Friday, December 15, 2006

Bubble Sphere Roundup

The housing bubble's poster boy of fraud, Casey Serin, ponders whether or not he should file for bankruptcy. The authorities need to charge him for fraud.

Paper Money is a wonderful blog. What’s In a Word? in this case the word is 'substantial,' as the Federal Reserve board opined that there is a 'substantial cooling of the housing market.'

Median Sales Prices are down 8% in Sacramento and even more in some of the nearby counties. Sacramento Land(ing) posts that Double-Digit Price Declines for Placer & Yolo; Sacramento Down 8%.

And just to cheer you up during this holiday season. Nouriel Roubini posts: Economic downturn is still fully underway. He writes "The housing recession is not bottoming out (see collapsing housing starts and building permits); the housing recession has now led to a total stall of non-residential construction. The auto sector is in a recession; the manufacturing sector is in a recession; inventory adjustment is cutting Q4 growth; and now real investment by the corporate sector is sharply falling (see October durable goods)." A general US recession is most probably coming within 9 months.

35 comments:

  1. David,
    If there's been a collapse in housing starts and building permits, that means that builders are limiting the future supply. That doesn't itself point to lower prices, or contribute to the falls. All it does is indicate that builders see the drops in prices too.

    Just sayin'.

    -kevin

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  2. Oh, how American society has changed. When I was a kid, in the 1950s, a handshake was an inviolable contract, virtually anywhere in the country. To their credit, school teachers taught/reaffirmed this, as did our parents.

    Some time later, perhaps roughly correlated with the increase in the per capital number of lawyers in this country, handshakes that were honored no-matter-what were pretty much relegated to rural areas and among family members and the closest of friends.

    During that transition, though, a person's signature meant an irrevocable commitment. That lasted, as far as I can tell, until very recently -- perhaps even until the beginning of the latest housing bubble.

    Now there is talk that a person's signature wasn't worth anything, in retrospect. If a person can sign a falsified stated-income loan application form and not be prosecuted for fraud when the loan goes bad, what have we come to?

    I am not referring to people who were honest in all parts of their loan applications and who have to walk away from their property -- that is unfortunate, of course, but not a breach of contract except as regards the lender's right to pursue a judgment for money lost, a likely futile exercise.

    If Casey Serin is not prosecuted, I will be very disappointed. He will become the OJ Simpson of mortgage lending, IMO.

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  3. David writes:
    "And just to cheer you up during this holiday season. Nouriel Roubini posts: Economic downturn is still fully underway. He writes "The housing recession is not bottoming out (see collapsing housing starts and building permits); the housing recession has now led to a total stall of non-residential construction."

    David, the substantial economic downturn described here is for new construction. That is to be expected in this phase of the real estate cycle and is not something I would expect a bubblehead to be cheering about since it works against bubblehead interests. New houses stop get built ... meaning that existing house sellers get less competition ... meaning people looking to buy get less of a break on prices than they would otherwise. I.e., everything is a usual ... no bubble ....

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  4. Weren't we supposed to be in a fully "Gloom"-like state by now?

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  5. David, how come your recession keeps getting pushed back? You promised one by the first quarter of 2007.

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  6. just ask all those employees at all the real estate related food chain companies laying off weekly..

    Anderson Windows 400
    Stanley Furniture 250
    Hubbell 1000
    WAMU
    Sovereign Bancorp
    Country Wide
    and all the sub-prime mtg scammers going bankrupt.

    More on the way RE pimps.

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  7. “Some 29,000 construction jobs were lost in November, adding to a 24,000 reduction in October, also suggesting signs of a housing slowdown.”


    Black & Decker Corp., the biggest U.S. maker of power tools, cut its annual profit forecast for the third time after a U.S. housing slump ’significantly’ reduced sales. There may be ‘additional pressure on our earnings,’ said CEO Nolan Archibald.”

    “The slowing housing market also caused Illinois Tool Works Inc., the maker of Duo- fast nail guns, to cut its profit forecast.


    Keep up the chatter RE pimps.keep twisting the facts are all there.

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  8. “‘The time has come‘ for an end to easy credit, said Bob Moulton, president of Americana Mortgage Group Inc., a mortgage broker in Manhasset, New York. Moulton, who deals with prime and subprime loans, said lenders who were once aggressive in vying for high interest rate loans have suddenly made themselves scarce.”

    Nomore phoney loans to fuel this ponzi scam.

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  9. http://www.cepr.net/index.php?option=com_content&task=view&id=644

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  10. “Erick Eschker, Humboldt State University economics professor, said that for the first time in a long time, renting may be the wiser option. ‘I don’t think we’ve ever seen it this bad here. Not since the Great Depression has there been such a difference between (rents and mortgages),’ Eschker said. ‘I would be a fool to purchase a house right now, unless I could find a house at the pre-boom prices. I think we are in trouble and I’m not going to lie about it.’”

    what were you saying RE pimps?

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  11. either lance is direct descendat of irving fisher or he must have some "ostrich" in his blood. perhaps david is really a split personality and lance is his alter ego. love him or hate him he does add colorfull comment to this board.

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  12. I just shot-up the Q3:2006 reports for Orange County, Inland Empire, Ventura, DC & New York

    They join prior FREE reports on Bakersfield, Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, San Diego, San Francisco and Seattle.
    thebubblebuster.com

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  13. Fraud? He's a moron, but I don't see how that's fraud. Please explain.

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  14. David,

    Did you see the WP article on unattended open houses?
    http://www.washingtonpost.com/wp-dyn/content/article/2006/12/15/AR2006121500782.html

    For Hreben, brokers' opens have been less successful. There are so many out there now that "I'll do a catered brunch or desserts from Whole Foods, and I won't get more than five to 10 people," he said. "Sometimes I end up eating it all myself. . . . Luncheons can be a total waste unless the agents who know the area know [the house] is well priced."

    Mamone agreed. "You could have the most fabulous luncheon in the world, and if it isn't priced properly people are not going to go," she said. "Agents are going to look at properties their buyers will buy."


    Hmmm... seems there is downward price pressure.

    Anon 10:46, carefull what you wish for. It looks like we might already be in the recession. If not, by 2Q 2007 at the latest. This won't be a shallow recession either. :( But then again, that always is the case when credit tightens. The fact that this is taking a little longer than expected isn't a big deal. What is a big deal is the job cuts in Detroit, Milawakee, Arkansas, Florida, California, etc.

    It amazes me that the bulls don't note that construction employment trails housing starts by 6 months. Also, new build inventory is high and the rate of construction has only dropped to the absorption rate; housing starts have yet to be cut to where inventory will contract!

    No bubble? I see inventory rising in the higher end zip code I'm considering buying in... During the winter! That's insane. The lower end zip code that I'll probably end up buying has decreasing inventory, but still very elevated. November sales in my area are already below the normal yearly trough of January and February. Yikes. I also see more properties under construction than I have seen since the 1980's. While a good thing for me... its not a good thing for sustaining bubble home prices.

    Chip: I agree with you. No longer is anyone's word their bond. :( Oh well. Tightened mortgage guidelines can only help me. :) (Me and my fiancee are savers, not spenders.)

    Neil

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  15. "Housing: Curb Your Enthusiasm About A Recovery

    Home prices still have room to decline, and it may take 15 years or more to reach new inflation-adjusted highs"

    http://www.businessweek.com/magazine/content/06_52/b4015085.htm?chan=top+news_sprb_realestate

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  16. "New houses stop get built ... meaning that existing house sellers get less competition ... meaning people looking to buy get less of a break on prices than they would otherwise. I.e., everything is a usual ... no bubble"

    It doesn't matter if there're no new housing; if the price is still too high for entry level buyers they still won't buy.

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  17. "Fraud? He's a moron, but I don't see how that's fraud. Please explain."

    Casey has admitted to lying about his income his outstanding debt. He used stated income to borrow much of his money.

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  18. Anon 909 said:
    "It doesn't matter if there're no new housing; if the price is still too high for entry level buyers they still won't buy."

    Absolutely correct. They won't buy. But others with the means to do so, will. Like I said, it's not a good thing for bubbleheads waiting for lower prices. Supply that outpaces demand is what drives prices lower. Not whether there are still people out there without the means to buy.

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  19. Okay, people, as a real bona fide economist, I have to step in here and defend Irving Fisher. He may have been wrong during a major speculative bubble, but obviously, so were a lot of people. Fisher still made huge contributions to finance and economics, and his equations are still fundamental to the learning and practice of basic finance.

    Unlike the moronic Lances and Lerahs of the world, Fisher was a real genius and a scholar. Unfortunately geniuses and scholars can get caught in speculative bubbles too. You can be very smart, make lasting contributions, and still be trapped in your era. Between his getting burned in the stock market and nutty beliefs about health and eugenic, Irving Fisher was very much trapped in his era.

    Stop smearing Fisher by comparing him to mouthbreathing morons like Lerah and Lance.

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  20. House 'flippers' ignore codes, hurt families

    http://www.orlandosentinel.com/news/opinion/orl-lmyword17a06dec17,0,2281258.story?coll=orl-opinion-headlines

    Weeks after moving in last summer, the new roof failed, and the living room ceiling fell in. The couple discovered that they had unknowingly purchased four sets of Florida Building Code violations -- electrical, mechanical, plumbing and structural. In addition, they learned that the home warranty they had purchased does not cover repairs when the original work was not properly permitted.

    Reminds me of an episode of “Flip this house” I saw last week. On that episode, the flippers painted over the cockroach dropings, mold and mushrooms (that’s right, mushrooms) in the bathroom. Then installed a Jacuzzi tub (To avert one’s eyes from the shoddy work?) If these types of homeowners can keep up with the ARM’s for a few more cycles, the big box stores may actually make out OK for a few more quarters.

    Which is better, buying a home and seeing it on “Flip this House” and discover that the only thing between you and cockroach droppings is a coat of paint? Or, is ignorance bliss?

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  21. http://www.youtube.com/watch?v=lPnA1cnewLA

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  22. http://www.businessweek.com/magazine/
    content/06_52/b4015085.htm

    Advice to homeowners: If you need to sell and you're not getting much interest, cut the price by an extreme amount. If you make halfhearted cuts, you'll remain overpriced and you'll follow the market all the way to the bottom. Advice to buyers: Bargain hard. Many sellers are still asking for too much. "As tough as our market's been, the toughest thing is to get sellers to understand that prices aren't going up 18% to 20% a year anymore," says Ned Redpath, head of Coldwell Banker Redpath & Co. Realtors in Hanover, N.H……….

    ………….THAT SAID, RIGHT NOW is not the ideal time to buy or move up, even with the recent price declines. The inventory of existing homes shot up 34% from October, 2005, to October, 2006, and now stands at nine months' worth of condos and seven months' worth of single-family houses at the current rate of sales. That backlog will take a long time, and a lot of price-cutting, to clear out.


    Thanks to patch for the link

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  23. Robert,

    I saw that episode of "Flip this house." At least the inspector walked in and stopped the worst abuses. I applauded when they showed up and couldn't run any power tools as the meter had been pulled.

    That particular show was very staged. Everything from the H2 jumping the curb to the film crew joining on the Mexican vacation... To having the first buyer walk in and purchase the property... too staged. Is that what is required to sell a flip now?

    Lance,

    I 100% agree. Demand is desire times ability. Will people buy? Sure. But it a market where value is determined at the margins. Will enough people be buying compared to the number selling? Its not that construction has stopped. Construction is now down at the absorption rate. Because of the poor affordability (compared to historical norms), the advantage is towards the buyer.

    And with credit about to tighten, the advantage will go towards the buyer with a down payment who can qualify for a conforming loan. A too rare commodity today.

    Neil

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  24. Lance said...
    “Absolutely correct. They won't buy. But others with the means to do so, will. Like I said, it's not a good thing for bubbleheads waiting for lower prices. Supply that outpaces demand is what drives prices lower. Not whether there are still people out there without the means to buy.”

    So Lance, these folks with the ways and means are going to wake up in a few days/months and eat up this inventory? With a ~70% rate of home ownership in the U.S that’s quite a few speculators and purchasers of second homes.

    I think there are some good indicators that show that “there are still people out there without the means to buy” and would factor into your little equation here. Only one of which would be the increase in foreclosures.

    With 30%-50% (locally I’m seeing 80%) YOY increases in inventory and DOM getting longer, would you not consider that supply has outpaced demand?

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  25. Bubble or no bubble? What do you do now? Get answers to these questions at my blog to win in real estate investment.

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  26. So if you were not a person with $120k saved up, and you wanted to buy a $500k or so house to live in (big enough house commutable near big city and good schools), would you think now was a better time to buy, or later, after credit tightened?

    Before you answer, remember that as credit tightens, interest rates go up. Our first mortgage back in 1997 was at 8%.

    How long do you think it takes a young family to save $120k or so? If that family made 150k, well above the median, and saved a large 10% of the gross (very hard to do in areas with state/local income tax, like DC), it would still take 8 years to save that much.

    If you had a small family, a good-paying job, no family wealth, and only 20k or so of savings (besides retirement funds, which should not be touched until retirement) what would you do? This is a rhetorical question.

    I have never believed in the "must buy now", but I have been wrong every time I thought "must sell now".

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  27. "But others with the means to do so, will. Like I said, it's not a good thing for bubbleheads waiting for lower prices. Supply that outpaces demand is what drives prices lower. Not whether there are still people out there without the means to buy.”

    The demands for new houses have fallen dramatically because many move-up buyers cannot sell their houses which generally attract first-time buyers who still cannot afford to buy at today's prices. Personally I think here'll still be enough supplies fr. speculators and builders who cannot afford to wait out the down turn; hopefully that'll drive down the price.

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  28. Robert said asked:
    "With 30%-50% (locally I’m seeing 80%) YOY increases in inventory and DOM getting longer, would you not consider that supply has outpaced demand?"

    And wouldn't you agree that shutting off of additional supply from new construction will reduce those numbers? ... which is all we were saying. I.e., why would bubble heads be cheering something that reduces the supply (DOM, etc.)? I thought they wanted those to increas?

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  29. And wouldn't you agree that shutting off of additional supply from new construction will reduce those numbers? ... which is all we were saying. I.e., why would bubble heads be cheering something that reduces the supply (DOM, etc.)? I thought they wanted those to increas?

    There will be plenty of inventory in my area once this is all done. Besides, builders have only slowed to the absorption rate. We'll still have an inventory overhang come spring. Soon we won't have to deal with the sub-prime market anymore.

    We just want the bubble to end. Having this many people building homes isn't sustainable. We don't want further overhang as that would produce a far worse recession. In fact, if the overhang were to be twice what it already is, we would be facing a depression. Thankfully, I do not believe that to be the case. Yet.

    Neil

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  30. Lance said...
    “And wouldn't you agree that shutting off of additional supply from new construction will reduce those numbers? ... which is all we were saying. I.e., why would bubble heads be cheering something that reduces the supply (DOM, etc.)? I thought they wanted those to increas?”

    I would agree. However, the additional supply has yet to be shut off. These builders have yet to drop their hammers and just walk away; they still have communities to fill out. This additional supply will not turn off like a faucet.

    Furthermore, I can find quite a few homes that were built and sold within the last year and are now on the market. Curiously, these same homes are also being advertised as for rent.

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  31. Report Reveals 2.2 Million Borrowers Face Foreclosure on Subprime Home Loans

    WASHINGTON, Dec. 19 /PRNewswire/ -- A new Center for Responsible Lending (CRL) study reveals that 2.2 million American households will lose their homes and as much as $164 billion due to foreclosures in the subprime mortgage market. Titled, "Losing Ground: Foreclosures in the Subprime Market and Their Cost to Homeowners," the CRL study is the first comprehensive, nationwide review of millions of subprime mortgages originated from 1998 through the third quarter of 2006.

    http://biz.yahoo.com/prnews/061219/dctu021.html?.v=78

    Speaking of inventory Lance, do foreclosures add to, or subtract from the inventory?

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  32. Subprime mortgage activity grew an average 25% a year from 1994 to 2003, outpacing the rate of growth for prime mortgages. The industry accounted for about $330 billion, or 9%, of U.S. mortgages in 2003, up from $35 billion a decade earlier.

    hmmm only 9% of all home loans made in 2003 were sub prime loans (i.e., loans to people with no credit history or a bad credit history) and that was a banner year for the issuance of subprime loans ... ten times as many as issued 10 years ago. So, how many loans overall are "sub prime"? 1%, 2%, 3% (remember there are a lot lot more older loans out there issued when they made up less than 10% of what they made up in 2003 ... ) ... and how many of those are at risk? Robert, simply put, your stats here are pretty irrelevant for most of us ... and especially for the economy. If you have to resort to telling us that something like 1 in 5 subprimes loans are at risk (as you do in another post further up), then you are scraping the barrel for "reasons" for economic gloom and doom as these subprime loans themselves make up less than 1% of ALL loans out there! Yeah, having 1/5 of less than 1% of all loans out there default is really gonna hurt the economy ... and those subprime borrowers most of whom already have bad credit for having defaulted previously.

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  33. Lance said...
    “If you have to resort to telling us that something like 1 in 5 subprimes loans are at risk (as you do in another post further up), then you are scraping the barrel for "reasons" for economic gloom and doom as these subprime loans themselves make up less than 1% of ALL loans out there!”

    No need for, and I’m not pointing out doom and gloom. I am pointing out that approximately 2.2 million homes are slated to be added to the inventory.

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  34. Here's a direct quote from you on August 12, 2005:

    "Nevertheless, the overwhelming negative economic factors will shortly ( within a year or so ) lead us into a recession. The unsustainable nature of our economy is astounding. "

    Every few months, when the recession hasn't materialized yet, you keep pushing back the start date of the recession. Come on dude. Even a stopped clock is right twice a day.

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  35. RE: Casey Serin:

    Some similarly business-minded folks from the old country also run into tough times, due to their own innovative ideas for creating wealth, just like Casey:

    Uzbekistani immigrants await discussion of entrepreneurial methods

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