fall any farther and you take a greater loss later.
3 – You need a willing borrower. When push comes to shove, how many borrowers will want to sign up for a life of debt slavery (with work out payments going from unaffordable to barely affordable) for a depreciating asset, when they put no money down and have no skin in the game.
#35 JB: Also I would think that banks/lenders would no want to set a precedent, if everybody knows they will get bailed out in the end, what difference does it make? It just encourages recklessness IMHO.
James Bednar Says:
August 21st, 2007 at 10:16 am
Keep in mind this is a gross oversimplification of the issue.
jb
“This board has level-headed people … how do we put the word out that you must save and not spend? That you should only purchase needs, and not wants? How to convey this on a grand scale?”
I don’t think you can put the word out. The only way to force savings is for the US to have a bout of heavy inflation for a few years. I think people will actually think about it and save for a rainy day, even though the future value of money is sharply declining. Savings has to be ingrained in the family or culture. Unfortunately, you see this consumerism all the way up the food chain, from overspending parents, entitled kids, bloated government spending and huge deficits. Sorry, but when you have a President telling people to go out and spend (even more dangerous given the guy always had a blank check), it’s setting the wrong precedent.
Until there is suffering, where is the incentive to save? Perhaps revamping the tax code for a flat consumer tax in place of the plethora of federal, state, sales and FICA taxes might help people save.
#35 JB: Also I would think that banks/lenders would no want to set a precedent, if everybody knows they will get bailed out in the end, what difference does it make? It just encourages recklessness IMHO.
If your neighbor was able to work out better terms, and a cheaper mortgage, what is stopping you from attempting to do the same?
jb
savings rate plunged pretty close to the point at which real wages stagnated. while there does seem to be many more “must have” (really superfluous) items/services in each household every year, I think much of the lack of savings and debt explosion is explained by ordinary people trying to simply maintain their standard of living in the face of flat to negative real wages and rapidly rising prices for everyday items such as food, energy and housing.
#33 and #35
First thanks for the lesson, second, assuming that it is feasable it then seems that it coul dbe in your best interest to find a bank/ financial group that is known to hold its loans and not collateralize them. Would that be an logical step given the psycotic nature of the current mortgage market?
#42 NO, too much granite, stainless steel, expenseive car pymts/leases, multiple trips to the DR, and just a huge sense of entitlement;IMHO
We’ve been reduced to theme parks, Paris Hilton and malls. Welcome to the United Dumb@ass States of America.
“The country’s six Indian Institutes of Management turn out a total of about 1,500 graduates a year, making the students with their master’s-level degrees prized hires.
In 2007, the 235 graduates of Indian Institute of Management Ahmedabad received 493 offers from 91 firms, according to its Web site. Of the offers, 120 were from overseas, up from 86 in 2006. Students accepted 64 of the foreign offers at salaries as high as $300,000. Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm, made the most offers at 17. It got 14 acceptances.”
Going back to the Bloomberg article in India….. competition in India is really fierce to get into these top MBA institutes. You need a 99.5 percentile score in the CAT exams to be accepted into these institutes. My guess is approximately 300,000 students sit for these exams every year.
#40
I don’t think inflation incentivizes savings–just the opposite. If you know everything is going to be more expensive tomorrow, better buy now. That is exactly what happened during the housing boom.
I agree though that there needs to be some kind of economic strife to encourage saving. I think job losses will do it.
#41 JB I agree. Just simply saying that if workouts ebcoem common place, and everybody knows they can do this, at perhpas very favorable terms, what incentive is there to be prudent? None at all it would seem.
However if the “street” is crying to the Fed for a bail out, then I guess its only fair, that everybody gets bailed out. So its only capitalism when all is well.
If nothing else the current housing/debt circus we are currently seeing is really quite educational, even more so if you get to watch from the sidelines, relativly speaking. I have done a fair amount of reading on finance, investing and what not, but to watch a “dynamic” economic evolution has been a learning experience so far in that a lot of the more intricate interconections between market forces becomes more obvious and the consequences more understandable.
#44
but what happened in the late 90s that caused Americans to suddenly become more profligate than they were 5 yrs earlier?
I agree that it sometimes seems as though everyone is borrowing to the hilt to live it up, but I sort of think it seems this way because these people are the most visible (they are trying to attract attention). There are plenty of people who are using credit cards to pay for groceries and gas bills as well who don’t have granite counters, etc
you guys bears can pray here all day long for inflation, job loss, recession, depression, crash and foreclosure all day long. but it won’t happen. repeat 3 times. we will not have serious recession or depression in our life time. period. there will be few (if any) foreclosures in the town you want to move in. period. if any, the discount you got will not be sufficient to cover your broker’s fee, which is 10% as norm.
bi,
The buyer doesn’t pay the broker’s fee and the seller’s fee is not a “norm” of 10%.
Having an opinion and having an educated opinion are two different things. Try to do a little research before making “statements of fact”.
Rich
#47, in theory inflation should mean people spend since the money is worth less tomorrow.
However, having grown up in India amidst double digit inflation always, people actually save more today so that they can afford more in the future. Kind of perverse, but that is what happens. You’re always saving for a rainy day so to speak….
52#, i was told that foreclosure is different from normal property transactions. for foreclosure, the buyer hires broker to bid the property and pays the fee. please corrent me since you are in the industry.
bi,
Amazing that you can chastise a prognosticator only to offer up your own pompous prognostications in the same breath.
jb
Hoodafa,
The book I am reading pretty much says the same thing. The real problem with India is the fact it’s a democracy and there are pockets of growing wealth but a huge amount of poor people. All you need is pandering politicians and any market reforms can go out the window. Plus their infrastructure is apparently horrendous. In that regard China’s authoritarian regime has a better chance to succeed.
The problem for China is they have yet to suffer a recession since they’ve come on line to the world economy. There’s essentially no safety net in place if they have to start laying off people, thats part of the reason they have such a high savings rate and people are throwing all their money in the stock market. There is no social upheaval when things are going good.
Plus the whole environmental impact to both countries is pretty nasty. There was a good PBS special a few weeks back about this port city in India that’s used for taking apart old freighters and tankers, work that’s essentially been banned in the West due to the chemical pollution. People come in from the country to take these really dangerous jobs because it pays more than farming. Guys inside ships 30 feet in the air cutting steel girders with torches kind of guessing where the best place is to cut with crushing anybody below them. They then ship the steel off for re-use elsewhere. Of course they have a hard hat, sunglasses, and a hankerchief over their mouths. India’s OSHA does not exist. It’s almost like a never ending 9-11 cleanup.
#51 bi: It is already happening? Why are you so angry? Why the belief that prices can only go up, and negative things (recession) cannot, and will not happen? Do you really believe the Fed is there to do your bidding?
You claim you love this great country,and you understand teh system, well if you do, you whould understand that booms and busts and recessions are all part of the economic system, and the greater the excess, the more painful the correction.
When did you become the self-appointed all knowing master of real estate, forecloures, job loss recessions and all the rest.
As I supsect you are a recent home buyer, or perhaps speculator/flipper, who is now left holding the bag.
From MarketWatch:
New York Fed lowers fee for securities-lending program
The New York Federal Reserve Bank lowered the fee it charges banks for borrowing Treasury securities overnight from 1% to 0.5%, the bank announced Tuesday. The securities lending program is designed to increase liquidity in the Treasury market. Primary dealers who borrow Treasurys from the Fed are required to post collateral of other Treasurys.
I can’t decide whether I’m more furious that the fed is apparently bailing out the bad actors in the MBS market or more afraid that the fed maybe trying to prevent systemic failure of the credit markets
you guys bears can pray here all day long for inflation, job loss, recession, depression, crash and foreclosure all day long. but it won’t happen. repeat 3 times. we will not have serious recession or depression in our life time. period. there will be few (if any) foreclosures in the town you want to move in. period. if any, the discount you got will not be sufficient to cover your broker’s fee, which is 10% as norm.
To this lunacy, I quote the simpsons:
Lisa: You know, dad, all glory is fleeting.
Homer: So?
Lisa: Beware the Ides of March
Homer: mmmmmm… No.
Lisa: I know you’re enjoying it now, but it’s not going to last forever
Homer: Everything lasts forever.
CAIBC: If youa re around, you were looking for that njmls listing number for that house in Oradell. Here it is 2729795
Just wanted to say thank you all for the bountiful information supplied here. Most especially a sincere thanks to James for all your work. I held out as long as I could on buying and watched the house I wanted drop $50,000 in value and reach a reasonable price. I’m now paying $216 more a month (after taxes) for a home than I was renting with an additional 800 sq ft of space (even more when I get the chance to finish the attic). It was truly a test of will but with the addition to the family, an expiring lease, and a psychotic landlord, I think we made the right decision. Finally, a reasonably priced colonial. :)
LeeorS,
Congratulations.
Bi,
Wake up dog. It’s ugly out there and there is a huricane by the name of “tightcredit” on the forecast. It’s headed our way. This is a categeory 6 and there will be billions in damage regardless. Lets hope that the eye of the storm hits Europe and Asia and only wipes out our leveraged hedge funds.
After the world sees the picture of the damage “tightcredit” did they will not buy our debt and we will stop consuming at these unsustainable rates.
Dollar will be thrown under the bus and our imports will suffer. This will cause us to go back and actually produce something and actually save and invest real capital not debt.
How’s that for a lifelong Bull like myself who is looking into investing into Euro denominated assets get out of the dollar period.
I love Real Estate and I love this great nation and being a capitalist is a being American.
Until I realized recently, I thought that Cash is gonna be KING. Now I realized that cash=depreciating asset=less purchasing power.
Bretton Woods agreement will be null and void 6 months after feds ease up. Central Banks and businesses will flee the dollar. Dollars will come home to roost and that will translate to double digit inflation and super tight credit.
I’m a life long Bull who has converted his religion to a Grizzly Bear. And considering global warming maybe even a Polar Bear.
Forget about North Carolina I’m seriously considering moving to the Adriatic Coast of Albania.
#56″The book I am reading pretty much says the same thing. The real problem with India is the fact it’s a democracy and there are pockets of growing wealth but a huge amount of poor people.”
Sounds like “From the Press of Atlantic City”
At one end of the homebuyer spectrum is Doris Rodas, who makes sandwiches at Tropicana Casino and Resort and has rented in Atlantic City for 22 years. Her credit score is high, but she cannot afford the down payment that lenders are increasingly demanding. She said she lives “check for check, every week – no extra money for (anything).”
LeeorS,
I wish you the best of luck in your new place.
jb
Dodd’s stumping.. I mean holding a press conference on liquidity and th ehousing market.
#64
if there is going to be massive inflation this is actually an argument for levering up and buying RE. Just saying.
why is the inflation scenario more likely than the deflation scenario that Japan experienced post-RE bubble?
Did any of you guys see this article in Sunday’s Record?
http://tinyurl.com/2r2pak
I hate these articles. They’re designed to make people think they have to run out and remodel their kitchens and baths to the latest fashion. It’s one thing for a house like mine, which was built in the 1950’s, to not have the latest features. But now even owners of houses that were built within the last 5 years with those platform tubs are being told that their bathrooms are outdated and “buyers don’t want this.”
I wish the Record would position these articles as ads instead of editorial content. Because they are designed SOLELY to put people into a panic and make them call remodelers.
Forget about North Carolina I’m seriously considering moving to the Adriatic Coast of Albania.
I hear the beaches are beautiful. Do you hold a dual citizenship?
jb
HEHEHE: Are you reading China Road, by Rob Gifford?
#64 MM: What amde you change your mind?
Just realized that $14.20 an hr. is $30K a yr.
Higher salary than 1st yr cop/teacher.
Stu, #8
Great article from the Agonist. Thanks for posting the link.
#62 Would you mind defining reasonable? And best of luck to you on your purchase.
#68 Skeptic,
Assuming that Bretton Woods is out the door and everyone flees the dollar.
All those dollars will come back home to us and hence the oversupply of dollars and double digit inflation.
Forget about buying RE to hedge inflation.
Buy Euro denominated assets.
with regard to # 76
I have considered the same general concept and have about 1/3 of my investements based in the european and asian markets.
Are there any banks, brick and morter or online in the US that allows you to hold a savings account in a foriegn currency?
“why is the inflation scenario more likely than the deflation scenario that Japan experienced post-RE bubble?”
I am ignorant of what happened to Japan; does anyone have some details of what happened? Like a website, maybe.
http://www.amazon.com/Elephant-Dragon-India-China-Means/dp/0393062368
make money,
actually the Adriatic coast of Croatia is beautiful and real estate is still cheap relative to the rest of European coastal countries.
From MarketWatch:
Fed ready to take any steps in credit crunch, Dodd says
Federal Reserve Chairman Ben Bernanke said he’s “absolutely” prepared to use “all the tools at his disposal” to address the credit crisis in the U.S. financial system, Sen. Chris Dodd, D-Conn., said Tuesday following a closed-door meeting with Bernanke and Treasury Secretary Henry Paulson. Dodd, chairman of the Senate Banking Committee, said he put no political pressure on Bernanke to lower the federal funds rate. Dodd urged the Fed to move quickly on changing regulations that would prevent abusive lending practices, while saying he would still consider new laws. Dodd said he was disappointed that the Treasury wouldn’t consider lifting caps on the amount of mortgages that Fannie Mae and Freddie Mac can hold. Keeping people in their homes is the paramount issue, he said.
# 78 Justin:
read this from Wikipedia
http://en.wikipedia.org/wiki/Japanese_asset_price_bubble
make money Says:
August 21st, 2007 at 11:09 am
Bi, Wake up dog. It’s ugly out there and there is a huricane by the name of “tightcredit” on the forecast.
Albani: the name of the hurricane is “Chip”
Justin,
http://www.iht.com/articles/2005/12/25/business/bubble.php
http://en.wikipedia.org/wiki/Japanese_asset_price_bubble
jb
Re: 56 HEHEHE
I heard someone describe these pockets of wealth as islands of prosperity in an ocean of poverty.
Rather poetic, I thought!
#83 and #84
Thanks all. Very educational.
Durres – a real chicago kind of place….
http://en.wikipedia.org/wiki/Durr%C3%ABs
#84 JB
with regard to this link
http://www.iht.com/articles/2005/12/25/business/bubble.php
I find it interesting that the article states that one reason japan got hit so hard was because the Japanese FED did not step in to soften the blow.
I am no expert in the arcane world of high finance, but isnt it in most peoples long term interest to not have the blow softened? This plays directly into the debate taking place on this board over how/ why/why not the FED should be responding to wallstreets requests for help
maybe you’ll like this better….
http://www.starwoodhotels.com/luxury/property/photos/index.html?propertyID=3022#photo_section_3Link
OT, but was wondering what Albanians think of Mother Teresa? Does your heart swell with pride at the mention of her name?
Wow the conclusion of the Japanese asset price bubble appears eerily similar to what we are currently going through.
———————————————-
The easily obtainable credit that had helped create and engorge the real estate bubble continued to be a problem for several years to come, and as late as 1997, banks were still making loans that had a low guarantee of being repaid. Correcting the credit problem became even more difficult as the government began to subsidize failing banks and businesses, creating many “zombie businesses”.
The time after the bubble’s collapse (崩壊, hōkai?), which occurred gradually rather than catastrophically, is known as the “lost decade” (失われた10年, ushinawareta jūnen?) in Japan.
#9 “While incomes have been on the rise since 2002, the average income in 2005 was $55,238, still nearly 1 percent less than the $55,714 in 2000, after adjusting for inflation, analysis of new tax statistics show. ”
Where’s pretorius? I think this puts to rest the discussion we were having a couple of days ago…
#88
Yea, I was thinking the same thing when reading the lines below:
“Then came the crashes in both stocks and property, after the Japanese central bank moved too aggressively to raise interest rates.
Both markets spiraled downward as investors sold stocks to cover losses in the land market, and vice versa, plunging prices into a 14-year trough, from which they are only now starting to recover.”
Does your heart swell with pride at the mention of her name?
it sure does.
Does anyone know what Capital One paid for Greenpoint a year ago? It seems like it might have been a great investment.
Bi,
Did you provide the recomendation to Capital One?
ChiFi,
What’s with the Albanian Jokes? Don’t hate us cause we are beautiful!
From AP:
Thrifts Hit by Housing Market Problems
Mortgage defaults are slamming the savings and loan industry, although thrifts should be able to weather the housing market downturn, federal regulators said Tuesday.
Troubled assets – loans that are 90 or more days past due – jumped to $14.2 billion last quarter, up from $9.2 billion in the same quarter last year, the Office of Thrift Supervision said.
And troubled assets rose to 0.95 percent of total assets in the quarter, up from 0.62 percent in the second quarter of 2006.
The numbers are particularly attention-getting considering that thrifts, which take in savings deposits and make mortgage loans, are not big players in the subprime mortgage sector of loans made to borrowers with riskier credit.
Both markets spiraled downward as investors sold stocks to cover losses in the land market, and vice versa, plunging prices into a 14-year trough, from which they are only now starting to recover.”
Zero interest rates (ZIRP) did little to reinflate the Japanese real estate bubble.
jb
Does anyone know what Capital One paid for Greenpoint a year ago? It seems like it might have been a great investment.
From the WSJ:
Capital One to Close Its GreenPoint Unit
By VALERIE BAUERLEIN
August 21, 2007; Page A3
Capital One Financial Corp., citing “an unprecedented set of market circumstances,” plans to shut down its struggling GreenPoint mortgage unit — keeping only pieces of a business valued at $6.3 billion just three years ago.
The ninth-largest U.S. bank by market value, Capital One bought GreenPoint in last year’s $13.2 billion purchase of North Fork Bancorp, of Melville, N.Y. In 2004, North Fork paid $6.3 billion for GreenPoint Financial Corp., then a large New York savings and loan specializing in mortgages.
In a statement, Capital One, McLean, Va., said it will take an after-tax charge of $860 million, or $2.15 a share, most of it this year. The company is revising downward its 2007 earnings guidance to approximately $5 a share. Capital One had 2006 per-share earnings of $7.62.
ChiFi,
Since you seem to be inspired by the Albanian culture and traditions then I thought I’d let you know exactly where my folks are from.
http://www.ulqini.com/
Dear All:
Question:
When the market finally corrects itself, do you think that all buyers who has been sitting on the sideline will drive prices back up by creating a bidding war? Just want to know.
#73 Happy Camper
You wrote…”Higher salary than 1st yr cop/teacher.”
I don’t know where you live, but most cops start off at $60K in NNJ, which is ridiculous when you consider how little crime there is in some of these towns. In NYC, it’s a different story.
Buying a house is the worst investment Doris could possibly make. She should rent something cheap and get certified for a medical trade like radiology or nursing.
When the market finally corrects itself, do you think that all buyers who has been sitting on the sideline will drive prices back up by creating a bidding war? Just want to know.
What makes you think there are buyers on the sideline? Just a question.
jb
from The Telegraph UK:
Top Swiss banker attacks US lending standards as ‘unbelievable’
By Ambrose Evans-Pritchard and Yvette Essen
Last Updated: 12:15am BST 21/08/2007
Switzerland’s top banker has warned of massive losses from the unfolding credit crisis, describing the collapse in US lending standards as “unbelievable”.
Jean-Pierre Roth, president of the Swiss National Bank, said market turmoil was far from over as tremors from the sub-prime debacle continued to rock the world.
“We’re certainly not at the end of the story. There are question marks surrounding the development of the American economy,” he said. “Something unbelievable happened. People who had neither income nor capital got credit with very attractive conditions. Now reality is striking back,” he said.
advertisement
…
Stockmarket historian David Schwartz warned investors not be fooled by signs of recovery. “The truth is no-one knows how serious the financial problem in the US is, nor how it will unfold. We do know central banks are scared out of their minds,” he said.
more:
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/08/20/bcnswiss20.xml
September 5th will the 10th death anniversary of Mother Teresa. Princess Diana passed away a month earlier than Mother Teresa, yet I can almost guess how little press Mother Teresa’s death anniversary will get compared to Princess Diana. It’s a mystery how the human mind forgets deeds done by ‘smaller’ people. This isn’t a dig at Lady Di, but perhaps a reflection of us human and how the press report it.
I had the fortune of being the last person to see Mother Teresa’s body before her casket was closed after one week of people from all over the world visiting Calcutta to pay their respects. It was the most humbling experience of my life seeing that small physical frame command such respect with the good work she did.
“What makes you think there are buyers on the sideline? Just a question.”
jb
That’s another thing. I’ve heard both that Hovnanian and Toll clown speak of this “pent up demand”. Given the ridiculous amount of sales the past 5 years do they really think there’s that many willing buyers still out there even without the inflated prices. Do they think people are going to keep moving from their “dream homes” every couple of years?
#94 MM Off topic, but once Kosovo becomes independent, do you see it uniting with Albania?
It might make more sense, than having 2 seperate countries with an overwhelming Albanian majority.
#94
Planning of jumping ship and bailing ou of the US? or just from there?
Speaking of which i recently had an offer to work in turkey outside of istanbul on a 5 year project. To bad i would have to get divorced before the wife would agree to that. Its to bad really because they offered a ridiculous comp package :(
The concept of “pent up demand” is a convenient tool for pundits and talking heads, because it is almost impossible to measure accurately, and just as difficult to refute. I say it is convenient because it has some basis in economic theory.
Realize that the demand for most goods will begin to approach infinity as it’s price approaches zero. At zero, the demand would basically be infinite. How many houses would you want if the price is free? All of them. This is, ultimately, pent-up demand.
Unfortunately, it becomes much more difficult to assess how much prices would fall before a side-line buyer decides to buy. Also, you’ve got issues with participants saying one thing, but acting differently when in that situation (same problems as trying to measure consumer confidence, etc).
jb
DT: I just thank GOD each morning that Princess Di’s death didn’t hurt Elton John’s career!
And any coverage of the decennial of Mother Teresa’s death would be incomplete without this: http://encarta.msn.com/quote_561549648/Contraception_I_would_not_give_a_baby_from_one_of_my_homes_for.html
Way to help the children, T–by ensuring that their ranks never abated.
#102
Maybe there are not buyers on the sideline but I am going to speak for myself. I’ve decided in my best interest to put off buying a home for now until the prices in RE has cooled off. The question is that when and if things do cool off, will RE prices go up due to bidding wars from people like myself who has decided to wait to buy a home?
#110
I would assume that the built up ‘inventory’ from years of falling prices would be larger than the ‘pent up demand’ population.
From MarketWatch:
Mortgage crisis will strain home builders: B. of A.
The broadening mortgage crisis, which is making home loans harder to obtain, will hit home builders hard as home sales and remodeling activity slump, Bank of America analysts said on Tuesday.
…
As mortgage lenders tighten underwriting standards and home prices fall, Bank of America analysts estimated that 40% of home buyers who got a mortgage in 2006 probably wouldn’t qualify for a home loan now.
That dwindling mortgage availability means that more home purchases will be cancelled as buyers fail to get the loan they need to pay for their new house. Such disruptions could strain home builder’s access to liquidity and borrowing, the analysts warned.
(emphasis added)
“At zero, the demand would basically be infinite. How many houses would you want if the price is free? All of them. This is, ultimately, pent-up demand.”
Gosh, jb, when do you think the price of housing will fall to zero? :)
110
I can only hope that the people who are waiting to buy have more common sense then those that have already purchased. That being said, I hope those waiting remember all the games that ran up real estate in the first place, including risky mortgages and bidding wars.
#114 lost: that is why we are waiting, the cleansing process is working it way through the system now.
Comrade 3b,
As I supsect [Bi is] a recent home buyer, or perhaps speculator/flipper, who is now left holding the bag.
Bi mentioned yesterday that he was glad to see short term treasury bills rally because his ARMs (note: plural) are about to reset.
So I think your assertion is correct. Our friend Bi has multiple adjustable rate mortgages, which probably puts him in the flipper/speculator category.
The question is that when and if things do cool off, will RE prices go up due to bidding wars from people like myself who has decided to wait to buy a home?
Arr Elle,
There have always been sidelined buyers, I can’t imagine a market without them. They’ve been there in the past, and will be in the future. When the time is right, they buy. People “grow up”, you’ve got unexpected events that turn sideliners into buyers, etc.
The situation you describe, a large population of first-time buyers waiting to pounce, is an unlikely situation. Why? Because it is a mistake to assume that the pool of buyers is unlimited, it is not. The fact that the homeownership rate is near all-time highs tells us that a good number have already purchased. Given a static population, as homeownership increases, the demand for homes falls, a self-regulating system.
Let’s take this a bit further. At what price point would these folks jump into the market? I can’t imagine the same price would entice *all* of them to jump. One might jump at a 1% decline, and another might jump at 50% off. So, if there is a pool of would-be buyers waiting to jump, we wouldn’t see them jump in at once, but trickle in as prices fell. In essense, creating a “floor” that makes further price declines difficult.
If this pool is large enough, prices might not fall at all. If the pool is small, declines in pricing would find little support.
jb
#118 JB And in your opinion, how would you categorize where we are at now, just a question
#118 JB And in your opinion, how would you categorize where we are at now, just a question
I don’t believe the pool of sideline buyers is large.
An environment of low rates, lax standards, and manic response to real estate pulled a large number of future buyers forward. These sales were in essense, borrowed from the future. Thus, future sales would need to fall to compensate for this.
Secondly, as mortgage standards tighten, marginal buyers will be eliminated from the pool of sideline buyers. This will serve to further reduce this pool.
Lastly, psychology towards real estate as a “get rich quick” investment is quickly dying. This positive view towards real estate resulting in an almost insatiable demand for anything RE-related. I believe this factor affects both investors and first-time buyers alike.
jb
as far as sidelined buyers goes, I don’t have a citation at hand but I am fairly sure that I read recently that the percentage of homeowners in the U.S. is currently significantly in excess of the historical norm. This would suggest that we have quite a few foreclosures in between now and what would be considered a larger than average pool of sidelined buyers.
i guess my optimistic view will never be welcomed here. but you cannot deny the facts: oil down $2 today and we will be in $40+ if we have 10 more days like today. besides, srs down to under $100.
Houses are apparently still moving, even over priced ones in mediocre neighborhoods. Case example, overpriced small house on small lot down the block from me is under contract. Will be interesting to see what it sells for.
#121 and gold down $14 since you called its rise.
Whatever.
Hey bi – how about a gentleman’s wager.
Oil will hit $120 before it hits $40.
From MarketWatch:
Volatility no reason for Fed rate cut, Lacker says
Extreme volatility in financial markets provides no justification for the Federal Reserve to cut its target for the overnight federal funds lending rate, said Richmond Federal Reserve Bank President Jeffery Lacker in a speech Tuesday. The Fed’s monetary policy should be guided by economic fundamentals, not short-term market gyrations, Lacker said. Lacker is not a voter on the Federal Open Market Committee this year. Lacker said he still believed that the economy would be healthy, outside the housing market. Financial markets are increasingly persuaded that the FOMC will drop the federal funds rate by a half percentage point at or before the Sept. 18 meeting.
#123 tbw: As you know, UC and actually closing are too very, very different things.
Shocking as it sounds I would imagine that there are still at least some buyers out there, who do not have a clue, as to what has been going on in the markets, and will only find out when they are turned down for financing.
I would guess there are still a few who figure they can still get a mtg with no money down/I/O and all the rest.
Ways to increase RE residential demand:
1. Grant US citizenship to the first 100,000 overseas investor willing to buy up to 25 properties with at least $10 million in RE purchases. It’ll transfer the $1 trillion in ARM resets into people willing to bail these people out.
2. Turn NAR into a lobbyist for all the illegals in the US. If successful, expect plenty of pent-up demand.
Desclaimer: Am suffering effects of watching Photoshop creativity on display last night.
Yeah 3b- cleansing like a high colonic.
#120 JB: Agreed, and thanks
123#, i don’t know if you need a math tutoring: $14 change in gold is about 2%, oil down 10% since my call. gold is used as hedge. understand? if oil goes to $120 (50%), every department stores will stop selling gold jewelry. besides, when will be the wedding season in india?
“oil down $2 today and we will be in $40+ if we have 10 more days like today”
bi, your thought process also declining linearly…be wary.
#126 JB Perhaps Ben is having his troops voice his own thoughts.
The volume of home sales will not fall to zero. If you bet on this, you’d be betting on armageddon.
jb
vodka (43)-
Thornburg portfolios 100% of its loans. Look what’s happened to them.
There are no safe havens at this moment.
bi (54)-
Lay off the stupid pills.
FACTBOX-U.S. banking companies cutting jobs
http://www.reuters.com/article/marketsNews/idUSN2136547720070821?rpc=44
#123 tbw: Perhaps what you are seeing is the dead cat bounce that Clot was predicting for August.
I too have seen a couple of listings go under contract in my area, after what appeared to be almost no activity for the summer.
Any thoughts Clot?
ChiFi (83)-
The eye of that hurricane is stalled over Tewksbury Twp right now. Storm appears to be intensifying by sucking moisture out of pools, jacuzzis and hot tubs.
There will always be some level of “churn” in the market, especially a market the size of ours.
Here is an extreme (extremely silly) example:
How many recent buyers purchased as a direct result of a cash windfall? How many NJ lottery winners purchased this year? How many NJ slot winners purchased? How many purchasers received a large inheritance, enabling a purchase?
Like I said, outrageous examples, but likely nonetheless.
Sales won’t fall to zero.
jb
Hey All,
Just a general question with some specifics. Is there a way to see just how ‘exposed’ I am to the whole sub-prime business in my IRA. Maybe a way to lookup each Fund via symbol and see how much ‘exposure’ there is?
Am I asking for something that’s currently ‘unknown’; which I expect is the answer?
#133
Clearly
I was just having a laugh.
This would suggest that we have quite a few foreclosures in between now and what would be considered a larger than average pool of sidelined buyers.
And once that happens, it won’t be so easy for those sidelined due to foreclosure to get back in the game. Up until recently, no income? No job? No assets? No credit/bad credit? Bankruptcies? Foreclosures? …No problem.
But that’s changing. This group of sidelined buyers (foreclosed on ex owners) will need to spend a few years in the penalty box repairing their credit and saving a down payment before they can get back out on the playing field.
Off topic but…
The dumbing down of america continues, incase that wasnt obvious with yesterdays article about the home owner who was surprised that their loan was an ARM after they signed the paperwork wiout reading it.
http://www.boston.com/news/local/massachusetts/articles/2007/08/19/more_than_half_of_minority_teacher_applicants_fail_test/?rss_id=Boston+Globe+–+Globe+West
“Some minority applicants say the tests includes questions that white applicants and those with liberal arts backgrounds can more readily identify with, such as questions about ancient literature or investing in the stock market.”
So only white people should know anything about history or money management???
bi (121)-
If I lose 2 pounds a day over the next 10 days, I’ll be under 200 for the first time since I was 17.
Huh?
Justin,
Morningstar.com has been producing a lot of articles of late about mutual funds and subprime exposure. You can register for free. You can look up a fund via its ticker symbol and see if it’s been mentioned in any of their articles.
This is an article that came through yesterday via their daily email feed on a handful of bond fund managers:
Bond Managers Handling the Subprime Mess with Finesse
These fixed-income chiefs have exercised prudence and may profit from a recovery.
http://news.morningstar.com/articlenet/article.aspx?id=204180
Justin,
Here’s another one:
Fund Times: Mortgage Sector Woes Continue to Hurt Funds
by Morningstar Analysts | 08-06-07
American Home Mortgage Investment Corp. AHM, a REIT that also originates, services, securitizes, and invests in residential mortgage loans, dropped nearly 90% on July 31, taking some funds with it. For example, Schneider Small Cap Value SCMVX and CIP JSAM Value CIJVX held large stakes in the firm (5.68% and 8.35%, respectively), based on their most recently filed portfolio holdings. Hotchkis and Wiley Mid-Cap Value HWMIX, Munder Small-Cap Value MCVYX, and several others had smaller stakes.
http://advisor.morningstar.com/articles/doc.asp?docId=13338&email=ft0820b2
#145
Thanks for the tip.
From Reuters via MSN Money:
Housing woes cause financial job cuts to soar
The deepening housing slump has caused an alarming surge in job losses at financial services companies, and the end is nowhere in sight, consulting firm Challenger, Gray & Christmas Inc. said on Tuesday.
The industry has announced 87,962 job cuts so far this year, 75 percent more than the 50,327 recorded for all of 2006, Challenger said. Nearly one-fourth of this year’s cuts have been announced in August alone.
Of this year’s cuts, 35,830, or 41 percent, were tied to housing market troubles, including riskier subprime mortgages. Job cuts set by real estate and construction firms total 21,620, more than twice the number for all of 2006, Challenger said.
“Many companies expected the mortgage situation to implode; they’ve just been wondering when the bubble would burst,” Chief Executive John Challenger said in an interview.
“But many are stopping on a dime, shutting down operations,” he said. “Companies are not surprised by what’s happening, but the reality of the situation and the speed with which it occurred is shocking.” He said it could be months before housing-related job cuts peak.
Many companies exposed to the housing market have struggled with rising delinquencies and foreclosures as mortgage rates reset higher and housing price appreciation slowed.
3b (137)-
At the beginning of August, I saw signs of a mild “dead cat” brewing in my area.
As of last Friday, that’s over for sure. The cat was in rigor when it hit the ground, and the bounce was really more of a dull thud. Last Friday was- in my book- Sept. 1. Or, the beginning of the end. Funny thing is, we can still do a jumbo for 6.75%; the big change is in buyer sentiment. The hard-core lurkers are entrenched now, and the rest of the buyers are terrified beyond belief.
Capitulation. Armageddon. Rush for the exits. Finito. Circle the drain. Plummet. The Omega. The End Times. Revelations. Apocalypse. Oblivion.
#75. – Comrade 3b, it was $329,000 for 1570 sq. ft on the 1st and second floors, plus 792 in the finished basement. Additional repairs needed will total about $8-10k, and we got a 2k credit at closing.
#150 That sounds like a reasonable price. Glad it worked out for you. Good Luck!!
Clot,
How about seller? Are they worried about Sept. 1 (end of the season) or is it just business as usual for them? Are most willing to make the concessions necessary to get out or are they just planning to relist in the Spring and hope for a more favorable market? Do you see many sellers staring down the barrel of an ARM reset this fall? Or, are most able to wait out the winter?
#149 Clot: Orighty then that says a lot. Do you expect to see a sizeable increase in inventory after Labor Day?
“The hard-core lurkers are entrenched now, and the rest of the buyers are terrified beyond belief.”
By hard core lurkers do you mean people waiting on the sideline for further price drops?
Clotpoll Says:
August 21st, 2007 at 1:31 pm
ChiFi (83)-The eye of that hurricane is stalled over Tewksbury Twp right now. Storm appears to be intensifying by sucking moisture out of pools, jacuzzis and hot tubs.
clot: poetic justice
ChiFi,What’s with the Albanian Jokes? Don’t hate us cause we are beautiful!
albani: 2 things
#1 Durres is where my paternal grandfather’s hometown, although my dad was born in Rejika, Croatia / Fiume Italy [same place but different names at different times]
#2 My Turkish super in the building where I grew up used to call be “Alabni” as in.”…grunt, grunt…gooooood Albani…”
I just got a spam email for a mortgage refinance. It quotes Britney Spears at the end. Yes please let me get a refi from someone who thinks Britney is someone to be quoted.
Your Mortgage Refinance Quote Tue, 21 Aug 2007 14:04:00 -0500
Tired of paying such high interest rates?
Refiinance us lower rate.
http://www.xxxxxxxxx.com?
“When you’re comfortable with someone you love, the silence is the best.” Britney Spears
#149 Clot
The Singularity?
From the APP:
Merger study gets a boost
A proposal to merge at least three Monmouth County police departments moved forward last week with a $40,950 state grant to fund a study of the plan. Residents of the towns involved — Rumson, Fair Haven and Little Silver — should encourage the potential cost savings.
A consulting firm will study the results of a police department merger in Morris County and see what similar consolidations and savings could be found in merging the three departments, with the possible addition of Shrewsbury and Oceanport, into one Two Rivers department.
Public officials in those towns are doing right by their taxpayers by looking into streamlined municipal services. With the state’s continued failure to mandate consolidation of such services and school districts, we’re glad to see towns moving forward on their own.
Times are changing. A decade ago, Sen. Leonard T. Connors Jr., R-Ocean, asked all the residents of Surf City, where he is mayor, if they’d like to see consolidation of police services on Long Beach Island and the response was 18-to-1 against it. He might have a different response today, with property taxes soaring. Last month, Point Pleasant Beach officials hosted a forum on consolidating police and other services.
Eight other Monmouth towns are studying a proposal similar to the Two Rivers plan. Belmar police and administrators are looking at merging into a South Monmouth Regional Police Department. Area towns of comparable size should begin their own talks on consolidation, and see if information from the Two Rivers and South Monmouth studies could be applied to their own situations.
…
New Jersey’s 566 municipalities and 615 school districts have ignored the potential savings of merged services for far too long, fearing loss of “home rule.” But there are plenty of savings to be found in merging administrative and purchasing services without giving up home town individuality.
A merger of fire and rescue services in five Hudson County towns saved $40 million in seven years. With the state’s residents bearing the burden of the highest property taxes in the nation, this type of consolidation should be a no-brainer. “Home rule” isn’t worth the price if you can’t afford to live in your home.
There is plenty of scope for mergers in Middlesex county as well. Look at a map. Metuchen, Middlesex Boro, Dunellen, Highland Park – none of these towns need to exist as separate entities.
Same In Bergen Co. But the entrenched local politicians, school boards, and police/teachers unions will use scare tactics to try and prevent it.
Hoem Rule is a joke any way. Any one who has gone to a local mayor and council meeting will know. (most people do not go)
There is actually very little power that they have, most of what they do is based on what the state has mandated.
You will also have the snob facotr, with mergers,as some will fell that their town would loose its cachet if it merged with what they perceive to be a less desireable town.
At the end of the day Comrade Corzine needs to force towns to merge;it makes absolute sense.
“You will also have the snob facotr, with mergers,as some will fell that their town would loose its cachet if it merged with what they perceive to be a less desireable town.”
Westfield should merge with Garwood, right Richard?
Who gets to merge with Newark?
They can always keep unincorporated names. Like living in Iselin – you really live in Woodbridge. Would Westfield really mind if they could keep their address?
Newark is a city, does not need to merge with another enity, IMHO.
http://www.bloomberg.com/apps/news?pid=email_en&refer=&sid=aP7BZw9X19P8
good read.
Newark – Irvington.
Newark – Irvington.
Could we build a tunnel and link it to Paterson as well?
Twin Rivers, East Windsor, NJ
Is anyone familiar with this area? I just checked prices, and I cant believe how they have fallen in the past year. 3BR townhomes with full basements asking 240K, last year was close to 300k.
240k? wow!! why??
And I thought the price declines in Pway have been severe.
“Westfield should merge with Garwood, right Richard?”
Equals Garfield.
“Where’s pretorius? I think this puts to rest the discussion we were having a couple of days ago…”
Njpatient #92,
I am flattered that you thought to inquire about my whereabouts. I am disappointed that you chose to pluck a quote from the mainstream media in order to support your point, which seems to have something to do with the clash between falling incomes in the United States and the affordability of residential real estate prices in New Jersey.
Clearly, the journo started off by deciding to write about how tough life has become for average Americans. Then, he searched for data that confirmed his article’s key point and found what he was looking for somewhere in an IRS publication. This journo is operating at a jv level if he believes that people living in 2007 really care that 2005 incomes came in below the 2000 peak.
It is a waste of time for people on this blog to focus on nationwide income trends. What really matters is the trend in household net worths and household incomes among the households considering the purchase of a home in this blog’s geographic focus area, northern New Jersey. In general, these households would fall into the top 25% of households on income and net worth in the northern New Jersey municipalities where they are considering buying. This would put them in the top 10% nationally.
The financial situation among prospective buyers of northern New Jersey homes remains extremely solid. According to the recent Fed report on household indebtedness, the net worth to income ratio in the top 10% of 30-39 year old households – the people who buy homes around here – has remained between 4 and 5 for decades.
How many foreclosures have we witnessed recently in Hoboken, where the median home price increased more than 100% between 2000 and 2006? The answer is almost none. The reason is Hoboken home prices are affordable to the households who are buying homes in Hoboken.
Please don’t interpret my relative bullishness as a sign that I expect home prices to continue to increase at the rate experienced from 2000 to 2006, because I don’t. I acknowledge that homes around here are less affordable today than they were 5 years ago. However, I don’t expect the scenario of double-digit declines promulgated by many renters to materialize. A multi-year period of stagnant prices is what we should expect, and we’re already a year into this trend.
We all know “Top towns” will fight tooth and nail against consolidation, especially if we’re talking about schools.
jb
Sync, would you know of any 3 bed/2bath townhome complexes in P’way in the $300-$350K that I could consider looking at?
njpatient,
It would make more sense for Westfield to merge with Fanwood/Scotch Plains. Garwood and Cranford could then tie the knot. I’m not holding my breath. You?
#171 pretorius
dreamtheaterr,
Canterbury (13-15 yr old units) are listing between 315 and 355 or so. Recent sales this year have been in the 340s I believe.
Down the street, Maple Woods (hallmark homes) is brand new and 3br units are selling in 360s. They’re newer and larger than Canterbury.
Birch Glen and Maple Grove are newer than Canterbury, prices are somewhat higher. But around 350k you’ll find a lot in this area. All the complexes I named here are clustered around each other.
Of course, Cedar Woods is coming in a few years. That will be low income rental units, adjacent to Birch Glen.
Thanks sync!
Lenders don’t work out with bozos with a primary mortgage and a home equity with a different bank or a bridge loan hanging over them or a kooky bridge loan. Also lenders work out loans with something called “customers”, not bozo fly by night bankrupt mortgage brokers who sold them the dead beat mortgage. If you were a chase customer and chase services your account and chase did not sell off your mortgage and you got your home equity from chase and chase gets your paycheck auto deducted into their checking account they might modify your mortgage. But the dead beat $14 an hour people who commited mortgage fraud by lying on their application who can’t afford any type of mortgage are the bulk of the subprime crowd and the bank is better off foreclosing.
#171 pretorius: We have had this discussion before, but what the heck.
Over 70% of all people in Bergen County earn less than 100K a year, you can argue thi back and forth as much as you want, but that is a significant number.
As far as incomes and wages/raises, Most major corporations annual increase iast year was at or slightly above the stated inflation rate (3.0 to 3.2)
As far as Hoboken, it will play out there as well (significant price declines), and horrors of horrors in NYC too.
Lets not forget all the ARM resets that will be starting in Oct, and continuing through 2009.
Gotta believe soem of them will be in Hoboken.
As far as 1 year into the declining trend, that is a very short period of time, its only starting. Last time around peak was 88/89. Stall in prices 89, early 90, big declines 91 through 94, flat through 98 or so.
After all the recklessness this time around to belive there will onlty be stgnant prices, is IMHO purely wishful thinking.
However, I don’t expect the scenario of double-digit declines promulgated by many renters to materialize.
Don’t forget about the vultures/investors, they’ve been promulgating the same, but for [obviously] different reasons.
jb
Students of the Grave Dancer, if you will.
jb
Rush of buyers? Bidding wars? Doubtful.
Unless everyone sitting on the sidelines is saving their 10-20% for a downpayment. I’m going to go ahead and saying most people aren’t.
Can anyone post the link to the graph that shows when ARMs will reset?
Everybody in Hoboken who has bought in the past five years is RICH, RICH, RICH!!! Wall Street EXECS and BIG LAW Partners. It’s AMAZING. ALL going 20% down 30 yr fixed rate. HAHAHA, prices will never fall 20-30%. It’s JUST NOT POSSIBLE.
Jb,
Who are these vultures and investors?
promulgate, lol
#179 3b
don’t forget that pretorius is a flipper who believes that NJ housing values rose because of a rise in net worth (rather than the other way around)and a rise in income(that he has yet to identify statistically) – the fact that he only thinks the top 10% of NJ incomes matters for purposes of determining the cause of the RE bubble is merely an additional oddity.
comrade 3b,
this work stuff is really cutting into my njrereport blog! my productivity must have gone down considerably after i discovered this site…no worries though, just had my yearly review..flying colors once again!
Thanks for MLS # on 2729795. the seller hasnt given me an address yet but i am shocked that he is trying to flip it…do you or anyone else have the history on that home?
also, to comment on ‘the waiting on sidelines’ issue…i know a lot of folks that bought at the high prices for their homes and not too many sideliners….lets put it this way…all those on the bottom of IQ scale bought sometime in 05,06 thinking (intending) they were going to flip – bagholders now…those higher on the IQ scale (probably like us) just waited cuase we knew that this madness wouldnt last…those highest on the IQ scale got onboard with the schemes early, flipped and is now probably on the sidelines waiting/lurking again!
its as basic as that…
CAIBC
Jersey4Life- https://njrereport.com/images/armresets.GIF
more and more i feel this blog is full of communist ideas. i guess every short hills residents will go to hunger strike if they are forced to merge with Irvington or newark
Njpatient,
Done flipping. Made >100% leveraged IRRs on both of them.
#172 JB True, but I believe there are a lot of towns (at least in Bergen Co), where it should not be an issue.
The problem will be with local officials. FOr instance Park Ridge, which borders on Montvale and Woddcliff Lake, ahas a small k-12 district, less than 300 kids in the HS. Pascack Hills Regional School System (Montvale WC Lake No. River Vale) Had excess capacity n therir schools, and wanted to merge with Park Ridge HS.
Now Pascack Hills is Blue Ribbon number 13 or 14 in NJ Monthly HS rankings and all the rest. The local Park Ridge School Board convinced the town residents that it would be the end of the world if this happened, and so the residents rejected it.
Here is a perfect example of where the state should have stepped in and forced it.
why are you done flipping? Because of the multiple years of stagnating prices?
Who are these vultures and investors?
Investors looking for attractive cap rates, not speculators/flippers hoping (wishing?) for continued appreciation.
jb
>>Westfield should merge with Garwood, right Richard?
i’d love to see any merging with another town pass. it would only help us taxpayers but it won’t happen.
CAIBC,
I’m one of the “low IQ bagholders” who bought in 2005. It was a new construction condo in Hudson County. Flipped it a few weeks after I closed to a buyer I lined up while the building was being built.
Earned more through 20 hours of work than average American made in 2005, according to post #9.
#190 bi: Communist ideas? NJ is the only state in the union that has this home rule silliness.
For instance in Bergen Co, we have 70 seperate police departments, with all that entails, plus the Bergen Co PD, plus the BC Sherriff Dept, it is a waste of taxpayer money.
So according to your thinking wasting tax payer money is the Capitalist/American thing to do,a nd saving tax payer money is Communist?
And you wonder why people do not take your posts seriously.
I should stop peeking here–when thrombus (#149) calls this The Omega and I no longer know when something is tongue-in-cheek, too much time here will result in a trip back to the cardiologist.
For old-fashioned farts like me, who do everything wrong for what was once the right reasons, well, a lifetime is finite. We even still use our local bank, which gave me a small break on a mortgage rate today because I asked, and more importantly, because they know us.
#195 Richard: I Agree will not be easy, but Corzinehas threatened to force the issue, time will tell.
Njpatient #193,
Exactly. When I see prices appreciating faster than borrowing costs, I will begin flipping condos again. Probably need to wait until 2010.
I too have seen a couple of listings go under contract in my area, after what appeared to be almost no activity for the summer.
Could it have to do with school is starting soon and there is a hurry to try and get these houses under contract and closed as soon as possible?
#188 CAIBC: According to the information I have, the OLP was $384,900.
It went UC in March of 07, and sold (closed) on July 9 for 372,000 (long closing time).
The address is 244 Garden Place, Oradell the taxes were listed at $6,600, lot size 60X126.
I believe it is East of Kinderkamack Rd, not one of the nicer areas of Oradell.
197#, all these merging thing came from the concept that the bigger is better. Newark school district has almost the same number of students as the somerset county and it costs 30% more per student than that in somerset county. i don’t believe anybody here believe newark school district delivered higher educatinal quality than somerset county. according to the logic of this blog, we should have a centralized government and planned economy, which are even abandoned by china
Pretorius…i consider you as ‘lucky’ since you sold to a ‘low IQ’ buyer then! that fool should have taken the time to do some research (or even visit this blog) to figure out the scheme you were up to…
my hats off to you though…i am sure you wont get away with that now!
by the way…you dont fall into my ‘Low IQ Bagholder’ category..you sold your bag didnt you
CAIBC
oh btw, on the Glen Rock listings i had my eye on just came down 20K after almost 5 months for holding out….
you guys were so right..almost to the exact time too!
this place is great!
now only if you guys could predict some stocks for me like that!!!!
#204 Nobody here is advocating a centralized economy, and in fact it is you and others calling for government intevention in the market place to save the real estate market.
You want to privatize the gains and socialize the losses.
Comparing inner city Newark to Sommerset County is like comparing Apples to Banannas.
Could it have to do with school is starting soon and there is a hurry to try and get these houses under contract and closed as soon as possible?
August has historically been a peak month for sales.
https://www.njrereport.com/images/jul07_yoy.gif
jb
JB,
Do you know real estate investors who base acquisition decisions on hitting cap rate targets?
The smartest real estate investors I know focus on achieving high levered IRRs.
I agree that a cap rate is a useful valuation metric, but I wouldn’t buy real estate based on the cap rate.
“Comparing inner city Newark to Sommerset County is like comparing Apples to Banannas.”
Did you attend Newark public schools?
#201 Possible, although pretty tight considering school starts Sept 4th
jb…your scale on the y axis may have to change soon!
bi Says:
August 21st, 2007 at 3:55 pm
more and more i feel this blog is full of communist ideas.
bipolar: smaller sized government = communism….go figure
#209 No But I have a sister-in-law who teaches there. She is one of those rare few who still believes that one person can make a difference.
#200 pretorius At least!!
CAIBC,
The kid I sold to isn’t stupid, although he won’t make a lot of $ if he decides to sell tomorrow. Mid 20s, probably makes 100-150k, and parents deployed some of their net worth into a 40% downpayment.
The place is very affordable for him because he’ll have a roommate. It is a dramatically cheaper monthly payment compared to renting a similar apartment in Manhattan.
Newark is an assest that corzine should
consider selling. Lets see,we could sell
it to Mexico,Peru,Costa Rica.
Let them pay for the cess pool
Costa Rica is way nicer than Newark.
I doubt anyone is looking for an asset like Newark…..I was almost mugged last night in a rough part of Essex Co….it was the old “sir…sir….I wanna ask you something….sir…..” As I made my way to my car….quickly!! tell you what. you can have that part of town….I’m not going there to visit my pal at night anymore….*whew
How long does it take for a foreclosed house to hit the market? If we overlay houses sold (given the seasonal sales) over ARM resets (adjusted for lag as a % of foreclosed hit the market), could that given an indication of when the added pressure of fresh inventory really takes the stickiness off house prices?
#200 Pretorius
We are in agreement.
“The eye of that hurricane is stalled over Tewksbury Twp right now. Storm appears to be intensifying by sucking moisture out of pools, jacuzzis and hot tubs.”
Clot, do you see it headed east to Westfield, pick up some LSD, before going all berserk?
The smartest real estate investors I know focus on achieving high levered IRRs.
Pre,
Show me how you can polish a low cap rate turd into a gem using IRR.
jb
#222
JB- nice…
JM
Re: 109
Mother Theresa
She’s an odd one; seemed to love dictators. Surprised Albania’s could stomach her cozying up to the Hoxhas, never mind the Duvaliers.
I’d love to get an accounting of the $100s of millions she apparently received. It certainly didn’t go towards the poor.
The house prices have sky rocketed because of people like the Rodas were able to buy 500k homes with no money down back in 2001 – 2005. So why should I have to purchase a home at insane inflatable prices now. I am not. Not until the 600k homes are down to 400k then we can talk.
JB,
Check your gmail account. Please don’t share the report I sent you.
A few months ago, Blackstone paid a 5% cap rate for Equity Office Properties. EOP’s portfolio was good, not great. The cap rate was closer to 4% after factoring in leasing commissions and tenant improvement allowances, which are counted as capital expenditures but are neverless are costs paid by office landlords.
The result? Within months, Blackstone flipped most of the EOP portfolio. Blackstone earned billions by selling EOP office buildings to investors that Blackstone has lined up before the EOP deal closed. Blackstone’s leveraged IRR will be enormous – I’m guessing between 50% and 100%.
JB- nice…
JM,
He got me good via email, even though I think it was on a technicality.
jb
JB,
The biggest real estate transaction in world history, in which it is an indisputable fact that a low cap rate was paid and a high IRR is being generated, does not qualify as a technicality.
The house prices have sky rocketed because of people like the Rodas were able to buy 500k homes with no money down back in 2001 – 2005. So why should I have to purchase a home at insane inflatable prices now. I am not. Not until the 600k homes are down to 400k then we can talk.
****I sincerely doubt you will see that kind of correction****unless of course every last one of us is broke and unemployed…
Are we talking commercial or residential properties?
The biggest real estate transaction in world history, in which it is an indisputable fact that a low cap rate was paid and a high IRR is being generated, does not qualify as a technicality.
The Blackstone/EOP deal was arbitrage, they took advantage of a price imbalance where that portfolio was worth more broken up than as a pool. They had no intention of holding those properties, as evidenced by the fact that buyers were lined up early. Cap rate is an entirely inappropriate valuation methodology in this case. Current and future cashflows were irrelevant to the profitability of this deal.
jb
So a 300k home can appreciate to 600k in 7 years but a 600k home today cant depreciate to 400k. Sure people will lose jobs , they already are, but saying everyone will be broke is not realistic, I have 400k in liquid cash ready to buy that house, so I for one will not be broke.
NJ has 2 years to show me that 400k home, if not i am out of here.
JB,
Blackstone plans to hold $15 billion of the EOP stuff for several years. That is a huge amount of real estate, and the cash flows it generates is a crucial component of Blackstone’s investment.
In addition, Blackstone bought numerous other portfolios during the past several years which are worth billions. Blackstone plans to hold this real estate for a while, too.
So, when is a cap rate methodology appropriate?
Pret-a-manger: Why do you yank Blackstone into this discussion?
It’s as if we are a bunch of duffers on the golf course talking about how to hit a hard shot with the clubs in the bag, and you start yakking about Mickelson, his 60 degree wedge and a massive flop shot. WTF? shut up
One thing I find fascinating about Newark is that it borders a beautiful neighborhood that is South Orange & Seton Hall Univ. Literally one street divides them, it’s like night & day. But if you guys ever want to see a real third world country, com’on on down south to Camdem and accross to Philly, this is really the wild wild west.
chicagofinance,
I was asked a simple question:
“Show me how you can polish a low cap rate turd into a gem using IRR.”
I provided a straight answer and used a recent real estate transaction to illustrate it.
Can you think of a better way to explain how a high IRR can be generated when a low cap rate was paid?
I’m getting listings now where the sellers are dropping their over-priced sh*tboxes by 3K!!! BWAHAAAAA!! F*cking idiots.
http://www.nytimes.com/2007/08/21/business/21tax.html?_r=1&ref=business&oref=slogin
THE NEW YORK TIMES / August 21, 2007
2005 Incomes, on Average, Still Below 2000 Peak
By DAVID CAY JOHNSTON
Total income listed on tax returns grew every year after World War II, with a single one-year exception, until 2001, making the five-year period of lower average incomes and four years of lower total incomes a new experience for the majority of Americans born since 1945. … The growth in total incomes was concentrated among those making more than $1 million. … These individuals, who constitute less than a quarter of 1 percent of all taxpayers, reaped almost 47 percent of the total income gains in 2005, compared with 2000. … People with incomes of more than a million dollars also received 62 percent of the savings from the reduced tax rates. … Over all, this small number of wealthy Americans saved $21.7 billion in taxes on their investment income as a result of the tax-cut law. … The nearly 90 percent of Americans who make less than $100,000 a year saved on average $318 each on their investments. … Nearly half of Americans reported incomes of less than $30,000, and two-thirds make less than $50,000. …. The fact that average incomes remained lower in 2005 than five years earlier helps explain why so many Americans report feeling economic stress despite overall growth in the economy.
So, when is a cap rate methodology appropriate?
I’m not sure we’re talking about the same thing here. I’m talking long-term rentals and multi-families. Buy to rent, long term deals. The kind of deals where the cash-flow either makes sense, or it doesn’t, period.
Can you think of a better way to explain how a high IRR can be generated when a low cap rate was paid?
Condo conversions are usually good examples. As are many other arbitrage deals where the properties aren’t being used at their “highest and best use”. This covers rehabbers, builders, heck, even flippers.
jb
From MarketWatch:
Sharpest drop in consumer comfort in more than 21 years
The U.S. consumer comfort index fell 9 points last week to negative 20, the sharpest decline in more than 21 years of weekly polling, according to a report released Tuesday by ABC and the Washington Post. It’s the lowest reading in the index since Hurricane Katrina hit the Gulf Coast nearly two years ago. “The decline is broadly based among population groups, and there seems not to be a single negative event to blame, but a confluence” of factors, ABC’s Gary Langer said, citing the stock market, housing and credit markets, the Fed’s warning about the economy, high gas prices, and even the war in Iraq. Fewer than a third of consumers polled said the economy is “good” or “fair.”
From Bloomberg:
Fitch to Review $92.1 Billion of Subprime Securities
Fitch Ratings placed $92.1 billion of securities backed by subprime residential mortgages “under analysis,” the first step toward a possible credit rating downgrade.
The review affects 235 classes of securities, including 131 from before 2006 representing $19.4 billion of debt and 104 from last year with $72.7 billion of debt outstanding, New York-based Fitch analysts led by Jack Lohrs said in a statement today.
Fitch said $4.2 billion of the bonds, which are rated BBB or below, are the most likely to face ratings actions.
The service said its monthly surveillance program, analyzing July remittance data, identified the pre-2006 deals. The program uses algorithms to identify whether the credit risk of bonds is inconsistent with current ratings.
Fitch said it’s also looking at the 2006 deals as part of its effort to provide updated analysis on recent vintage subprime securities. Subprime loans are made to borrowers with poor credit or high levels of debt.
Last month, a Fitch review of the worst-performing residential mortgage-backed securities from 2005 and 2006 affirmed $105 billion of debt and downgraded $13 billion of the bonds.
JB,
Who do you think made more money?
The guy who paid a 10% cap rate 20 years ago for a $10 million apartment building in Detroit or Cleveland.
The guy who paid a 10% cap rate 20 years ago for a $10 million apartment building in New York or San Francisco.
The cap rate is a inferior metric to IRR because a cap rate is merely a snapshot of the initial yield. It ignores two crucial components of an investment in income producing real estate, rent growth and capital appreciation.
Dodd is on MSNBC right now. He’s saying that there was a “little bit” of people overextending themselves but most of the problem is that lenders are unscrupulous. He gave the example of someone whos ARM payment went up by $1500 and said that kind of increase is a clear example of unscrupulousness.
Who do you think made more money?
Pre,
The answer depends on who had the crystal ball in 1987.
Are you telling me that IRR could have predicted the future?
jb
#226
“The result? Within months, Blackstone flipped most of the EOP portfolio. Blackstone earned billions by selling EOP office buildings to investors that Blackstone has lined up before the EOP deal closed. Blackstone’s leveraged IRR will be enormous – I’m guessing between 50% and 100%.”
Perhaps you know something I don’t, but the deal value on that transaction was $39 Billion. As far as I’m aware, as of two weeks ago, Blackstone had covered 70% of cost by selling 62% of assets. They’ve still got 30% of cost to cover with 38% of assets, which, in the current RE market may not be a slam dunk.
Again, you may know something I don’t, but as far as I’m concerned the jury may still be out on that transaction.
Capitalization rates are a measure of how fast an investment will pay for itself in net cash flows.
IRR should be compared to an alternative cost of capital including an appropriate risk premium.
Wiki
JB,
Yes. The IRR calculation would’ve assumed rising cash flows in New York and San Francisco, and flat or declining cash flows in Cleveland and Detroit.
And if I was projecting apartment rents during the next 10 years, I would project rising rents in New York and San Francisco, flat rents in Cleveland, and declining rents in Detroit. Would you do it differently?
THE NEW YORK TIMES / August 21, 2007
2005 Incomes, on Average, Still Below 2000 Peak
By DAVID CAY JOHNSTON
The article mysteriously omits the fact that income have been rising since 2002. Is it any wonder why the TIMES picked THAT five-year period? Mutual Fund marketers play the same game.
Of course incomes declined in 2000-2002. That was the bursting and immediate aftermath of the tech bubble. As you may recall there were legions of fooseball-playing morons and “HTML Engineers” making $100K+ all on the VC dime.
NY Times: all the news that’s fit to affirm the beliefs of the Upper West Side liberal.
“The cap rate is a inferior metric to IRR because a cap rate is merely a snapshot of the initial yield.”
The point is that you are trying to predict IRR. Cap rate doesn’t predict IRR, sure enough, but IRR certainly doesn’t predict IRR. It’s not clear what the point is that you are trying to make.
“The IRR calculation would’ve assumed rising cash flows in New York and San Francisco, and flat or declining cash flows in Cleveland and Detroit.”
But that’s just a projection that’s dependent on the variables that you plug into it. Cap rate is an actual snapshot, and it’s odd to compare that snapshot to a predictive model.
Garbage in, garbage out.
“NY Times: all the news that’s fit to affirm the beliefs of the Upper West Side liberal.”
If that were the case, they wouldn’t print Judy Miller, Kit Seelye et al
“If that were the case, they wouldn’t print Judy Miller, Kit Seelye et al”
Shhh, you’re using facts to refute his ‘strong belief’.
renting (152)-
No talk of Spring…by anyone.
pretorius (208)-
“I agree that a cap rate is a useful valuation metric, but I wouldn’t buy real estate based on the cap rate.”
Keep pushing your luck, champ.
What’s the longest you’ve ever held a piece of investment property?
dream (221)-
No area exempt. Armageddon.
grim (231)-
The whole Blackstone/EOP thing has nothing to do with real-world RE investing. As you mentioned, it involved an extraordinary dis-assemblage, in which the whole was worth much less than the sum of the parts. Sort of like taking an ounce of coke, cutting it up into dime bags and marking them up exponentially relative to the original cost.
In “regular” RE investment, the opposite holds true.
Judith Miller? Grasping at straws. She simply reported what the US government had been discussing for over a decade.
How about 37 straight days, front page above the fold, with “Abu Ghraib”? Not even muslims sawing off the head of Nicholas Berg made it above the fold during that West 43rd Propaganda Streak.
The NY Times is a model of media bias, as any objective observer can see.
Here’s a good read:
“Journalistic Fraud: How The New York Times Distorts the News”
http://www.amazon.com/Journalistic-Fraud-Distorts-Longer-Trusted/dp/0785261044/
3 years for real estate. 401k has been in S&P 500 the whole time.
I prefer to grow my net worth rapidly. Capital recycling is one way I am doing this.
By the way, I’m not very old. For me to have held something for 10 years means I would have bought it in college, which would’ve been difficult because my net worth was negative then.
#259 Well if you were in college 10 years ago, then you were a kid during the last real estate down turn, which means you personally as an adult never lived through one;that explains a lot. Watch and learn.
“I prefer to grow my net worth rapidly.”
This statement tells me all I need to know.
pret (258)-
“I prefer to grow my net worth rapidly. Capital recycling is one way I am doing this.”
Congrats. That’s a very fancy way of saying you’re a flipper.
In college, did your profs grade down your papers for being excessively wordy?
“Capital recycling”.
I’m still trying to wipe soup out of a crevice in my screen.
Re 257 and Judith Miller
I’m trying to decide if you’re merely ignorant or if it’s something else. You are so far away from reality that it’s laughable.
The US government didn’t leak CIA names to reporters for a decade.
The US government didn’t grasp at straws with a known conman like convicted fraudster Chalabi.
And Judith did all she could to help.
“The most prominent of those exiles was Ahmad Chalabi, “an occasional source in Times articles since at least 1991,” who “introduced reporters to other exiles” and “became a favorite of hard-liners within the Bush administration and a paid broker of information from Iraqi exiles.” And one of the most prolific chroniclers of Chalabi’s views and those of his Iraqi National Congress camp was Times reporter Judith Miller, who wrote or co-wrote at least nine of the “problematic” stories the Times cited in its mini culpa.”
And when she couldn’t lie in the Times because they wouldn’t vet her bs, she lied on tv:
“This isn’t the first time Miller has availed herself of the un-vetted freedom of the airwaves to make a spectacular claim that she didn’t (or couldn’t) get into the Times. On April 21, 2003, the Times published Miller’s report from Iraq about the discovery of buried chemical weapon precursors by the U.S. military’s MET Team Alpha. The hot copy that she couldn’t move past her editors she blabbed, un-vetted, on The NewsHour With Jim Lehrer the next night.”
It, of course, was complete bs.
“Capital recycling.”
Where’s BC when we need him?
Probably napping now, so he can wake up later and watch the Yanks blow another one to the Angels.
#232 tom: Amazing as it is, that is the real estate bulls belief. Prices can go up, even double in less than 5 years, all perfectly fine, but they cannot drop, no matter what. Forget about past down turns (some will deny that they happened, hey I lived through one but what do I know).
Forget about artifically low rates, loose lending standards and income levels, none of that matters. Blame the liberal NY Times for merely printing IRS information,its un-American.
Its called real estate bull fundamentalism.Just shout real estate nver goes down and it will be so.
pret (258)-
I usually don’t hand out advice when it isn’t requested, but I’m a lot older than you, and I can 100% assure you that if you continue in RE investment along these lines, you will get your head handed to you eventually.
I think that a bit of aggressive “capital recycling” can be a fun and profitable thing…when that concept is applied to securities markets. However, I believe that concept runs counter to successful long-term RE investing, because successful RE investing is, necessarily, a long-term undertaking.
#229 essex You make the statement: “I sincerely doubt you will see that kind of correctionunless of course every last one of us is broke and unemployed.”
Why? Because you recently purchased and therefore it cannot happen?
Again you guys are amazing, perfectly fine on the upside (was anybody worrying that too high prices (beside us Bears)would cause problems?
No. Now it cannot happen on the downside, becasue bad things will happpen, yest bad things will happen, like a recession.
Thats the nature of booms and busts in the capitalist system. Capitalism without pain is like religion without sin, it cannot be.
You too never lived through a real estate down turn or recession, apparently. Watch and learn.
Dr. Pretorius,
You’re better off with a dollar and a dream.
While job cuts may be an immediate fallout from the financial market downturn, end-of-year bonuses – the salvation for many Wall Streeters – appear safe for now. Johnson expects bonuses this year to top the record $23.9 billion Wall Street firms paid out last year.
But instead of splurging on Ferraris and fine art, Wall Street professionals may want to start saving. Johnson expects bonuses to start falling, by as much as 10 to 15 percent, in 2008, although others say it’s still too early to forecast a downturn.
“A lot of the problems in subprime and mortgages, most of that is not going to show up until next year,” Johnson said. That’s also when financial losses from loan-related write offs will start to pressure firm wide compensation at the brokerages.
https://njrereport.com/index.php/2007/08/21/now-forget-it-its-not-happening#comments
Sorry, wrong link,
http://biz.yahoo.com/cnnm/070816/081607_wall_street_bonuses_jobs.html?.v=4&.pf=career-work
#257 Unrealtor
You’re going to reference a writer for WorldNutDaily?
Seriously?
NY Times,
13 Dimes.
Real estate,
Lotsa hate.
Capital recycling,
Risk repricing.
Bubble popped,
Music stopped.
Work,
Jerk.
Re: 261
“Congrats. That’s a very fancy way of saying you’re a flipper.
In college, did your profs grade down your papers for being excessively wordy?”
I was going to comment on this-did you read the original story he always references?
Basically, he flipped a house during the real estate boom.
But, to hear him tell it, it’s a gritty tale of determination, financial savvy and risk(borrowing to flip a house).
I’m happy he did well on his flip. He’s one of many who did.
3b Says:
August 21st, 2007 at 8:37 pm
#229 essex You make the statement: “I sincerely doubt you will see that kind of correctionunless of course every last one of us is broke and unemployed.”
Why? Because you recently purchased and therefore it cannot happen?
Again you guys are amazing, perfectly fine on the upside (was anybody worrying that too high prices (beside us Bears)would cause problems?
No. Now it cannot happen on the downside, becasue bad things will happpen, yest bad things will happen, like a recession.
Thats the nature of booms and busts in the capitalist system. Capitalism without pain is like religion without sin, it cannot be.
You too never lived through a real estate down turn or recession, apparently. Watch and learn.
————————————————————————————————————————————
I bought in 02. Feel fine about everything. Could walk away tomorrow free and clear……so what?
You have no idea what I know….what my resources are….or how big my “portfolio” is.
Shhh, you’re using facts to refute his ’strong belief’.
Funny but the NY TIMES itself enforces my “belief.” Specifically…
http://www.nytimes.com/2004/07/25/weekinreview/25bott.html?ei=5088&en=452926dcb11511a3&ex=1248667200&pagewanted=all&position=
Funny but the NY TIMES itself enforces my “belief.” Specifically…
Oops….meant reinforces
“I’d love to get an accounting of the $100s of millions she apparently received. It certainly didn’t go towards the poor.”
Shabadoo, I’ve seen her live….in a small hut. The millions didn’t go to her for sure, even if you claim it didn’t go to the poor. Let’s give the old lady some credit ,shall we? A lot of people have done worse in their lives.
Clotpoll #266,
Do you believe that the largest real estate transaction in the history of the world was an anomaly?
Isn’t the largest real estate transaction in the history of the world an anomaly by definition?
pret-a-manger (278)-
All I know is that when Sam Zell is selling, I don’t want to be buying.
“I prefer to grow my net worth rapidly.”
Lots of people want to get-rich-quick.
jb
Re 277
“Shabadoo, I’ve seen her live….in a small hut. The millions didn’t go to her for sure, even if you claim it didn’t go to the poor. Let’s give the old lady some credit ,shall we? A lot of people have done worse in their lives.”
I admire the work she did, but she had some wild ideas. How she reconciled the idea of denying pain meds to suffering patients(she thought suffering was good, and she didn’t use pain relievers in her clinics) while flying off to the most lavish clinics in the world for her own treatments is beyond me.
It still seems odd that no one seems to know where $100s of millions went. And the dictators thing doesn’t make sense.
Re 275,276
Ok, now you must be kidding:
gay marriage
creationists
skinny models
That’s some solid stuff right there. Not as hard-hitting as lying to start a war, but solid.
And this is classic, right out of Dead Poets Society-“Wrote Chapman, “Whatever happened to poetry that required rhyme and meter, to songs that required lyrics and tunes, to clothing ads that stressed the costume rather than the barely clothed females and slovenly dressed, slack-jawed, unshaven men?””
Thanks Pat,
Summmer time in my family consists of 8 birthdays,just came from the last one my creative juices have been tapped. Thanks for picking up the slack
NY Times,
13 Dimes.
Real estate,
Lotsa hate.
Capital recycling,
Risk repricing.
Bubble popped,
Music stopped.
Work,
Jerk.
KL
Seriously Pat, you need to take this show on the road! I can just hear the deadpan in your voice, LOL.
In the vernacular of Wall Street the technical term used is “..doh!”
Bonuses on Wall Street Threatened for First Time in Five Years http://www.bloomberg.com/apps/news?pid=20601103&sid=a4qWlWyw2C0I&refer=us
From Wednesday’s WSJ:
How FHA Could Help Borrowers
Bush Backs Giving Agency
Flexibility to Offer Options
For Mortgage Refinancing
By DEBORAH SOLOMON
August 22, 2007
WASHINGTON — As the subprime-mortgage crisis ripples through the broader housing market, the Bush administration is eyeing an often overlooked federal mortgage insurer to help low- and middle-income homeowners avoid foreclosure.
President Bush has balked at allowing mortgage giants Fannie Mae and Freddie Mac to buy more mortgages for their portfolios to ease the credit crunch triggered by rising defaults on home loans to borrowers with poor credit. But he said earlier this month that he supports giving the Federal Housing Administration more flexibility to help those facing foreclosure refinance their homes.
• What’s Happening: The Bush administration is eyeing the Federal Housing Administration, an often-overlooked federal mortgage insurer, to help low- and middle-income homeowners avoid foreclosure.
• How It Would Work: The FHA could offer refinancing options to homeowners, including those who aren’t yet in default, but who risk falling behind on payments that jump when rates are reset.
• What Needs to Happen First: The effort is likely to jump-start legislation in Congress to give the housing authority more tools to assist homeowners. Senate Banking Chairman Christopher Dodd said recently that FHA reform will be among his top priorities, and a bill passed by committee is set to head to the full House this fall.
Treasury Secretary Henry Paulson, meanwhile, has instructed staff to work with the Housing and Urban Development department, which oversees FHA, to find ways to help individuals caught in the fallout of the credit crunch.
The administration is looking to FHA to offer refinancing options to homeowners, including those who aren’t yet in default or foreclosure, but who are at risk of falling behind in their payments on mortgages that were structured to offer payments that were very low at first but then escalated.
The effort is likely to jump-start legislation in Congress to give the housing authority more tools to assist homeowners. Senate Banking Chairman Christopher Dodd (D., Conn.), said recently that FHA reform will be among his top priorities when Congress returns from its August recess. The House Financial Services Committee passed a bill in June that is expected to head to the full House this fall.
http://online.wsj.com/article/SB118774225399404746.html?mod=hps_us_whats_news
Also from Wednesday’s WSJ:
Troubled Loans Increase 49%
At Federally Regulated Thrifts
By DAMIAN PALETTA
August 22, 2007
WASHINGTON — Mortgage defaults were roiling the thrift industry even before the recent turmoil in the subprime-loan market, government data show.
Troubled assets — loans that were 90 days or more past due or had been repossessed — at federally regulated savings-and-loan associations in the second quarter rose 49% from a year earlier to the highest level in 14 years, according to the Office of Thrift Supervision.
The agency also said that the number of “problem thrifts,” or companies rated poorly by regulatory standards, had risen to 10, up from four in the second quarter of 2006.
Still, officials said that while the 836 regulated thrifts continue to feel stress from housing and liquidity markets, their overall health remains strong, based on earnings and capital.
The thrifts make one of every four mortgages, specializing in prime or jumbo loans. Stress in their loan portfolios suggests that more types of loans — not just subprime mortgages — are under pressure.
The thrift industry had $14.2 billion in troubled loans, up from $9.5 billion a year earlier, officials said. That is the highest sum since 1993, though as a percentage of total assets it is only the highest since 1997.
http://online.wsj.com/article/SB118774396239104778.html?mod=loomia&loomia_si=1
More from the WSJ:
The Market Whisperer
By HENNY SENDER
August 22, 2007
In 1998, Peter Fisher served as the Federal Reserve Bank of New York’s point man in organizing the private-sector rescue of Long-Term Capital Management, enlisting the big Wall Street firms in “joining hands under the Fed’s protective banner” to help unwind the hedge fund’s positions.
[Peter Fisher]
Mr. Fisher’s role in calming markets was the highlight of his 15 years at the New York Fed, where he rose to the top post on the desk that deals with the markets. That tenure was followed by a stint as undersecretary of the U.S. Treasury for domestic finance in the early years of the Bush administration, despite his Democratic leanings.
He is now a managing director at BlackRock Inc., the global investment management and advisory firm with $1.2 trillion in assets under management and 49.8%-owned by Merrill Lynch & Co.
In an interview Monday with The Wall Street Journal, Mr. Fisher gave his interpretation of the current credit-market shakeout and what he expects the Fed to do next.
http://online.wsj.com/article/SB118773378281904496.html?mod=hps_us_editors_picks
Sorry, prob leaving this too late for it to get read, but since a couple people were talking about it, why not …
i believe that houses that were asking 600k in late 2006 will fall to 400k by the early winter months of 2008. The next few months are really going to see nutty things on realtor.com
Just one man’s guess.
I read it.
And I think it’s entirely possible.
Excellent and presentable article to read.
I think, “Real Estate investing gives you a good margin of profits than any other investments”.
It is safe ,secure and reliable without any fluctuations.