Housing Bubble Bursting?

[The Warrior Monk]

As to the mix of starter vs. high dollar homes all I have is my data and that suggests that there are plenty of high dollar ones going in as well.

One trend I have definitely noticed is that most of the foreclosures are occurring with lenders that uses management companies. I'd estimate 70%, though it is likely higher, since I'm not sure if the remaining 30% use management companies are not.

We have a significant number of private banking services and trust companies that finance luxury homes in my market area. It is extremely uncommon that properties funded by one of these companies goes into foreclosure. We track them. There was one a few months that was noted in lis pendens (one we weren't involved in), but the LTV of the loan was 70%, and the home could readily be dumped at a profit.

 

[Greg Bell]

Here is the obvious.CAUTION DO NOT READ WITH ROSE COLORED GLASSES , MAY CAUSE INJURY TO THE PIE IN THE SKIE SCENARIO...


US Economy nears Recession in 2007

Washington, Apr 13 (Prensa Latina) Swedish economist Stefan Karlsson has predicted the US economy nears recession in 2007, according to an article posted this week in the Mises Institute website.


Karlsson sustains that the imbalances of the US economy should result in a bust this year. Although GDP growth rate is still above previous recessions of 1982 and 1991. Yet there are increasing signs that the worst is yet to come, says the economist currently working in Sweden.



Much of his forecast is based on the fact the housing bubble was financed by so-called subprime mortgages, mortgages to people with a low credit rating.



Subprime mortgages were encouraged greatly by the government, with the Federal Reserve providing a cheap source of credit and with Bush encouraging it as part of the “ownership society” that he envisioned.



But after the Fed was forced to raise interest rates again and the cost of borrowing for the subprime borrowers increased sharply. This means many people will be forced to leave their homes, unable to handle the increased cost of credit.



With construction investment still high and the increase in house supply, there is a high risk of falling prices — which, given the negative savings rate and the record high level of household debt, would imply that consumer spending will have to fall, says Karlsson.



Given residential investments are likely to continue to fall and with consumer spending likely to be weak as well, the one thing that could save the US economy would be business investments.



Business investments are still at a relatively moderate level, but in relation to corporate profits they are in fact historically low.



With the pessimism generated by the decline in profits and the trouble in the housing market, refers the economist, an increasing number of business leaders seem to think that the days of high profits will be over soon.



What about the Federal Reserve? “The knight in shining armor” always saving the day by cutting interest rates. Of course, Ben Bernanke would certainly be willing to provide “liquidity” if he thought a recession was coming.



However, warns Karlsson, the fact that commodity prices continue to soar and the dollar is falling means that Bernanke will have limited scope to cut interest rates, particularly in the aggressive way that Greenspan did after the tech stock bubble burst.



So how is Bernanke going to create the next bubble, the one that will mask the hangover from the housing bubble in the same way that the housing bubble masked the hangover from the tech stock bubble?

 

[Randolph Kinney]

Randolph,

I would suspect that the foreclosure sales are being counted. From what I know of the data base is is just raw sales numbers and I cannot figure out how they would sort those. Maybe they do this and do know how but in all my use of their data the foreclosures are always included in it- both into and out of foreclosure. But, not being inside their engine I cannot say for sure.

As to the mix of starter vs. high dollar homes all I have is my data and that suggests that there are plenty of high dollar ones going in as well.

Brad

Brad, one thing about DataQuick, they rarely explain why the data is skewed. In this one case, they offer an unsupported explanation that for some reason, entry level housing is not selling like it was and the relationship to higher priced homes has changed. That's nice.

Without that tidbit offered as to the reason why, everyone would be laughing themselves silly over DataQuick reports record new high median sales price for California. Oh, that's because no one wants to buy the cheap starter homes. :Eyecrazy:

I am laughing at those who believe DataQuick's explanation.

 

[Randolph Kinney]

GE adds700 debt collectors to help with subprime problems

http://www.marketwatch.com/News/Story/Story.aspx?guid={9E66CFE8-76A5-4696-9FDB-D18AAFC23BD5}&siteid=mktw&dist=nbk

NEW YORK (MarketWatch) -- General Electric said Friday it'll beef up its collection efforts as it moves to contain any possible leakage of woes from the subprime sector into its lucrative financial business lines.

Turning toward GE's financial services arm at the conglomerate's quarterly conference call, CEO Jeffrey Immelt said the measure came as part of a series of moves to counteract a difficult quarter at its relatively small WMC Mortgage business, a major subprime lender.

GE Money, which runs a number of businesses including credit cards and mortgages, has added 700 collectors in last few months to "make calls earlier and more reminder calls."

Begor said the first quarter was "very difficult" after home price appreciation declines and an increase in delinquencies took their toll.

WMC announced March 9 it would laying off 20% of its workforce and closing four of its nine offices.

 

[Randolph Kinney]

House Price Drop? That's Unpossible!

http://www.fool.com/investing/general/2007/04/12/house-price-drop-thats-unpossible.aspx

You just know the housing situation has gotten bad if the six-percenters at the National Association of Realtors finally feel the need to reveal the awful truth: Prices are going to fall. The latest verbiage from the world's most vocal housing-bubble cheerleader, NAR economist David Lereah, actually predicts that home prices will drop by 0.7 % in 2007.

Of course, you wouldn't know that to read the headline, which, as usual, paints the fantasy that everything is always good for housing. In other words, it's exactly what you'd expect from a guy who's been shilling housing not only in press releases for his trade group, but in misguided books like the wonderfully timed (from 2005) Are You Missing the Real Estate Boom?, the failed broadside against the skeptics Why the Housing Boom Will Not Bust (from 2006), and the still later "oops-I-better-tweak-my-lousy-thesis" response, All Real Estate is Local. (By the way, this blog post tells a tale of Lereah's real estate investment prowess these days.)

Even the NAR's mealy-mouthed admission on falling prices isn't particularly gutsy or insightful. Prices have been dropping for a while, even though the official accounting techniques for home sales don't net out the ludicrous subsidies that sellers have been throwing in for months.

The briefest look at results from D.R. Horton (NYSE: DHI), Pulte Homes (NYSE: PHM), and Lennar (NYSE: LEN) would have told you where housing was headed. And the credit crunch -- real and feared -- that's whaling on lenders like Countrywide Financial (NYSE: CFC), IndyMac (NYSE: NDE), Impac (NYSE: IMH), Fremont General (NYSE: FMT), and others is both long overdue and well-deserved.

So, while you're giggling at Lereah and the NAR, keep your eye on the industry response to the mess and the media wake-up call. As reported by The Wall Street Journal, the cheerleaders at the Mortgage Bankers Association are crying foul and spending millions to fight back against a "torrent of unfair press and counterproductive policy responses ... "
Can't argue with them on the dumb policy. Bleeding-heart lawmakers are already signing up to reinflate the bubble through various means of flouting the markets' impending return to equilibrium. But the MBA is way off base to cry about the press.

Fools, what bubbles up must eventually come down. It would just be nice if Lereah, the mortgage bankers, and the rest of the crowd would recognize the monster they've made and make real amends. But don't bet on it. Their paychecks depend on the myth of housing as an investment, rather than a sound living choice if purchased at the right price.

Next time they start flapping their lips, I suggest we all "invest" in earplugs.

• When Mortgage Bankers Squeal
• I Want My Bubble Back!
• Housing Cheerleaders Losing Pep

Well now, someone is calling a "spade a spade" and labeling national groups that represent a self-interest in creating a myth about real estate problems. It is really entertaining watching the real estate market slowly unravel, a slow death to builders, Realtors, lenders, mortgage brokers, and appraisers. How does one make sense of the reported data and the forecast? :new_smile-l:

 

[Brad Ellis]

Randolph,

I only read the "fool" post. I fully agree that their site is aptly named. I have no doubt that they are fools and they are probably motley as well.

Let's see- interest senstive market = bubble. Then that would mean that virtually every currency market is in a perpetual bubble along with gold and other precious metals.

Vulnerable = ready to pop. Huh? The stock market and our economy overall right now is vulnerable. So, it is going to "pop" according to them.

So Lereah was off in his forecasts- granted. He said a few months ago that the market for RE had bottomed. I did not subscribe to that and said it would continue well into this year before it bottomed. But, has he been more or less correct that these maniacs? I do not know and really no one does yet- apart from the revisions.

I've made a fairly good return shorting some of these stocks the "fools" have recommend and buying some they panned. Obviously nothing automatic; one must still do their research. But fun when the supposed experts get it wrong as so many have over the last year.

Last week I saw an interrview with Mark Zandi of Moody's. He specified CA as one of the risky markets for declines. Of course the whole picure is not yet clear, but I wonder how he is feeling after seing the admittedly potentially slightly skewed data from Dataquick?

About 9 months ago he predicted a 20% drop in prices and even segmented the markets. What he got correct were FL condos and that is about it. He now says we have had 4% and we will get about 6% more. And then he used the term "CORRECTION" ! That is a bigger turnaround than Lereah.

Brad

 

[Randolph Kinney]

Big Trouble At Countrywide?

http://market-ticker.denninger.net/2007/04/picking-on-countrywide-financial.html

Countrywide has been buying back its own stock in the open market. It has issued $2.6 billion of bonds to pay for that, which means the company is robbing the shareholders by encumbering its balance sheet in order to purchase shares while the CEO (and other insiders) are dumping shares into the market. If you boil this all down, the CEO is exchanging his shares for cash, which is coming from the corporation and being turned into REAL debt on the firm's balance sheet - plus a whole bunch more.

The CEO has sold $20 million worth of company stock last month.

M&T bank and AHM have said that they can't sell their loans on the market for what they think is a "fair" price - or at a profit. Both have taken significant impairment charges. Over fifty subprime and ALT-A lenders have shut down in the last few months. Both M&T and AHM are not subprime companies - they are ALT-A lenders, as is Countrywide.

Mr. Sambol, Countrywide's COO, stated under oath just a few weeks ago that had their customers needed to qualify under the fully-indexed rate, sixty percent would not have been able to do so.

James Furash, CEO of Countrywide Bank, has left the company as reported by Bloomberg yesterday. Countrywide built up Furash's unit -- assets swelled to more than $80 billion from $75 million six years ago -- by diverting mortgages to the bank rather than selling them off to investors. The company is taking out more insurance on mortgages held by Countrywide Bank to protect against a rise in defaults.

It was reported yesterday by Reuters that Countrywide's foreclosures doubled for the month of March. Foreclosures as a percentage of unpaid principal balances rose to 0.83 percent in March from 0.44 percent a year earlier and 0.80 percent in February on $1.35 trillion of loans.

The company will report earnings in two weeks.

 

[Randolph Kinney]

Randolph,

Last week I saw an interrview with Mark Zandi of Moody's. He specified CA as one of the risky markets for declines. Of course the whole picure is not yet clear, but I wonder how he is feeling after seing the admittedly potentially slightly skewed data from Dataquick?

Brad

I suppose Brad, Mr. Zandi is laughing himself silly looking at the DataQuick numbers. Really, that just does not conform to the reported data on foreclosures, short sales and distressed sales along with Case-Shiller indexes. It really makes DataQuick appear to be in the same league as NAR.

 

[Randolph Kinney]

More Trouble: Irwin Warns, Expects Loss in First Quarter of 2007

http://www.housingwire.com/2007/04/13/irwin-warns-expects-loss-in-first-quarter-of-2007/

Irwin Financial Corporation (NYSE:IFC) said early Friday that it expects to report a loss from operations for the first quarter of 2007 due largely to the effects of conditions in the consumer mortgage market.

Miller noted that the problem wasn’t tied to delinquencies in the company’s loan portfolio, but to the fact that investors in the secondary markets weren’t as willing to purchase the company’s loans for securitization.


“Our working assumption is that these secondary market conditions are likely to last for some time, and as such, we moved approximately $170 million into portfolio from held-for-sale classification,” he said.

Miller also noted the company will be hit by a bad commercial loan in Michigan, where the he said Irwin fell victim to “misrepresentations about collateral for the loan.”

As a result of the expected loss at the home equity segment and the credit impairment in the commercial banking segment, Irwin said it expects to incur a loss in a range from $5 to $10 million during the first quarter. The company reported a $10.6 million profit during the fourth quarter of 2006.

Wow! Imagine that, can't sell loans in the secondary market and foreced to write down the value and hold them until sale.

I wonder how many lenders have that problem? :new_smile-l:

 

[Terrel L. Shields]

The option ARM is "like the neutron bomb," says George McCarthy, a housing economist at New York's Ford Foundation. "It's going to kill all the people but leave the houses standing."

In reality, we as appraisers should have been adjusting our valuations DOWN to account for these accounting conditions, but how the heck would you calculate an adjustment for ARM financing?