I’m not sure how to set this up such that lenders and realtors cannot pressure appraisers, but something needs to be done.
Category: Real Estate
Friends Don’t Let Friends Read Amity Shlaes
Seriously, this analysis of the housing crisis is hacktacularly incoherent.
I’m just saying.
Amity Schlaes: Missing the forest for the tapioca pudding since 1982.
Economics Update
As it always is in times of crisis, we are seeing a flight to government bonds. Everything else appears too dicey, with mortgage applications at a nearly 8 year low, estimated food inflation for this year may be at a 28 year high, and home prices in high priced areas falling like a stone, even if volume is up a bit.
In energy and currency, the dollar is up a bit, as is oil, though neither are up significantly, and gasoline is down for the 34th straight day, and it’s now down about 10% from the peak.
Economics Update
the producer price index rose 1.2% in July, that comes to about 15% inflation, and the year over year rate was 9.8%.
Inflation is back….Truth be told, it was never gone, it’s just that the government statistics concealed it, and we are now running into the limits of such accounting artistry.
We also are seeing housing starts at a 17 year low, so it looks like stagflation to me.
I just hope that it isn’t an Argentina/USSR style collapse.
I would note that a lot of this inflation is commodities, and they are down.
Both oil and gasoline (33rd straight day) fell again.
That being said, the dollar was down again today. Those inflation numbers probably scared traders.
Finally it looks like Lehman may be forced to sell its money management division in order to raise capital to offset its losses.
Fannie and Freddie Have No Clothes
Or more accurately, negative net worth to the tune of something on the order of -$50 Billion each.
The only thing keeping them solvent is their banking of losses against future taxes.
They are going to fail….It’s that simple.
The only question is how, and who gets hosed.
H/t Barry Righoltz.
Economics Update
It looks like concerns about GSEs are roiling the markets again, so one wonders when the government will nationalize Fannie and Freddie.
It won’t happen under Bush and His Evil Minions™, needless to say, but I see it as inevitable for the next president.
Meanwhile, energy is still trending downwards, with oil falling as the path of Fay becomes clearer, and gasoline falling fo the 32nd straight day.
The dollar is down a bit, but I’m not sure if this is a pause in a rally as people take profits, or a change in direction.
In any case, it looks like labor day air travel is going to be way down, yet another sign of the slowing economy, and the fact that airlines have become so bloody awful.
Finally, home prices in the UK fell by 4.8% year over year, showing again just how well the “Anglo Saxon Model” of capitalism works when things go bad.
California Budget Holdup Over Governator’s Desire to Give Money to Subprime Lenders
It appears the Arnold Schwartzenegger feels that any cost of the California budget crunch must be born by ordinary folk, and not businesses.
Shadow Inventory
Oh
My
God
My
God
Shadow inventory are houses available but not listed in the MLS system.
Most often, these are REO (Real Estate Owned, foreclosures and such), and the Sacramento Real Estate Statistics blog has some numbers on a few markets.
|
City |
MLS Listings |
Foreclosure Inventory |
% of Listings |
|
|
14,913 |
31,219 |
209% |
|
|
18,647 |
35,402 |
190% |
|
|
45,490 |
82,114 |
181% |
|
|
18,771 |
31,168 |
166% |
|
|
62,379 |
88,843 |
142% |
So the massive inventory out there, might account for less than half of all the houses actually on the market.
Time to freak out?
Alan “Bubbles” Greenspan Predicts Bottom of Real Estate Collapse
He says sometime in the first half of 2009.
Here is another prediction of his about the housing market, in October 2006, “I suspect that we are coming to the end of this downtrend”.
Economics Update
Weekly initial jobless claims came in higher than expected, at 450K as opposed 432K, and the 4 week moving average is 440.5K, the highest number since 2002.
At the same time, the CPI numbers are grim, with prices up 0.8% in July, and 5.6% year over year.
The Europeans are not doing much better, with GDP declining 0.2% in the 2nd quarter.
The European weakness, meant a Euro weakness, with the dollar gaining against the Euro.
These indications of a global slowdown have pushed oil prices lower, and Gasoline is down too.
Don’t expect a real estate recovery to save the economy though, foreclosures are up 8% for the month, and 55% year over year, and home prices have fallen 7.6% year over year.
The Big Picture From The Big Picture: False Foreclosure Bottom
Barry Ritholtz of The Big Picture notes that the recent data showing a slowing in foreclosures is an artifact of changes in foreclosure law in a few hard-hit states:
- California requires lenders to wait an additional 30 days after a homeowner misses the first payment before filing a default notice;
- Massachusetts now gives homeowners a three-months grace period after they default on their mortgage before the lender can file to foreclose. (The law is credited with an 84% drop in foreclosure petitions);
- New York passed a bill last week that requires lenders to send a preforeclosure notice to certain borrowers at least 90 days before foreclosure proceedings may be initiated;
Of course, the financial press is looking the delays caused by these changes, and running around saying, “Foreclosures are down, the housing crash has finally hit bottom.”
The only place with more false bottoms than financial Journalism is a Beverly Hills plastic surgery clinic.
The only thing that surprises me is that he links to an article that actually points out this fact, though it does have the prize quote, “Some cynics say the laws are designed to give the appearance that the housing crisis is easing ahead of the November elections.”
We cynics prefer to call ourselves the, “Reality Based Community.”
Economics Update
Let’s start with the really scary numbers that you need to know:
- Retail sales were down in July.
- 25% of current home sales are at a loss, which means that the current crappy home sales numbers are actually about ¼ lower than reported, which might explain why Mortgage application volume continues to fall.
Meanwhile in Japan, their economy contracted at a 2.4% annual rate, once again showing that decoupling from the US economy is a failed theory.
Still, the president of the ECB, Jean- Claude Trichet is sending out signals that imply that there will be no Euro zone rate cuts, which would imply that the dollar may not have much strengthening left in it.
I would note that businesses don’t put much stock in the economy right now. Inventories increased, but at a less than ½ the rate than the rebate juiced spending by consumers in June, implying that they are expecting a major slowdown.
The saying that, “When the US economy gets the sniffles, the rest of the world gets a cold,” still applies, and so we are still seeing capital flight into the US dollar, which is why it strengthened today.
In energy, oil rose on thighter than expected inventory reports, and retail gasoline has continued its unbroken downward streak.
Economics Update
Well, Fannie Mae just posted a $2.3 billion loss, cut its dividend, and is will no longer buy and resell Alt-A mortgages.
That sound you hear is the housing market seizing up, and it does look like mortages will be getting more expensive, and given that the spread between LIBOR and Treasury Bills, the so called “TED Spread”, remains at near historic highs, I don’t really see any unfreezing in the near to medium future.
However, the the US dollar is on a tear right now, and a strong dollar attracts investment, which means that there is more money out there to lend, which might make loans cheaper.
I still think that current interest rates are unsustainably low, but YMMV.
Oil and gasoline are down, as are commodities like copper, silver, and gold.
This points to declining inflation, good news, but only because there are real signs of a deep, hard recession, which is bad news.
The fact that Productivity growth has slowed points to a slowdown too.
I wonder what the moderation in commodities will do to wholesale inventory numbers, which have been up because of price appreciation in said commodities.
BTW, a monoliner insurer just went belly up. ACA Capital Holdings Inc. just terminated $65 billion in credit default contracts, and turned itself over to creditors.
BTW, as a result of the IndyMac implosion, people are starting to split their bank accounts among multiple banks, to ensure that they are all completely covered by FDIC insurance.
I think that we are seeing a generational shift in the attitudes of people about finance and investing.
2007 Mortgages Going Bad Almost 3X as Fast as 2006 Mortgages
2007 is not going to be a good year for mortgages. The percent of seriously delinquent after 12 months is 0.97% for mortgages issued in the first half of 2007, as opposed to 0.33% for those issued in 2006. Freddie Mac reported 1.38% at 18 months as compared to 0.38% for 2007 and 2006 respectively.
The defaults in 2006 aren’t really hitting the banks yet, and we’ve still had 7 bank failures….What happens when 2007 really hits?
Economics Update
Well, the jobless numbers came out, and they suck. The weekly numbers rose by 7,000 to 455,000, a 6 year high, when predictions were for a drop to 433K, and the 4 week moving average, which is less noisy, rose to 419,500, a 5 year high.
At least our misery has company, with the ECB holding rates steady, saying that “risks to economic growth were starting to materialize”, which is a signal that Euro zone rates will remain steady.
Of course, our relentlessly optimistic financial press has to try to make s%$# into Shinola in housing, where they are touting a 5.3% month to month gain, which as Barry Ritholtz so eloquently notes, this is unmitigated crap, and driven by seasonal differences more than anything else, and the numbers are down year over year.
Additionally, we do not know how many of these are short sales in lieu of foreclosure.
We also have retail experiencing major suckitude now that the rebate checks have run out. To the degree that people are spending any more, it’s on necessities, and they are running up their credit cards to do this, because the banks are cutting back on HELOCs.
Meanwhile, oil rose on supply concerns after Kurdish rebels blew up a Turkish pipeline, though gasoline is down for the 21st straight day.
In the world of insurance, the largest US insurer, American International Group wrote down more than $11 billion in holdings, and is making noises about selling more shares to raise capital.
Empty Condo Complexes Face Condemnation
Mish relates the tale of a condo complex that cannot maintain its common spaces, because it is 1/3 empty, and as a result, it was nearly condemned.
It is in, no surprise, in Dade county, and the quote from City of Miami Commissioner Angel Gonzalez is the scary part, “This is going to be happening all over Dade County pretty soon, with the foreclosures and people not being able to pay for their mortgages.”
Actually, that’s not the scariest quote. Mich also quotes Dave, who asks:
I wonder how many of these people will be forced to walk away from their mortgage even though they can afford to pay, but can’t make up for all the other condo owners not paying monthly dues because of foreclosure. I wonder if anyone has calculated this out in their models?
I have a friend at another condo whose monthly association fee just went up 35% due to non payers and there is nothing anyone can do about it.
This phenomenon is becoming increasingly common.
Economics Update
A number of economists have suggested that the world economy has become “decoupled”, and that a recession in the US may not cause a recession elsewhere.
If the latest information coming out of Japan is any indication, these economists are wrong, as Japan seems to be heading into a recession too, though one could argue that the 1990s Japanese recession still hasn’t fully ended.
Not surprisingly, this driven the dollar up, and it hits a 7-month high vs the Yen, ¥109.56.
In the ongoing GSE soap opera, the Treasury Department has hired Morgan Stanley to look at at the financial structure of Fannie Mae and Freddie Mac.
There was a competitive bid process to select Morgan, though I still wonder if this is prudent oversight, or the fox guarding the hen house.
In either case, I think the fact that Freddie Mac has cut dividends after posting an $821 million loss, about 3 times what was expected, was a sensible move.
Dividends are for when you make a profit.
The monoliner insurers are not a soap opera though, they are farce, and the latest case is Ambac claiming a $823.1 million profit, which appears to be entirely due to an accounting change:
Ambac, once the second-largest bond insurer, reported a $1.7 billion net loss in the first quarter after a $3.3 billion loss in the fourth quarter of 2007. A rise in the risk premiums on Ambac’s own debt in the second quarter lowered the value of bond guarantees, which was allowed to be reflected as a gain under new accounting rules, resulting in the quarterly profit.
Ambac rose 35 cents, or 7.4 percent, to $5.08 at 10:08 a.m. in New York Stock Exchange composite trading.
Ambac and other financial companies are taking advantage of the accounting standard change — intended by rulemakers to expand so-called mark-to-market accounting — to report gains when market prices for their liabilities fall.
I’d appreciate a translation from accountant-speak, but it appears to me that they are profiting from the fact that no one is willing to pay face value on the debts that they owe.
In real estate, nirtgage applications rose last week, though only a little, and the week to week numbers are, as I always remind my reader(s) noisy. It’s still way down.
In energy, oil fell on reports of increased inventories to $118.58/bbl, and
retail gasoline fell again. It’s now $0.25 off of the record, so you save two bits a gallon.
Finally, we note that when the US gets a cold, Mexico catches pneumonia, particularly in rural villages, where the economy is even more dependent on remittances.
The depressing thing is that on a per capita basis, Mexico is solidly in the middle of the world in terms of wealth, and if a bit more could be pried from the top 1-2%, everyone would do better…..But I forget…that’s socialism, so we deal with hoards of economic refugees in the US instead.
We Are Starting to See Housing Development Ghost Towns
This is obviously just an anecdote, but Dennis Pflueger is living in one of two houses that are occupied on his block, and that only because he was given a year to live there rent free as a sales inducement.
This is going to get Dennis Pfluegervery ugly.
Economics Update
Well, the Fed held rates steady, and it appears from their statement that they will hold rates steady.
Honestly, I don’t expect any rate change now before the election. Changing the rates in September or October would lead to complaints of a political agenda.
The Index of Supply Management’s index of non- manufacturing businesses showed continuing contraction in July.
It was up to 49.5, which was above forecast, but anything under 50 is contraction.
For what it’s worth, it looks like Noriel Roubin’s prediction that hundreds of banks will fail as a result of the credit crunch is finally getting some ink at a major news service (Reuters).
I would suggest his blog to get more detail, particularly on his estimate that the Taxpayer will be on the hook for $1-$2 trillion for all this.
Both he, and I, think that the credit crunch will get a lot worse, and stories like former Merrill Lynch superstar Dow Kim shutting down his hedge fund before it started, because investors got skittish and pulled out, would seem to confirm this.
I would also note that delinquent loans are rising for commercial real estate, which indicates that the commercial real estate market is following the residential market down the drain.
In the normal indices, we see the dollar up a bit, and oil and gasoline down for another day.
Thursday, when the Euro Central Bank sets its rates, should be interesting.
Late to the Party: Mortgage Edition
The economic reporters out there are finally noticing that the mortgage crisis is not just subprime, and that default and foreclosure rates for Alt-A and Prime mortgages are skyrocketing too.