OK, it may be a bit of an exaggeration. It’s true that Coutrywide’s shareholders approved the Bank of America takeover.
And as to the question as to whether BoA got a good deal, or whether they come to regret it, I would note that the state attorneys general of Illinois and California have both filed suit for what amounts to fraud and deceptive business practices against the mortgage lender.
Countrywide’s founder, Angelo Mozilo, aka “the Tanned One”, must be breathing a sigh of relief.
Whenever the housing crash is discussed, Charlotte is mentioned, since it was one of the largest metropolitan areas not experiencing a price drop.
Yhe other shoe has now dropped. Charlotte area house prices dropped year over year for the first time in 17 years.
I do think that Charlotte’s market is healthier, and will remain healthier, than the US market as a whole, but the housing crash will hit everywhere.
While I think that the predictions of a rapid decline in far suburbs is premature, it’s clear that increases in fuel costs, and hence the cost of commuting have driven some changes in attitudes regarding distant suburbs.
I disagree with land use expert Christopher Leinberger, who says, “Many low-density suburbs and McMansion subdivisions, including some that are lovely and affluent today, may become what inner cities became in the 1960s and ’70s – slums characterized by poverty, crime and decay,” if just because these McMansion subdivisions were remarkably poorly constructed, and the houses will not survive long enough to become slums.
I would expect, however, that as the exurbs were first into the housing crash, they will be the last out, and the land values won’t reach the relative levels that they had to more urban neighborhoods ever again.
It’s called the DAP, Down-payment Assistance Program, and it allows buyers to purchase a home with no down payment, even though FHA regulations require 3% down.
The offers — including “100% financing” — are made possible due to down-payment assistance programs run by nonprofit organizations. These programs are funded largely by home builders and also by private homeowners desperate to sell. The seller-funded groups provide enough down-payment money to buyers that they can qualify for a mortgage backed by the Federal Housing Administration, which requires at least a 3% down payment.
Basically, realtors and builders set up non-profits, and the home seller contributes to the non-profit to cover closing costs and down payments, which are made as grants to the buyers.
Of course, that money from the seller gets tacked onto the selling price. So if a condo were to sell for $100K, they would sell it for $110K, with 7K covering closing costs, and 3K covering the down payment required by the FHA.
Net effect: the buyer has no skin in the game.
They now account for 34% of downpayments on FHA loans.
Thankfully, the current FHA overhaul in Congress eliminates this…for a while, at least.
In any case, how about letting the pictures do the talking:
Consumer confidence plunges to the 5th lowest level ever, 50.4, as opposed to the predicted 57, from 58.1 last month.
Considering that home prices are down yet again, this time the Case-Shiller index was down 1.4% from March, and 15.3% year over year, it’s natural that people won’t feel confident.
These numbers spooked the currency markets too, with the dollar trending down.
Oil prices are up again, largely because of concerns of instability in Nigeria, though retail gas prices are down $0.003 from yesterday.
And just in case you are wondering, energy inflation is hitting prices more generally, with Dow Chemical raising prices 25%, even though it raised prices 20% last month, and UPDATE: Lowe’s is seeing “unprecedented” price hikes from its suppliers.
Stagflation, here we come.
As to the “stag” part, the fact that Toyota is scaling back its sales goals because of weakness in the economy, even though there are are months long waiting lists for the Prius, would indicate that no one is making good sales right now.
In the interest of fairness though, there are reports that Toyota is cutting back on Prius shipments to the US, because they can get more money in Europe.
I am referring to Lynn Adler’s Reuters story U.S. Housing Rebound to Be Prolonged: Harvard Study.
The problem is not Mr. Adler.
The problem whoever wrote the headline, because the study does not say that the housing rebound will be prolonged, but that the housing crash will be prolonged, because of high foreclosure rates and rising interest rates.
I missed this when it was announced late Friday afternoon, but two moremonoliners hit junk status, FGIC and XL Capital and XL Financial.
I wonder when all of the monoliners will be junk rated, and I also wonder why this is not true now.
This means more than just that these insurers can no longer realistically write policies. These downgrades come with significant penalties, as MBIA’s statement that’s it downgrade will force it to make $4.7 billion in payments to creditors.
When they got downgraded, the terms of their loans changed.
In energy we have oil up despite the Saudi meeting, and retail gas prices falling. Hopefully this will bring a few months of stability at the pump.
The dollar strengthened, largely on crappy growth in the Euro zone, which would suggest that the ECB will hold off rate hikes for a while.
In real estate, we have Lehman predicting more losses for Fannie Mae and Freddie Mac, which should come as no surprise at all.
After when ¼ of Bay Area home sales in May had been in foreclosure, and statewide home sales hit a 13-year low, it’s not like there will be a whole bunch of players making money.
It’s why George W. Bush’s ownership is becoming a Pwnership society, with home ownership falling to below where it was when he announced the initiative to get people to buy houses.
BTW, if you think that this won’t effect you, you are wrong. We now have an estimate of properties falling by $1.46 Trillion, which, by my quick envelope calculation, means that state and local governments are looking at revenue shortfalls on property taxes on the order of $1.5 billion/month.
Chuch Prince, former CEO of Citi who was fired for their losses that resulted from the collapse of the housing market, is now unable to find a buyer for his house .
Prince’s five-bedroom Tudor-style house in Greenwich, Connecticut, has been on the market for six months. He has cut the price by $300,000 to $5.85 million, according to the property listing.
It appears that he paid $4.48M for the house in 2003, so one wonders why he isn’t lowering the price more.
Maybe he has a 2nd mortgage on it…..heh.
Well, I’d be worried if I had to job search, because about 1/3 of employers surveyed by the Business Roundtable expect layoffs in the next 6 months.
Needless to say oil heading back up, and the dollar heading down would indicate that those 1/3 of executives surveyed are being prudent, even if retail gasoline prices fell for the 2nd day in a row, which hasn’t happened in quite a long time.
Currency gets even more interesting when one realizes that the Chinese Yuan has gained 20% vs the dollar since it’s been allowed to “kind of sort of float” against the dollar by pegging to a basket of currency, it’s gone from 1 Yuan= $0.1208 to 1 Yuan=$0.1453.
What’s more, it looks like a strong Yuan may be the only way for the Chinese to keep their inflation down, by cooling off exports and lowering the cost of imports, particularly food and fuel, so they may continue to take actions to strengthen their currency, essentially exporting their inflation to us.
Real estate continues to suck too, with mortgage application volume falling last week and the Architecture Billings Index dropping two points.
So, the real estate market in Manhattan is finally softening, and what lead article from blithering idiot Leslie P. Norton?
Signs of cracks in Manhattan’s property market could mean the rest of the country is on the road to recovery, since New York tends to feel the effects of a slowing economy later than the nation does. One segment still in the stratosphere: luxury condos and co-ops in exclusive buildings.
So, it could mean that the market is turning around…..or it could mean that that space aliens have abducted you and replaced you with a robot.
What it means that prices are dropping in Manhattan, which indicates a down market in Manhattan.
How does that saying go, ahhh…yes:
For example, given the premise, “all fish live underwater” and “all mackerel are fish”, my wife will conclude, not that “all mackerel live underwater”, but that “if she buys kippers it will not rain”, or that “trout live in trees”, or even that “I do not love her any more.” This she calls “using her intuition”. I call it “crap”….
And it gets me very irritated too.
We now have the Fed’s report on national industrial activity, and the may disappoints, with activity falling 0.2% when an 0.1% increase had been predicted by economists.
I’m not sure if it factors in inflation, but if it does not, then those numbers are absolutely horrific, as the producer price index rose 1.4% in May, which is grim….Over the last year, the PPI has gone up 7.2%.
Note that this is going on while housing starts fell 3.3%, which is the lowest rate since March of 1991, 17 years.
No wonder that the builders’ confidence survey just hit a record low, matching the record established in December of last year.
Of course, that doesn’t take into account that the National Association of Realtors isn’t getting the numbers that they report right. They claimed that NJ home sales were up 4% in the Q1 when they were down 30%….that’s a hell of a “mistake”.
It’s no wonder that Goldman Sachs is suggesting that banks may need to raise another $65 billion to cover mortgage losses.
It’s even less of a wonder that investors are waiting for more dividend cuts from banks. No profit should mean no dividends.
Of course, the Fed is continuing to let banks get free money for sh%$ pile assets, this time to the tune of $75 billion.
There is good news in energy though, with both oil and retail gasoline coming down a bit today.
The standard wisdom would suggest that this was because of a strengthening dollar, but the greenback fell today.
At Calculated Risk, they note that the housing bust will reduce geographic mobility, because people owe more than they can sell their homes for.
The costs of this to the economy are only just beginning to be calculated.
A report from the Office of the Controller of the Currency shows that the facts are overstated by about 10 times. The report are also showed that foreclosures are happening at a higher rate than reported.
An idea from Bush and His Evil Minions™, and it’s under performing and dishonest…who could have known?
Well, we now know that in May, foreclosure was up 48% over a year ago, which is why we are seeing stories about places where foreclosures are a majority of sales, and banks are becoming more flexible on prices on the property that they have assumed.
Increasingly, it looks like the bump in house sales was just a bump in sales of lender own properties.
If interest rates go up, this will get worse, and May data points to increased inflation. It exceeded expectations again.
That’s why Fed Governor Plosser is calling for a quick rate hike. He is worried about the dreaded stagflation.
Well, retail sales increased by 1% last month, about twice as much as expected. When gas if figured out, it drops to 0.8%, and then there is the question of how much food contributed.
Additionally, we have businesses expanding their inventories, though one has to wonder if this because they are hedging against inflation, or if they are expecting an uptick in business?
I tend to go with a bearish, and it appears that the outgoing head of the National Bureau of Economic Research (NBER) thinks so too.
He sees the economy slipping into recession, and possibly stagflation.
Certainly, inflation concerns are rising world wide, with the South African central bank raising rates, ½% to 12%. (Ouch)
Employment is not looking good either, with initial jobless claims rising to 384,000 last week, though one always the caveat that week to week changes can just be noise, as opposed to signal.
Then again, with mortgage rates rising, they are now at an 8 month high, I don’t see construction leading any recovery.
In energy, we had oil down as the dollar strengthened, though retail gasoline hit a new high…again.
Well, the Federal Reserve’s beige book is reporting that economic growth is generally weak, though better than the last one two months ago, but James Bullard, President of the Federal Reserve Bank of St. Louis is saying that inflation is their primary worry right now, joining Bernanke and Federal Reserve Bank of New York president Timothy Geithner.
Canada is concerned about inflation too, with their central bank holding rates steady instead of lowering rates, as was expected, which pushed the Canadian dollar up.
I think that it’s likely that we will see inflation concerns in Japan driving central bank policy there too, as they just raised their 1Q GDP estimate to 4%, which is high enough to raise inflation concerns.
This would imply interest rates going up in the relatively new future, which would undoubtedly force another dip in house prices.
Of course, the resets coming in option ARMs may do this before rates get raised:
This is a scary picture.
There is some not bad news in real estate, Mortgage applications rose 10.9% last week, though one wonders how much of this is driven by bargain hunters REOs*, which was what drove the recent increase in existing housing sales.
More generally, the lack of confidence is not limited to real estate, as evidenced by the concerns that the LIBOR† is still not trusted, and that the proposed changes to it are largely viewed as inadequate.
In brighter news, rates are falling onauction rate securities, those financial instruments that were supposed to be as good as a cash account, but have locked up investor money.
This implies that some confidence in the auctions is returning to the market, and as a result, governments are redeeming fewer of the bonds, about $2 billion a week, down from over $5 billion/week for the past few months.
Still, we have problems in energy, with oil prices up over $5/bbl, and gasoline hitting a new record, $4.052/gallon.
*Real Estate Owned. Property which is in the possession of a lender as a result of foreclosure or forfeiture.
†London interbank offered rate, a critical measure used to do things like set credit card rates and mortgage rates adjustments.
China, in response to inflationary pressures, and the fact that a number of their banks are insolvent by western standards, just hiked their reserve requirements, meaning that they have to keep more in reserve, and lend less out of their deposits, which, not surprisingly has tanked Asian markets.
Given that the US trade deficit widened under the pressure of rising oil prices, there may be another purpose: to slow things down before US demand drops off a cliff, particularly when Ben Bernanke is signaling rate hike strongly.
In any case, oil fell a bit, but gasoline is still hitting new records, which implies that a lot of money is still going to petro-economies.
It looks like the British Bankers Association may be taking steps to fix the problems with LIBOR reporting, where this critical rate looks increasingly to have been gamed by member banks, by tightening scrutiny on the transactions, though they are still whining about how it will hurt, “What we do here in the U.K. must match others … maintaining competitiveness is essential to the U.K. industry.”
If you crank out phony numbers, it will hurt your bank more than any other thing that you can do.
Meanwhile, back in the good old USA, Q1 delinquencies rose 62% over a year ago.
This would be a sensible regulation. A seller financed down payment is really no down payment at all, and as Federal Housing Administration Commissioner Brian Montgomery noted, these loans are 3x more likely to go into foreclosure.
The big news, though I’m not sure if it’s significant, is that, “The index of pending home resales rose 6.3 percent to 88.2, the highest level in six months.”
We are starting to see bargain hunters, but prices are still falling, and that is at the core of the housing bubble collapse. People are under water, and can’t sell to get out from under.
Review this article on , the price collapse of exurban McMansions. There is still a lot of pain to go, particularly since many of these homes are poorly built.
I wonder how many will end up multi-residential dwellings.
The dollar is down today, which implies further energy price increases and, eventually, higher interest rates.
Oil fell $4.19 today, which is not surprising after Friday’s spike, but retail gasoline prices rose again, to above $4.00/bbl. I filled up on the weekend at $3.93….I never knew that I lived in a low cost gas area.
Finally, Lehman lost $2.8 billion in Q1 of 2008, so this investment banks have a long way down to go.
The loans that they made, which are now turning bad, to developers for the construction of subdivisions.
IndyMac tried to sell a $540 million loan portfolio, and it was ugly, “Winning bids on many of the loans were, on average, about 60 cents on the dollar, according to people familiar with the matter. But some winning bids were only about 20 cents on the dollar,” and there are a lot more loan packages, where the assets held by the developers are dropping in value, and even if the complete their projects no one wants to buy then.
This is why Office of Thrift Supervision noted that the number of S&Ls at “heightened risk of failure” has gone from12 in March to 17 now.
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