Housing Bubble Bursting?

[moh malekpour]

Lennar's Profit Falls 73%

http://www.bloomberg.com/apps/news?pid=20601170&sid=adsLkS5Kr3mw&refer=home

Lennar's Profit Falls 73% as U.S. Home Demand Wanes (Update2)
By Brian Louis and Peter Woodifield
March 27 (Bloomberg) -- Lennar Corp., the largest U.S. homebuilder by revenue, said earnings plummeted 73 percent in the fiscal first-quarter as demand waned in the worst housing slump in more than a decade.
Net income for the three months ended Feb. 28 declined to $68.6 million, or 43 cents a share, from $258.1 million, or $1.58, a year earlier, the Miami-based company said today in a statement. Lennar said it will likely miss its 2007 profit forecast as the normally stronger spring selling season had not materialized.
``Given the state of the market, we do not expect to achieve our previously stated 2007 profit goal,'' Chief Executive Officer Stuart Miller said in the statement. ``We are not comfortable providing a new earnings goal at this time.''
The biggest drop in U.S. home sales since 1990 is battering the building industry. Profit is falling as the inventory of unsold homes swells and companies increase incentives to entice buyers. As foreclosure rates rise among borrowers with poor or limited credit histories, builders now face the prospect that even more homes will come onto the market.

 

[moh malekpour]

U.S. Stock Futures Fall on Lennar Forecast; Ethan Allen Drops

http://www.bloomberg.com/apps/news?pid=20601087&sid=a06qFLHvRtec&refer=home

Ethan Allen Interiors Inc., a furniture retailer, dropped after it predicted a third-quarter profit below analysts' estimates. Phillips-Van Heusen Corp., the maker of Calvin Klein and IZOD clothing, may fall after it forecast a profit for this year that trailed analysts' estimates.
The Commerce Department said yesterday that new-home sales fell last month to the lowest in almost seven years, while the supply of unsold homes climbed to the highest in 16 years. Mounting concern about the housing slump and rising mortgage delinquencies may curtail consumer spending, which accounts for more than two-thirds of the economy.
``Both slowing economic and earnings growth are likely to contribute to increased volatility for stocks,'' said Robert Doll, chief investment officer at BlackRock Inc., which oversees more than $1 trillion in Plainsboro, New Jersey. ``We continue to encourage investors to exercise caution in the short term.''

 

[Brad Ellis]

Greg,

Here we go again with the center for responsible lending. sheesh!

They are crying like rats eatin' onions over foreclosure rates, BUT do you think they would have been silent if the lenders had not made those loans because these folks had illegal status? Nope. They would have been crying about that just as loudly.

Randolph,

Interesting stats but I do not know what the "normal" ratio ought to be- do you? I would surmise that buyers in this softening market were opting for the used home over the new due to price, at least in part.

So, biggest drop in 16 years? Let's see- 1991- about or near the height of the first part of the SoCal meltdown, no?

Brad

 

[Alison Swain]

Tip of the iceberg folks, tip of the iceberg. Remember all those illegals getting no-doc loans to buy homes at the peak? The ones employed by the REIC to build homes for more suckers? Well, they'll be zipping home now, turning in the keys, walking away, and saying "adios!" to a country of bagholders.

If only.........

 

[Steve Owen]

...we are lucky if we get 2.5% GDP.

....

earning plummeted 73% is a big loss.

That might be enough, depending on other factors... low inflation, low interest? If that's the case, then 2.5 might still be considered positive growth and could result in continued low unemployment. All of these things balance together (or not). The big albatros in the current situation is debt.

Seventy-three percent loss... sounds kind of like the tech bubble, doesn't it? But, it doesn't really make much difference to someone who doesn't own their stock or work for them.

 

[moh malekpour]

State regulator calling for ban on stated-income loans

http://www.latimes.com/business/la-fi-subprime27mar27,1,2315678.story?coll=la-headlines-business

SACRAMENTO — With as many as 460,000 California homeowners reportedly at risk of losing homes bought with sub-prime mortgages, a top California business regulator called Monday for a ban on certain risky and controversial lending practices.

At issue for Department of Corporations Commissioner Preston DuFauchard were home loans being issued without lenders fully verifying the prospective buyer's income and employment status. These so-called stated- income loans have contributed to the collapse of the sub-prime mortgage market, he said.

"It's a real fluid situation," said DuFauchard, who has asked Gov. Arnold Schwarzenegger whether the commissioner can require about 8,000 mortgage and commercial loan lenders in the state to fully verify a prospective buyer's income and employment status to ensure that he or she can afford a loan.

The testimony came at a hearing of the California Senate's Banking, Finance & Insurance Committee, which also heard the estimate of 460,000 possible foreclosures from consumer activist Paul Leonard, director of the Oakland-based Center for Responsible Lending.

Many borrowers, who qualified for adjustable-rate mortgages based on their unverified stated-income declarations, fell behind on their payments as the economy and housing market softened in the last year. As a result, Leonard said, they were hit with suddenly increased interest rates that put monthly payments out of reach of low-income homeowners.

Leonard said he would welcome stronger oversight of mortgage bankers' underwriting guidelines by the state.

The Department of Corporations, he said, has only 25 examiners on staff and "and clearly doesn't have the resources to stay on top" of the situation.

 

[moh malekpour]

S&P/Case-Shiller Home Price Index Declined 0.2%

http://www.bloomberg.com/apps/news?pid=20601103&sid=aM7JED1btIJs&refer=us

March 27 (Bloomberg) -- The price of homes in 20 U.S. metropolitan areas fell in January for the first time in at least six years, a private survey showed today.

Home values dropped 0.2 percent from a year earlier, according to the S&P/Case-Shiller home-price index. The decrease was the first since the group started keeping year-over-year records in January 2001.

The numbers follow a report yesterday that showed new-home sales at the lowest level in almost seven years as builders struggled with a glut of unsold dwellings. Falling prices make it harder for owners to borrow against home equity and may make lenders even more wary as delinquencies climb.

Today's data ``are a good indicator of the dire state of the U.S. residential real estate market,'' said Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University

 

[Randolph Kinney]

There is significant possibility we are headed toward recession. However, you have to look at the whole picture. Will GDP fail to generate enough job growth to keep unemployment low? Well, we'll know that when the higher figures come in.

There isn't much profit in building and selling a new home right now. Inventories are up and prices are suffering from downward pressure in many markets. Therefore, it is no big surprise that existing home sales "stick out like a sore thumb."

Steve, you do know that consumer spending accounts for 70% of GDP? That is significant, so much so it is overwhelming. Consumer spending has been propelled with cash out refinance and other debt creation. Home price appreciation and loose credit standards for mortgages enabled free money spending by the consumer. Increasing consumer spending was due to debt creation and it was so significant that the savings rate as been negative.

It is not that complicated to see how much housing has played in the growth of the economy. And it is not complicated to say going forward, GDP will be overwhelmed due to decreases in consumer spending, increasing foreclosures, and falling home prices.

 

[Randolph Kinney]

Randolph,

Interesting stats but I do not know what the "normal" ratio ought to be- do you? I would surmise that buyers in this softening market were opting for the used home over the new due to price, at least in part.
Brad

Welcome back Brad.

I believe the counter-intuitive reasoning on NAR's data showing increasing exiting home sales volume (seasonally adjusted and annualized) at the same time showing a declining median sales price tells me that maybe NAR's estimates for adjustments are not jiving with the reason for falling home prices. It is intuitive by comparison to new home sales volume; rapidly declining. And, you know that builders are offering huge concessions with declining prices anyway on new home sales. So why should existing home sales be that different from new home sales? You are suggesting that price is the major contributor; cheap used homes versus expensive new homes. Therefore the existing home market has increasing volume over the last 3 months. Did you take notice that both have increasing inventory of unsold homes?

Your thought as to what is normal is non sequitur; it is a given that the time periods of the last 5 years were abnormal, called a housing boom. However, it is interesting to look at the ratio of new home sales SAAR to exiting home sales SAAR from the peak volume to now. That ratio gets smaller and smaller over that time frame.

Anyway, NAR should have some explaining to do concerning the data it publishes and how that is contradicting other housing data.

 

[Randolph Kinney]

Fed sees subprime market woes for one to two years

http://www.marketwatch.com/news/story/fed-sees-subprime-market-problems/story.aspx?guid=%7BF8B16385%2D4568%2D412E%2D95E4%2D0DF7BE6A2093%7D

WASHINGTON (MarketWatch) -- The Federal Reserve is concerned that borrowers of subprime mortgage loans may face "more difficulty" in the next one to two years, a Fed official said Tuesday.

In particular, those borrowers with recently originated adjustable-rate mortgages are likely to experience more delinquencies and foreclosures, said Sandra Braunstein, the director of the Fed's division of consumer and community affairs.

In testimony before a House Financial Services subcommittee, Braunstein also said incentives for responsible subprime lenders need to be preserved so that access to credit can be maintained.

Last year, subprime mortgages were a $600 billion business that accounted for about a fifth of all home loans, according to industry publisher Inside Mortgage Finance.