Housing Bubble Bursting?

[Terrel L. Shields]

This unwinding and crash will be in slow motion , many years to achieve the economy of 1934..

Interesting point. The depression didn't begin in October of 1929. It was showing signs 2 years earlier and the RE bust was not in full play for 4 more years. I think this downturn could last several years unless everything goes exactly right.

 

[Randolph Kinney]

Another builder hit again with woe

D.R. Horton's orders fall 40% as builder anticipates loss

BOSTON (MarketWatch) -- Home-building bellwether D.R. Horton Inc. early Tuesday said quarterly orders for new homes fell 40% from a year earlier and that it expects to post a loss after impairment charges.

"Market conditions for new home sales declined in our June quarter as inventory levels of both new and existing homes remained high, and we expect the housing environment to remain challenging," said D.R. Horton Chairman Donald Horton in a statement.

He said the builder lowered its prices in response to sagging sales.

D.R. Horton said its cancellation rate for the quarter was 38%, up from 32% in the fiscal second quarter.

"People put a house under contract with a contingency to sell their existing home and then they weren't able to sell their existing home," said Stacey Dwyer, D.R. Horton's treasurer. "Or people who put a house under contract either just changed their mind and decided not to buy right now or find a better deal somewhere."

 

[rcsone]

Countrywide REO---------27M end of Dec, '06
110M " " Mar, "07..........probably appraisers' faults due improper functional evaporational misallowance adjustments: ie: some measured what was not there at a satisfactory cost, service term basis and now only the address can generally been taken as a known....as Guthrie said' "...times are a-changin'..."....best and worst to all, according to their needs vs. greeds........

 

[Randolph Kinney]

Freddie Mac says housing will continue to fall

U.S. Housing Sales to Tumble to Six-Year Low on Rates

July 9 (Bloomberg) -- U.S. home sales in 2007 will drop to their lowest level since the start of the five-year housing boom in 2001 as mortgage rates and foreclosures increase, according to a forecast by Freddie Mac.

Sales of new and previously owned homes probably will total 6.28 million, down 7.1 percent from last year, according to the world's second-largest mortgage buyer. It would be the lowest since 6.20 million homes were sold in 2001. Residential lending will drop to $2.75 trillion, the lowest since 2002, the McLean, Virginia-based company said in today's forecast.

The number of previously owned homes on the market, the so- called inventory, reached a record 4.43 million in May, according to the National Association of Realtors.

 

[Steve Owen]

Three things it takes to make a bubble burst.

Maybe not the only three things, but it looks like the most common scenario in this particular slice of market period. Seems like you don't get a bubble burst without the preceeding hot market... and that mirrors what I have observed in other markets, such as the tech stock fiasco.

http://www.nytimes.com/2007/07/09/business/09auctions.html?pagewanted=1&_r=1&th&emc=th

Why did the house sell for so much more in 2004? Mr. Rollins has a simple theory: “The market was hot, the interest rates were low, and they were giving all kinds of deals to people.”

As I was reading the article, I was wondering if what is happening in Atlanta is similar to what is happening in NW Arkansas. Fairly low wages, low unemployment, and overbuilding because of booming economy. In the case of NW Arkansas, the unemployment rate is considerably lower than in the Joplin MSA and has been for some time. The overbuilding may have been somewhat influenced by Wal Mart. Georgia may be a little different, but some of the effects seem the same.

The other thing I noticed is that the demand for housing in the Atlanta market does not seem to have decreased significantly. All of the auctions mentioned had numerous bidders.

And, of course, there may be a fourth needed ingredient to make a housing bubble burst.

In recent years, industry groups and law enforcement agencies have also cited Atlanta for being home to some aggressive mortgage fraud schemes. It may have been an easier target because the prices of homes in the same neighborhood can vary greatly here, making it easier to inflate appraisals.

(emphasis added)

 

[murray stroupe]

Re

like we said...

I am falling back on a 2000 book on Crashes and Manias where it pointed out that RE was having problems in 1927, but the crash (29) did not precipitate a decline immediately in RE. RE actually bottomed much later (33)...why? RE investors thought they could ride it out, but high taxes (created by high prices) and interest payments steadily eroded the RE owner's postion until they were forced to sell or were foreclosed on. Chicago was a classic case. 75% of the 200 or so banks failed and almost all failed over RE loans, not stock market losses.

=================
Terrel;
Sounds like a leverage problem more than taxes;
and something else good came out of the great depression
-oil in quart containers.

 

[murray stroupe]

Re;50% right 50% misleading trend

Analysis: Signs of household stress are all around

=============
Randolf;
Thanks for article.Curious so looked @ DHI [Horton homebuilder;
slaughtered mostly past 3 years., as your link implied

But his stock market comment is actually very, very & typicaly misleading, take a benchmark like SPY/related S&P500;
10 years up
3 years up
1 year up
7 weeksf flat or slightly down
3 weeks up
2 weeks up
Uptrends dont get much better than that.

Feb took an unusual harsh downtrend;
but otherwise classic uptrending,old bull market.Typical misleading mainstream media.

 

[Greg Bell]

Similar to 1928..

 

[Randolph Kinney]

S&P finally says subprime is mostly junk

New methodology is death knell for the troubled industry

WASHINGTON (MarketWatch) -- Standard & Poor's just drove a huge harpoon into the heart of the mortgage credit bubble, and it's going to take a long time to clean up the mess once the beast finally dies.

S&P, one of the three main credit-rating agencies that served as enablers of the subprime-mortgage boom, announced Tuesday that it would lower its ratings on 612 bonds, a small portion of the mortgage-backed securities it had given its seal of approval to.

But the bigger news is that S&P isn't going along with the charade anymore. S&P said it would change its methodology for rating hundreds of billions of dollars in residential-mortgage-backed securities. And it would review its ratings on hundreds of billions of dollars in the more complex collateralized debt obligations based on those subprime loans.

A lot of debt will be downgraded to junk status. A lot of that debt will have to be sold at fire-sale prices. A lot of pension funds and hedge funds that once thrived on the high returns they could get from investing in subprime junk will now lose a lot of money.

S&P's announcement is a death warrant for the subprime industry. No longer will mortgage brokers be able to help buyers lie their way into a home. Fewer stressed homeowners will be able to refinance their mortgage, thus extending and exacerbating the housing bust.

"We do not foresee the poor performance abating," S&P said.

Prices will fall, and foreclosures will rise. More mortgage fraud will be uncovered as the tide goes out.

And hedge funds will have to find another way to beat the market -- if they survive this blow, that is.

That says it all, the mask is off and it is ugly. Just the start folks, as investors dump their holdings of subprime containing securities and the kicker, no more buyers of subprime mortgages.

 

[Randolph Kinney]

GE, WaMu mortgages cut by Moody's

The news just keeps getting better and better for subprime

SAN FRANCISCO (MarketWatch) -- More than half of the mortgage-backed securities downgraded Tuesday by rating agency Moody's Investors Service are tied to home loans originated by units of General Electric Co., Washington Mutual Inc., Fremont General Corp. and New Century Financial.

Moody's cut ratings on 399 subprime residential mortgage-backed securities, or RMBS, and said that it may downgrade another 32 because of higher than expected delinquencies on the underlying home loans.

Standard & Poor's also unveiled big changes to its views on subprime mortgages on Tuesday. The rival agency said that it may downgrade more than $12 billion of subprime RMBS soon.

Many of the mortgage-backed securities targeted by S&P are also tied to loans offered by Fremont, WaMu, GE and New Century.

However, several other subprime-mortgage players were listed by S&P as well, including Merrill Lynch & Co. and its subsidiary First Franklin; NovaStar Financial Inc., Bear Stearns Cos. and Citigroup Inc.