Toll Brothers Suffering from Depression

Robert Toll, the CEO of Toll Brothers, says the housing industry is in a "depression" and could fall by 10-20%. This comes from last week:

The chief executive of Toll Brothers Inc., the nation's largest luxury-home builder, said Wednesday the housing industry is in a "depression" and any recovery could be two or three years away.

In candid remarks at the JPMorgan Basics & Industrials Conference a day after reporting a second-quarter loss, Robert Toll said he's not ready to call a bottom yet since the housing market could still get worse.

"Can the market go down another ten or twenty percent? Sure," said Toll, whose Horsham-based company will sit on cash unless a bargain land deal comes along.

He said the current housing crisis is the worst he's seen since the mid-1970s, but back then the decline was relatively short-lived. The current downturn started in late 2005.

"Maybe '74 and '75 was just as bad, but it was so short," Toll said.

New Hawaii Housing Bubble Blog

I'd like to notify readers of a new Hawaii housing bubble blog: 808housing.blogspot.com

Hawaii, by the way, is my old home.

London Housing Falling Down

The Times of London reports:

Thousands of hard-pressed borrowers who could not afford a deposit for their home have been plunged into negative equity and thousands more could be at risk if house prices fall further, figures suggest.

More than 30,300 homeowners have taken out 100 per cent mortgage deals since January last year, figures from the Council of Mortgage Lenders (CML) show. Many of these borrowers are now likely to owe more on their property than it is worth after sharp falls in house prices....

This blow for homeowners came as Mervyn King, Governor of the Bank of England, gave warning that the risk-taking by banks and other financial institutions in recent years could have dire consequences for borrowers. Speaking at an annual meeting of British banks, Mr King said: “When the the party ends, some innocent bystanders may lose their homes altogether.”

House prices have fallen by 7.7 per cent since the market turned in September, according to Halifax.

And this comes from last Wednesday's Times:

Britain's big seven housebuilders saw more than £300 million wiped from their combined market value in early morning trading today as UBS slashed its targets across the sector, bringing to £13.5 billion the total value erased from the big builders in the past year.

Analysts at UBS today gave warning of falls of up to 20 per cent in the price of new homes.

They told clients today that housebuilders' sales volumes for the full year were likely to fall at least 30 per cent, which would put sector profitability under "extreme pressure." ...

A year ago Britain's seven largest housebuilders had a combined market value of £18.5 billion. Today's sell off diminished their combined value of the battered builders by over £300 million leaving them worth in total just under £5 billion.

Update on Congresswoman Laura Richardson

Calculated Risk has an update on Congresswoman Laura Richardson, whom I mentioned in an earlier blog post.

The Daily Breeze writes:

The real estate broker who bought Rep. Laura Richardson's house at a foreclosure sale last month is accusing her of receiving preferential treatment because her lender has issued a notice to rescind the sale.

James York, owner of Red Rock Mortgage, said he would file a lawsuit against Richardson and her lender, Washington Mutual, by the end of the week, and has every intention of keeping the house.

"I'm just amazed they've done this," York said. "They never would have done this for anybody else."

York bought the Sacramento home at a foreclosure auction on May 7 for $388,000. Richardson had not been making payments on the property for nearly a year, and had also gone into default on her two other houses in Long Beach and San Pedro.

Richardson, D-Long Beach, has said that the auction should never have been held, because she had worked out a loan modification agreement with her lender beforehand and had begun making payments.

Richardson left nearly $9,000 in unpaid property taxes on the home, which she bought in January 2007 for $535,000, shortly after being elected to the Assembly....

Washington Mutual filed a notice of rescission of the foreclosure sale on June 2. That puts the bank squarely at odds with York, who has already put money into cleaning up the house and preparing it for resale.

"They owe me the property," York said. "The sale was a good sale."

York said an ordinary person would be unlikely to get the kind of consideration that Richardson has received from her bank.

"They wouldn't even get a phone call back," he said. "They would laugh at somebody who would call and say, `We had some kind of agreement.' They wouldn't give you 10 cents' worth of time."

Leo Nordine, a Hermosa Beach real estate broker who specializes in foreclosed homes, agreed that the rescission was out of the ordinary.

"It's extremely unusual," he said. "Unless (the borrower) filed bankruptcy beforehand, they'd never do it."

Stiglitz on the Subprime Mortgage Crisis, Housing Bust, and Recession

From two months ago today: Joseph Stiglitz, winner of the 1979 John Bates Clark Medal and the 2001 Nobel Prize in Economics, discusses the state of the economy.



Keep in mind that even for the best economists, predicting the future of the economy is about as accurate as predicting the future of the weather—and for the very same reason. Both the economy and the weather are very complex systems with lots of independently moving parts.

While we may be facing the worst recession in the past quarter century—we've only had two recessions during that time and both were mild—I think it's very unlikely that this recession will be worse than the early 1980's recession.

At the beginning of the early 1980's recession, annual inflation was 10.3%. At the peak of the early 1980's recession, unemployment reached 10.8%. By comparison, today the inflation rate is only 3.9% and the unemployment rate is only 5.5%.

Congress About to Put FHA at Grave Financial Risk

CNN/Money reports that Federal Housing Commissioner Brian Montgomery is warning that legislation currently before Congress could put the FHA at financial risk and make the housing crisis worse:

Federal Housing Administration Commissioner Brian Montgomery told the National Press Club that Congress legislation proposing that the FHA back up to $300 billion worth of troubled mortgages—or about two million loans—would weaken the agency.

"This is a worrisome idea," Montgomery said. "FHA is designed to help stabilize the economy, operating within manageable, low-risk loans. It's not designed to become the federal lender of last resort, a mega-agency to subsidize bad loans."

Under this legislation, the U.S. taxpayer—via the FHA—would be guaranteeing the troubled mortgages on homes that continue to decline in value. Does anyone think this is a wise idea? Actually yes—the U.S. Congress.

President Bush has threatened to veto the bill. You can help encourage a veto by calling the White House at either 202-456-1414 or 202-456-1111. Just call and say you want President Bush to veto Congressman Barney Frank's "American Housing Rescue and Foreclosure Prevention Act."

In addition to calling, you can email the White House at comments@whitehouse.gov

Your hard-earned tax dollars are at stake.

From the comments:

Actually, the best way would be to HAND WRITE a letter to your Congressman venting your frustration at their inability to grasp this issue....

Warner, John- (R - VA)
225 RUSSELL SENATE OFFICE BUILDING
WASHINGTON DC 20510
(202) 224-2023

Webb, Jim- (D - VA)
144 RUSSELL SENATE OFFICE BUILDING
WASHINGTON DC 20510
(202) 224-4024

The bill has actually already passed both houses of Congress and the differences between the two versions are currently being ironed out. Then both houses of Congress will vote on the finalized version of the bill. Then it goes to the President. The quickest line of defense now is a presidential veto, so please call the White House.

If President Bush vetoes the bill as he said he would, Congress will then try to override it, so the combination of calls to the White House, calls to your congressmen, and written letters to your congressmen would all be helpful.

Calculated Risk Analyzes the Pending Home Sales Numbers

The Calculated Risk blog explains why the just-released pending home sales numbers are not as good as the press has made them out to be. In fact, Calculated Risk says, they are actually a negative omen for the future of housing prices.

If we looked at existing home sales ex-REOs [Real Estate Owned by banks], we'd see that sales are still collapsing. And based on the recent MBA data, there is a flood of foreclosures coming. So maybe it will appear that sales are leveling out as the market is taken over by foreclosure sales, but that just puts more pressure on prices.

So the two key points from the Pending Home sales report are that prices are probably falling quickly, especially in the low end areas, and that sales are being propped up as REO sales start to dominate that existing home market. Neither point is good news for housing.

Holyfield and McMahon Losing It; Congresswoman Richardson Already Lost It

Foreclosure "victims" include the rich and spoiled

CNBC reports that Evander Holyfield's home is going to have a foreclosure auction on July 1.

A legal notice that ran Wednesday in a small newspaper in Georgia said Holyfield's estate will be auctioned off "at public outcry to the highest bidder for cash" at the Fayette County courthouse on July 1.

The 5,000-square-metre home—located on Evander Holyfield Highway—has 109 rooms, including 17 bathrooms, three kitchens and a bowling alley.

Holyfield defaulted on a $10 million loan to Washington Mutual Bank, which will auction off his home on the courthouse steps.

The Wall Street Journal reports that former Tonight Show sidekick and Star Search host Ed McMahon may lose his home to foreclosure. In addition, Congresswoman Laura Richardson has already lost hers.

Ed McMahon, the longtime sidekick to television star Johnny Carson, faces the possible loss of his Beverly Hills home to a foreclosure action initiated by a unit of Countrywide Financial Corp....

Mr. McMahon, a jovial fixture of American television for decades, is one of the most prominent people caught up in a wave of mortgage defaults that has devastated low-income areas, suburbia and even a few posh gated communities, such as the one where the McMahons live. U.S. Rep. Laura Richardson, a California Democrat, recently lost a home in Sacramento to a foreclosure. Rep. Richardson didn't respond to requests for comment.

These are some of the people "suffering" from the housing bust. Let me sum up my thoughts on this one with a little video:


Update: Apparently, former baseball player Jose Canseco also lost his home to foreclosure.

Further update: Here is a blog post explaining Why Athletes Go Broke.

Roof Caves in on U.S. Housing Prices!

The Economist reports that "America's house prices are falling even faster than during the Great Depression."

AS HOUSE prices in America continue their rapid descent, market-watchers are having to cast back ever further for gloomy comparisons. The latest S&P/Case-Shiller national house-price index, published this week, showed a slump of 14.1% in the year to the first quarter, the worst since the index began 20 years ago. Now Robert Shiller, an economist at Yale University and co-inventor of the index, has compiled a version that stretches back over a century. This shows that the latest fall in nominal prices is already much bigger than the 10.5% drop in 1932, the worst point of the Depression. And things are even worse than they look. In the deflationary 1930s house prices declined less in real terms. Today inflation is running at a brisk pace, so property prices have fallen by a staggering 18% in real terms over the past year.

The magazine elaborates here.

Would You Like Fish and Chips with that Housing Bust?

Housing decline spreads to Britain and beyond

The housing decline is spreading to the U.K. and some other European countries. Regarding Britain, the Financial Times reports:

House prices have suffered their biggest annual fall since the property slump of the early 1990s, a leading index revealed on Thursday, in news that sent shares in some of Britain’s largest home lenders and builders tumbling.

Year on year, house prices are now 4.4 per cent below their levels of May 2007, according to the Nationwide house price index. On an annual basis, that is the biggest fall since December 1992, when the UK was in the throes of a severe housing downturn.

In May alone the index recorded a 2.5 per cent drop, its biggest one-month fall, wiping £5,000 off the average British home. The three month moving average, which smoothes out unreliable single month volatility, also slid sharply. In the three months to the end of May house prices fell by 2.9 per cent compared with the three months to the end of April.

Fionnuala Early, Nationwide’s chief economist, said the streak of falling prices has lasted seven months, the longest consecutive period of declines since 1992.

Spain is just beginning to have problems:

Spain's residential property market is heading for a hard landing, as tightening credit conditions exacerbate problems of oversupply and years of rampant price inflation, figures released Wednesday confirmed.

Completed house sales for January dropped 27 per cent year-on-year, according to the National Statistics Institute (INE), while total lending to home-buyers fell almost 28 per cent to €13.4bn ($21bn, £10.5bn). The value of the average mortgage was down 3 per cent, to €142,794, despite higher financing costs.

The Wall Street Journal reports that Ireland property prices are declining:

Irish house prices fell by 9.2% on the year in April, compared with a 8.9% decline in March, the independent think tank Economic & Social Research Institute, and Permanent TSB bank, reported Friday. In the first four months of 2008, the average national house price fell 3.3%. From a month earlier, prices fell 1.1% in April, according to the monthly survey. The average price paid for a house nationally in April 2008 was €278,521 (about $432,500), which compares with €287,887 at the end of last year, or €71,837 in December 1996 when the house price index began.

The Economist looks at global housing markets and finds prices in most countries are holding up well.