Housing Bubble Bursting?

[Randolph Kinney]

How much is a new house worth today? 60% less than last year!

Lennar New Homes in September Fetch 60% Less in November as Slump Deepens

Jan. 10 (Bloomberg) -- Lennar Corp.'s November sale of 11,000 properties in eight states set a price that may mark the bottom for the U.S. housing market: 40 cents on the dollar.

That's how much Morgan Stanley Real Estate paid for an 80 percent stake in the 32 communities, 60 percent less than the price at which the properties were valued just two months earlier. That's also what some investors say they would pay for distressed land, condominiums, homes and whole developments, whether it's now or later this year.

As the U.S. housing slump drags into its third year, sellers will start cutting prices as much as it takes to find buyers, said Marcel Arsenault, a self-described ``vulture investor.'' Properties will be available to buyers with the financial strength to ride out the slide. Now that a price has been set, all that's left is the waiting.

``We're watching Denver, Phoenix, Austin and Tucson, but South Florida is our principal focus,'' said Arsenault, 60. ``If you're a vulture, Florida has more carrion. This stuff is lying on the ground. It's lost life. Some of the stuff in Phoenix is still breathing. Perhaps not for long.''

Companies such as Miami-based Lennar, the biggest U.S. homebuilder by revenue, need to generate cash to make up for slowing home sales, especially this time of year, said Vicki Bryan, a Friendswood, Texas-based senior high-yield debt analyst for Gimme Credit LLC.

``They sold land at 40 cents on the dollar and they're happy to get it,'' Bryan said. ``The value of land is eroding by the minute.''

This could be signaling the bottom is near when liquidity needs cause mass liquidation to stay solvent.

Passing that much property inventory to a vulture means the vulture has to wait as future replacement inventory is exhausted allowing a price increase at some point.

 

[Dee Dee]

This could be signaling the bottom is near when liquidity needs cause mass liquidation to stay solvent.

Passing that much property inventory to a vulture means the vulture has to wait as future replacement inventory is exhausted allowing a price increase at some point.

If the vulture doesn't belly up before the price increase happens.

 

[Randolph Kinney]

If the vulture doesn't belly up before the price increase happens.

Yes, that is the risk.

And does a 60% discount from last year's prices give enough incentive for the vulture to hold on until that profit is realized? Sure it does but what if prices go lower and it takes longer for prices to rise to his point of profit?

I guess that is the belly up for the vulture. That's all the market needs is the vulture to become a distressed seller.

 

[Dee Dee]

That's how much Morgan Stanley Real Estate paid for an 80 percent stake in the 32 communities, 60 percent less than the price at which the properties were valued just two months earlier.

The big question is WHO valued the properties 2 months earlier? Seriously, do you think that it was an unbiased third party?
Yeah...right. I doubt it.

 

[hastalavista]

The big question is WHO valued the properties 2 months earlier? Seriously, do you think that it was an unbiased third party?
Yeah...right. I doubt it.

My guess is that it was valued based on some accounting formula, and not what you or I would consider an "appraisal".

Although book value is supposed to reflect market value (mark-to-market), such is not always the case.. and while it may reflect over-optimism on the company's part (if I were a stockholder, I'd say it reflects irresponsibility), it does not necessarily reflect anything illegal. :new_smile-l:

 

[Dee Dee]

The beginning of exposing the exposure?

http://www.thebulletin.us/site/news.cfm?newsid=19195381&BRD=2737&PAG=461&dept_id=577547&rfi=6

Hartford, Conn. - Authorities in New York and Connecticut are investigating whether Wall Street banks hid crucial information about high-risk loans bundled into securities that were sold to investors, Connecticut's Attorney General said Saturday.

The investigations, first reported Saturday by The New York Times, center around "no-doc" or "exception" loans, that did not even meet subprime standards, Attorney General Richard Blumenthal said.

In November, Mr. Cuomo said he issued subpoenas to government-sponsored lenders Fannie Mae and Freddie Mac in his investigation into what he claims are conflicts of interest in the mortgage industry. He said he wanted to know about billions of dollars of home loans they bought from banks, including the largest U.S. savings and loan, Washington Mutual Inc., and how appraisals were handled.

Spokesmen for both lenders said they require accurate appraisals and both agreed to appoint independent examiners as requested. Washington Mutual said it was conducting its own internal investigation into Mr. Cuomo's claims and that "the company will vigorously defend itself from all unfounded allegations and lawsuits."

Blumenthal declined to say which firms were under investigation, but said his office had issued over 30 subpoenas.

"These practices involving trillions of dollars in securities sold to ordinary investors go to the core of our financial system's integrity and efficiency," Blumenthal said. "We regard this investigation as a priority."

Bold is mine.

 

[Randolph Kinney]

Another down forecast

Mortgage originations, median home prices to decline in 2008: MBA

CHICAGO (MarketWatch) -- Fewer people will be obtaining mortgages this year than in 2007, with total mortgage production expected to drop 16% to $1.96 trillion in 2008, the Mortgage Bankers Association said Monday.

If the projections hold, it would be the first time since 2000 that total mortgage originations fall below $2 trillion, the group said.

"The principal concern of the current credit crisis lies in the possibility that banks will eventually run out of capital," said Doug Duncan, MBA's chief economist, in a news release.

"Banks are running up against capital limits as they write down the value of assets at the same time they are putting loans on their balance sheets because the markets for securitized products are essentially closed," he said.

The group expects housing starts and home sales will continue trending down, reaching bottom around the end of the third quarter of 2008.

Existing home sales will decline 13% to about 4.94 million units in 2008, compared with 2007. But sales will pick up 4% in 2009, the MBA predicts.

Sales of new homes will decline 15% in 2008 to 666,000 units; sales should pick up 7% in 2009.

Meanwhile, median home prices for new and existing homes should decline this year, with nominal median prices falling 2%. Prices are expected to increase between 1% and 2% in 2009.

If 16% decline in total mortgages are expected this year, how does that jive with 13% and 15% decline in existing and new home sales? I suppose the difference is made up with a decline in refinancing of existing mortgages.

 

[Riick]

Hey Dee Dee Gold is at 881!!

Link: Free Money to the Rescue

=============================================
Mogambo sez: It's pretty astonishing how gold has risen to a new, all-time nominal high, but the sense of urgency it implies is missing from the news media, when if
they were REALLY news reporters, they would be finding out the truth about gold and why it is rising, and then they would be in here with me, hunkered in the bunker,
finger on the trigger, scared out of their freaking minds.
====================================================
"And when that government check hits my mailbox, brother, I'll show you exactly how giving people free money stimulates spending! Whee!
Insanity in economics is fun! And it will be ironically profitable if you use the money to buy gold! Whee!"
====================================================

"Alan Abelson in his "Up and Down Wall Street" column in Barron's writes, "Talk about great entrances! For investors, anyway, they don't make
them any better than the memorable one staged by that precocious calendrical infant, 2008. That is, if you're an investor who happens to
have a portfolio chock full of gold and overflowing with oil."

And if you have your investments aligned with the Fabulous Mogambo Portfolio (FMP), then he is talking about you! Gold! That's all you have!
Gold! Lovely, lovely gold! And for the seventh year in a row, the FMP has beaten the piddly results of almost every other money manager in the
world, but does The Mogambo get any credit, or even get somebody to make him up a lousy plate of nachos, like I'm asking so much of worthless
kids laying around the house all the time? No!

I have to be content with making lots and lots of money as gold rises, instead of being given meaningless awards or being invited to appear on
the television show with Regis Philbin and Kelly Ripa, so that they can tell me what an honor it is for them to meet me because what a freaking
genius I am to have come up with creating the Fabulous Mogambo Portfolio Theory (FMPT) that has been kicking investing butt for seven
years in a row now, the underlying theory of which is to own gold, gold mining stocks, gold ETFs, and marry someone who has a lot of gold
fillings, gold crowns and gold dental bridgework, as a sort of portable store of gold, "on the hoof" in a manner of speaking, just in case you
need to, you know, get out of town in a hurry again.

And after the introductions, I will look into the camera and say, "Thank you very much, Regis and Kelly! But to be truthful, in developing the
Fabulous Mogambo Portfolio Theory (FMPT), I merely looked at the last 4,000 years or so of watching governments want to spend more than
they could get out of the people, and finding out what happened when such governments got the bright idea of a way to create more money
was to increase the money supply by making gold and silver coins smaller, or mix cheap metals in with the gold and silver in the coins, or to use
paper money, or, in the ultimate example, make money the mere electronic storage of computer blips."

Then I will say, "And I will tell you, and the audience, and all the viewers at home who want me to sweep Kelly up in my arms and start kissing her
all over, the Big Freaking Lesson (BFL) that is thus gleaned from those 4,000 years of economic history!" Then I will lean forward, all confidential
and secretive, and say, "Come closer! Closer!" while lowering my voice to draw them in, lower and lower and closer and closer, until I suddenly and
unexpectedly explode, "Buy gold! Buy as much gold as you freaking can! Buy gold when the government is creating too much fiat money, spending
too much money, which is made possible because the banks are creating too much money and too much credit for someone to borrow, with which
to buy the debt, which gives the government the money to spend!"

And then I will walk right up to the camera until my face is right in it, getting Little Droplets Of Spittle (LDOS) all over the lens as I hysterically
shout, "We're freaking doomed! Don't you understand that, you stupid people? The Federal Reserve has doomed the dollar, and that means that
you are doomed! It's Klaatu barada nikto all over again!

To allay the fears of the audience at home, watching all of this on their TVs, I will soothingly say, "Not Regis, of course, because he is smart and
witty, and he can always get another job. And Kelly is not only smart and witty, but really hot, too, and I think I can turn her into a terrific ****
star! We'll make millions!"

The worst part is that nobody will ever believe me when I say that I was on the Live with Regis and Kelly TV show because the episode will not be
aired, and Kelly will never even return my calls about any of my great ideas for a whole series of terrific adult-themed films we could make in her backyard.

And it's too bad, too, although soon, nobody will need the money, as I am certain that there will be a massive fiscal stimulus very soon, which will
probably be a replay of the "tax rebate" checks that Bush sent out to taxpayers right after being elected in 2000. I figure that $1,000 per
taxpayer has just the right amount of desperation and panic, and gold will soar as a result of such blatant deficit-spending stimulus.
<<<< snipped >>>>
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[Randolph Kinney]

Is Citibank going down?

Just a thought, unlike the last recession where the dot.com bust produced stock market declines across the board, but more in the NASDAQ, this recession will take out home builders, mortgage lenders, and even financial institutions.

Reading John Mauldin, he quotes Pimco's Bill Gross who makes a case for what he terms the "shadow banking system". These are hedge funds that act as banks and other institutions that provide insurance for a credit default.

Wall Street has all sorts of derivative instruments on their balance sheets backed by credit default swaps. Banks like Citigroup, B of A, JP Morgan-Chase, Wells Fargo, etc., all have SIVs that in one form or another have derivative instruments packaged into them to guarantee their payment and ratings.

The problem is, the companies that guarantee don't have the reserves to pay out even of a low percentage of defaults they insure. That means as the mortgage defaults increase, the multiplier of defaults of derivatives based upon defaulted mortgages explodes to whatever the leverage that was used to guarantee against defaults. Leverage used ranges from 25 to 1, to over 200 to 1. That means a $100 billion default in subprime mortgages can produce $2.5 trillion to $20 trillion in defaults in derivatives.

No wonder then Citibank is coming back again for more equity infusion after receiving $7.5 billion.

Citigroup to announce cut in dividend, cash infusion and write-down - report

SAN FRANCISCO (MarketWatch) -- Citigroup Inc. will cut its dividend as part of a plan to stabilize the banking giant's finances, the Wall Street Journal reported late Monday, citing unidentified people familiar with the plans. At a board meeting on Monday, Citigroup directors were poised to sign off on a "sizable" dividend cut, the newspaper said. The bank is also getting a cash infusion of at least $10 billion and will write down as much as $20 billion in mortgage-related investments as part of its fourth-quarter earnings report, due on Tuesday, the Journal added.

Citi may write off $24 bln; China won't invest in bank: reports

 

[Greg Bell]

Yikes..this is so scary I had to change my avatar back to the grim reaper.