Talkaboutit or Fuggetaboutit 2

For all the Goodfellas, Babes and Wiseguys, this thread remains at the top for open discussion, anytime anywhere, outside the 'kool-aid drinkers' club. What's goin on with Real Estate or financial news in your boro, hood or head. Talkaboutit or Fuggetaboutit

 

Homes Sales & Prices Plunge - Deep Recession On Tap

Buffett sees "long, deep" U.S. recession by Reuters - snip:

The United States is already in a recession and it will be longer as well as deeper than many people expect, U.S. investor Warren Buffett said in an interview published in German magazine Der Spiegel on Saturday. He said the United States was "already in recession" and added: "Perhaps not in the sense that economists would define it" with two consecutive quarters of negative growth. "But the people are already feeling the effects," said Buffett, the world's richest man. "It will be deeper and last longer than many think"...

Unsold houses rise to 23-year high in April by MarketWatch - snips:

Sales decline 1% even as prices plunge 8% year-on-year

The U.S. housing market weakened further in April with a flood of homes coming on the market even as sales and prices declined, the National Association of Realtors reported Friday. Resales of U.S. houses and condos dropped 1% to a seasonally adjusted annualized rate of 4.89 million from 4.94 million in March. Economists expected sales to fall to 4.83 million. See Economic Calendar. "The picture emerging from the data is not one to inspire confidence in a speedy recovery of the housing market or of the U.S. economy," wrote Gabriel Stein, an analyst for Lombard Street Research. "In spite of market belief to the contrary, the Fed is unlikely to raise interest rates soon." Resales have sunk 17.5% in the past year and are down 33% from the peak in 2005... The inventory of unsold homes and condos jumped 10.5% to 4.55 million, an "uncomfortably high" level, said Lawrence Yun, chief economist for the real estate trade group. The number of homes on the market represented an 11.2 month supply at the April sales pace, the biggest since the combined single-family/condo records began in 1999...

 

 

Housing's False Bottom

Greetings, readers! At the gracious invitation of the New York City Housing Bubble, I've been invited to be occasional guest poster. Many of you may already have seen this piece on my website OfTwoMinds.com or via patrick.net, but I post it here in the hopes of starting a thread about NYC neighborhoods which, like this one I describe in the SF area, are still in high demand. Is your 'hood seeing a surge of buying as "bottom fishers" decide to jump in? Please let us know what's happening in your area.

I have long supported this blog with cross-links to my site and I hope to contribute to its maintenance.
best regards,
charles smith
www.oftwominds.com


There's been a sort of ghoulish fascination in watching house values ebb from bubblicious heights. But now that sales are rising sharply, (S.F. Bay Area Home sales see first monthly gain in 6 months) the bottom must be in, right? Whew. Those two years of decline after 10 years of rising values were brutual.

Cartoonist Bill Griffith captures the relief at the "turn-around" perfectly:


Following Zippy's reference to Greenspan's famous warning of irrational exuberance, let's look at the bubble in the Nasdaq stock market:



Notice that point just past the peak where the "smart money" announced the all-clear and hapless believers jumped back in, only to suffer devastating losses shortly thereafter?
Here is a depiction of the process at work in housing. The current spike in "bottom fishing" is what I term the "false bottom."



In areas with strong employment like the San Francisco Bay Area, there are plenty of reasons for anxious buyers to reckon this is a bottom. We recently went to an Open House with some friends of ours, a young (late 20s) very well-educated couple with professional jobs (i.e. DINKs--double income, no kids).

The house was listed at $650,000 and judging by the crowd at the Open House, it certainly looked like it might fetch the asking price. It was completely renovated in a nice neighborhood of mostly 90-100-year old homes, few of which have ever been truly renovated, so the house had real value in comparison to its peers.

Nonetheless, $650,000 for a two-bedroom (one "bedroom" being a loft, so technically it was still a one-bedroom) bungalow in a good but not outstanding neighborhood seemed a bit rich, seeing as how other friends of ours had bought a similar house in 1997 and completely renovated it for a total cost of about $220,000, or roughly a third of $650K.

But our friends are anxious to buy a house and can't wait five years for the real bottom. If they can't buy around here, they will move to a cheaper area. Even after taking pay cuts, they would be able to easily buy a house in other parts of the country with these kinds of jobs--for instance, Texas (Austin, the Gulf Coast, etc.)

As long as there is a pool of well-paid potential buyers like them, prices won't decline in desirable areas until this pool has been drained (buys, moves away, loses a high-paying job).

Another group of people were at the Open House--people who'd dumped their houses right at the bubble peak a few years ago and were now looking to buy another house at a depressed price.

There are plenty of these folks itching to "buy at the bottom," and so the prices in desirable areas can't really decline until this pool of buyers is also exhausted. In other words, prices can only start falling when all the anxious qualified buyers --those who have waited patiently for two years, and those who sold out two years ago and are looking to re-enter the market despite high prices--have all bought a house.

Or, they no longer qualify, i.e. one high-paying half of the couple loses their job. Right now employment in parts of the country with concentrations of high-tech and biotech is very strong; as long as technology spending doesn't falter globally, then employment will remain strong. (Never mind that "Web2.0" is mostly money-losing hype very much like Web1.0 circa 2000.)

I don't see how technology won't be impacted by a global recession, and therefore I expect lay-offs to eventually hit even the "golden" areas of current employment strength. But right now, that is merely conjecture. Those ready to call the bottom in housing will claim tech employment will ride out the slowdown because it's based on continuing global growth and the weak dollar.

And those are of course permanent conditions, just like rising housing values.
Just to refresh our memory of how high the bubble inflated in California:



And just to remind us of how long real estate bubbles can take to unwind/retrace:



The interesting point in charts like this is the symmetrical nature of the bubble's rise and fall. In the Nasdaq chart above, the spike took about 1.5 years to reach its zenith and about the same period of time to fall back. Japan's land prices rose for a long time, and declined for a long time. This characteristic is shared by bubbles in all time frames and locales.

So will the housing bubble play out like every other bubble, or is this "the bottom"? Ultimately that will depend on jobs. Maybe this will be the only recession in history where there are no job losses in high-paying tech-related industries, and the only global recession which causes tech spending to rise. But to bet on those conditions holding true is to bet against a considerable backlog of history.

 

Guest NYCbubble Blogger

All, within the next day or two, the NYCbubble will have a guest blogger posting. His work in the blogsphere on finance, real estate and other topics is exceptional.

Please give him a warm welcome on his first post!

 

Brooklyn Feeling The Inventory Pinch

Brooklyn’s Growth Spurt Tapers Off by GlobeSt NY - snips: The rapid growth seen in Brooklyn’s residential market over the past few years has tapered off thus far in 2008, according to a Q1 apartment research report by Marcus & Millichap Real Estate Investment Services. One result of the slowdown has been a reduction in the number of apartment buildings changing hands. “There’s certainly been a softening in transaction velocity in the first quarter,” J.D. Parker, regional manager of Marcus & Millichap’s Brooklyn office, tells Real Estate New York. “We saw this toward the end of last year as well, but it has continued to decline. I’m seeing somewhere between a 50% and 65% decline in transaction velocity in apartment building sales in Brooklyn"... “Some of the projects that are in strong locations will probably have to adjust their prices downward a little to move units off their shelves,” says Parker. “But I think most of the savvier builders have had a contingency plan in place, where if they had to go to a rental scenario, they could do it. I’ve seen a few buildings abandon the sales and just go straight for rentals. The market is very strong in rentals, because there’s almost no vacancy in all five boroughs but particularly in Brooklyn.” In addition, Parker says, there could be a gap between the number of units projected in last year’s forecasts and those that actually come on line. “Some of the smaller builders who were more speculative and weren’t prepared or didn’t see this coming, or who overpaid or got too aggressive on their numbers going in, are starting to have some troubles,” he says. “I know of several foreclosures of projects that were in the planning stages and just can’t get off the ground. They were in over their heads and the banks have backed out of the deals"... ------ NY Post - NEW YORKERS DEAL WITH THE CRUNCH NY Daily News - Foreclosures affect Bronx homeowners NY Sun - Building Sales Report May Be Bad News for City NYT - Home Depot Feels the Housing Slowdown

Click Image For Article

 

Possible Guest Bloggers

Dear All,

Once again, thank you for all the kind words and support provided in the post comments from May 8th while I navigate a difficult situation in personal affairs.

I've had a few offers from readers and financial bloggers to post on the NYCbubble while I attend to matters. I will keep you all posted on this development and introduce any potential guest blogger when agreed.

Please utilize my extensive Blogroll of great links on the left navigation bar (as a guide, note the sites with an *asterisk and those I've referenced on previous posts).

 

Paul Volcker: "New Financial System Is Broken Down"

Paul Volcker is the former Chairman of the Federal Reserve from August 1979 to August 1987. Here is his testimony to Congress from this past week commenting on the current financial crisis.

Image Courtesy of Jim Sinclair's Mineset

 

Gas Guzzler

 

Foreclosures Surge In Long Island's Hamptons Paradise

TROUBLE IN LI PARADISE by NY POST - snip:

In the first three months of this year, banks have launched preliminary foreclosure actions - known as lis pendens proceedings - against a record 120 borrowers in East Hampton and Southampton towns... "This problem didn't even exist before," said John Brady, a broker with Coldwell Banker in East Hampton. "They used to pop up once in a while, and you wouldn't even pay attention. Now you expect to see new ones every week"..

 

The Last Post - REVISED

Due to personal matters, as well as the lack of interest and participation by new york city metro residents, after a year and a half of steady dedication in providing this resource on a volunteer basis, unfortunately for the loyal readers, this blog has found its last day. I can no longer dedicate the time and effort necessary. I hope that you've all gained good knowledge and developed your own home prospecting strategy for the turbulent economic times ahead for us all. Best of luck and happy lowballing.
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First... to Everyone who has sent me emails and posted on this comment. THANK YOU! Its overwhelming to have gotten so many kind words. Although, I still have matters to attend to. I will try to post from time to time on important issues that arise.

Secondly... perhaps someone out there can assist with posting on the NYCbubble and keep it alive? I'm sure readers will take you in and appreciate greatly. Send me an email... address is in my profile.

 

Charge It!

US Consumer Debt Increases $15.3 Billion, More Than Forecast
by Bloomberg - snip:

U.S. consumer borrowing jumped more than double the amount economists forecast in March, indicating a slowing economy is forcing Americans to accumulate credit-card and other forms of debt... "Consumers are strapped as incomes are not keeping up with inflation and this is leading them to rely increasingly on credit to see them through the worst housing downturn since the Great Depression,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi in New York. "The days of extracting cash from one's home to spend on goods and services are long gone"...

Bankruptcies on the Rise by BusinessWeek - snips:

The numbers show a 49% increase in commercial bankruptcies over last year, with an average of 235 daily filings last month compared to 158 in April, 2007, according to data compiled by Jupiter eSources, an Oklahoma City company that runs a database called Automated Access to Court Electronic Records(AACER). More than 5,000 firms filed for bankruptcy in April, 2008, the most in any month since the new laws took effect in 2005. That leap in bankruptcy filings shows the troubles that started with sub-prime mortgages and other financial instruments on Wall Street have hit home for small businesses... Last year was too early to really see the problem for normal-type firms... A combination of tighter credit, higher commodity prices, and stagnant sales likely accounts for the rise in bankruptcies, experts said. Builders and other businesses tied to the housing market likely account for many filings...

Buy when bankers move from denial to depression by Financial Times - snip:

In a column last year, I described the evolution of the credit crunch in terms of the stages of grief identified by Elisabeth Kübler-Ross... The Kübler-Ross thesis describes successive stages of denial, anger, negotiation, depression and acceptance. From banks, we have seen the phases of denial and anger. Denial that things were really serious. Anger that the authorities had not acted promptly enough to bail the industry out. But those days seem to be over. There are fewer attempts to blame the problems on regulators paid five-figure salaries rather than on bankers paid eight-figure ones. The crisis was the result of salesmen on Wall Street promoting asset-backed securities rather than salesmen on Main Street promoting subprime mortgages. Most people now acknowledge that the source of problems was in the banks themselves. Now we have moved into negotiation....

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AUDIO - MarketWatchGlobal Insight Housing Economist: Home Prices To Fall Another 10-15%
Reuters - Pending homes sales fell 1% in March
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Barry Ritholtz - Recessions Often Begin With Positive GDP Data
Bloomberg - U.S. Stocks Fall on Home-Sales Report; D.R. Horton Leads Homebuilders Down
Financial Times - Wall St listless as oil price hits consumers
USA Today - Corporate defaults on upswing as debt comes due
Bloomberg - Vallejo, California City Officials Vote to File for Bankruptcy
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Richard Daughty - Higher Prices for Smaller Portions
Mish - Death of the SUV

 

David Lereah Visits The Housing Bust Confessional

It’s Going to Get Worse Newsweek Web Exclusive - snips:

Economist David Lereah (of the NAR) was once the housing market's biggest cheerleader. Now he says the bust isn't near over, and home prices still have a long way to fall... "We're not at the bottom," he says. "[People] want it to be near the bottom, but we're not there yet. The leading indicators are still very bad. Pending home sales are still in bad shape. Mortgage applications are low … There's still supply out there in abundance … This thing is going to get worse before it gets better." Lereah says that the industry may begin to see a slight uptick in sales later this summer, which could signal the start of the recovery. Home prices, however, will continue to fall... That's quite a turnabout from the view he articulated in his book, first published in 2005... "You knew there were a couple of [regional] balloons out there, and [I] said you could have a couple of these balloons pop," Lereah says now. "But I didn't think this would turn into an all-out bursting of a balloon for the whole nation." He, like other prognosticators (including Greenspan), points to his lack of understanding of the profound effects that subprime lending was having on housing markets. "[I] just didn't realize the scope, the extent, the magnitude of the loose underwriting—not looking at incomes and wages, just providing so many mortgage loans based on [expected] future price appreciation rather than the creditworthiness of the borrower," Lereah says. "That got so out of hand, and none of us realized the magnitude of it until it was too late"...

How low will real estate go? by LA Times - snip:

Though the national real estate market remains bleak--in some neighborhoods vacant homes outnumber those that are occupied and sellers are being forced to lower asking prices in a bid to lure bargain hunters--it's assumed that when housing dips to a point where buyers think it represents a bargain, they'll buy back in. The problem is many of the markets that experienced steep 2007 price drops are still a long way from recovery...

U.S. Home Slump Puts Owners 'Underwater,' Zillow Says by Bloomberg - snips:

U.S. home values dropped 7.7% in the first quarter to the lowest in almost three years, according to estimates by Zillow.com, an online real estate data provider. The decline is the biggest in 12 years of data compiled by Seattle-based Zillow.com, a Web site started in 2006 to provide owners, real estate agents and potential buyers with value assessments called "zestimates" for single-family homes, co- operative apartments and condominiums. U.S. house prices dropped for the first time since the 1930s last year, discouraging buyers who fear being 'underwater' on their mortgage, or owing more on their home than it's worth. That's already happened to almost 52 percent of homeowners who bought in 2006 when prices peaked, Zillow estimates. At the same time, record foreclosures are adding to a glut of unsold homes and driving prices down further. "While the high rate of negative equity has little consequence to owners staying in their homes, it can be devastating to those who need to sell immediately or refinance," Zillow Vice President of Data and Analytics Stan Humphries said in a statement released today. "The inability to secure refinancing is ultimately contributing to the growing rates of foreclosure in many parts of the country." About 30 percent of existing U.S. homes sold through 2009 will be foreclosures, according to an April 24 report by Lehman Brothers Holdings Inc. economists Michelle Meyer and Ethan Harris...

Bernanke on Mortgage Delinquencies and Foreclosures by FED Ben Bernanke - snip:

Conditions in mortgage markets remain quite difficult, and mortgage delinquencies have climbed steeply. The sharpest increases have been among subprime mortgages, particularly those with adjustable interest rates: About one quarter of subprime adjustable-rate mortgages are currently 90 days or more delinquent or in foreclosure. Delinquency rates also have increased in the prime and near-prime segments of the mortgage market, although not nearly so much as in the subprime sector. As a consequence of rising delinquencies, foreclosure proceedings were initiated on some 1.5 million U.S. homes during 2007, up 53 percent from 2006, and the rate of foreclosure starts looks likely to be yet higher in 2008...

Fannie Mae Has $2.19 Billion Loss, Plans to Raise $6 Billion, Cut Dividend by Bloomberg - snips:

Fannie Mae, the largest U.S. mortgage- finance company, reported a wider loss than analysts estimated, cut its dividend and said it will raise $6 billion in capital as the worst housing slump since the Great Depression deepens. The Washington-based company tumbled as much as 12 percent in early trading and said its credit-market losses will be worse next year... The "severe weakness" in the housing market was worse than expected in the quarter and will continue this year, Chief Executive Officer Daniel Mudd said in a statement. The new capital may help the company weather credit and derivative losses that rose fivefold to $8.9 billion. The money raised may still not be enough if the housing slump continues into 2009... "They are now starting to realize the fact that their credit losses will be considerably higher than they were in 2007," said Rajadhyaksha, who is based in New York. "Things in the housing and credit markets are deteriorating very fast and this will not be the last capital raising this year"...

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Calculated Risk - New Home Inventory And Cancelations
NYT - Doubts Raised on Big Backers of Mortgages
Bloomberg - Bernanke Urges Action to Avert Further Foreclosures
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Bloomberg - U.S. April Business Bankruptcy Filings Increase 49%
MarketWatch - UBS is losing face and tons of money
Mish - April Jobs - Another Report From Bizarro World
Sudden Debt - Unemployed Part-Time
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Bloomberg - Goldman's Murti Says $150 to $200 Oil Is `Likely' in Next Six to 24 Months

 

Brain Dead Couch Potatos Awash In Voluntary Debt

America, The Ignorant by Boom2Bust - snip:

Back on February 19, 2008, I wrote a post that talked about how Americans are in serious intellectual trouble. One finding by the National Science Foundation that I noted in that discussion and which really disturbed me was that one in five American adults think the sun revolves around the Earth. Now I know why we love “reality” shows so much. Well, it’s time to revisit the topics of intellectualism and knowledge among Americans. On April 22, op-ed columnist Bob Herbert of the New York Times talked about a recent survey of teenagers by the education advocacy group Common Core, which found:
• One-quarter of teenagers could not identify Adolf Hitler
• One-third did not know that the Bill of Rights guaranteed freedom of speech and religion
• Fewer than half knew that the Civil War took place between 1850 and 1900
• One-fifth did not know who the United States fought during World War II
• Eleven percent thought Dwight Eisenhower was the president forced from office by the Watergate scandal, while a similar percentage thought it was Harry Truman

At this point, I won’t bore you with some long treatise as to the virtues of intellectualism and knowledge. Rather, I’ll leave you with this...

Bank of America Should Abandon Countrywide Purchase, Friedman Analyst Says by Reuters - snips:

Bank of America Corp is likely to renegotiate its deal to buy Countrywide Financial Corp down to the $0 to $2 level or completely walk away from it, said Friedman, Billings, Ramsey.. Countrywide's loan portfolio has deteriorated so rapidly that it currently has negative equity ... "We estimate that if fair-value adjustments to the loan portfolio could exceed approximately $22 billion, this would increase the odds of Bank of America renegotiating the transaction or walking away," Miller said...

Being 'Upside Down' and Other Car Loan Hazards by NPR - snip:

Americans who bought cars beyond their means are falling behind on their loans in record numbers. Auto loan delinquency in the United States hit a 17-year high in the fourth quarter of 2007, according to the American Bankers Association. Some 3.13 percent of car loans were overdue 30 days or more. "Most consumers are carrying much more debt for their car than ever before," says Philip Reed, a consumer adviser for Edmunds.com, an automotive information site. Edmunds.com estimates that nearly a fourth of borrowers are "upside down" in their car loans, meaning the car is worth less than the loan balance. "These people don't have much flexibility…. They can't even walk away from the loan," Reed tells Steve Inskeep. "They actually have to pay to get free from the debt that they have"...

Metals Surge as Rationing Cuts Power at Biggest Mines by Bloomberg - snip:

Chile's worst drought in five decades and power rationing from South Africa to China mean the price of aluminum, gold, copper and platinum will keep climbing as the lights go out in the world's biggest mines. Those governments are being forced to choose whether to reduce power to their 1.4 billion residents or curtail energy supplies to the world's biggest copper, aluminum, platinum and gold factories. The energy used by China's aluminum smelters each week could provide enough power for more than 2 million people for an entire year. Runaway growth in emerging markets that's squeezing world oil supplies has led to electricity shortages, cutting output of commodities needed for ever-rising demand... "There will be a sustained level of risk from power shortages in the commodities markets," said Michael Lewis, London-based global head of commodities research at Deutsche Bank AG. "We are pricing bigger supply losses as a result." Metals are headed for a seventh straight year of price increases even as the worst U.S. housing slump reduced consumption in the world's biggest economy. Investors added $40 billion to funds indexed to commodity prices in the first quarter, more than in all of 2007, Citigroup Inc. estimates...

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Reuters - More big losses expected from Fannie, Freddie
WSJ - Las Vegas Casino's Filing Bankruptcy Amid Housing Crisis
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Bloomberg - What Uncle Sam Gives in Rebates, OPEC Takes Away, Leaving Economy Stagnant
Forbes - Swiss Bankers Assn head sees more nasty surprises ahead in financial crisis
WSJ - Economy May Face Prolonged Pain, History Suggests
Bloomberg - UBS may cut 8,000 jobs after $10 billion 1Q08 loss
ThisIsMoney UK - Bank bail-outs to be kept secret
Bloomberg - Fed says 'historical highs' of banks tighten lending standards
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Reuters - Oil Rises to Record $120 on Weak Dollar, Supply Concerns

 

NYC Foreclosure Rates Soar 34%, And Manhattan Not Immune

METRO FORECLOSE RATE SOARS 34% by NY Post - snips:

The number of New Yorkers losing their homes to foreclosure jumped by a third compared with a year ago, a study has found - and experts are warning that the worst is yet to come... Analysts once predicted that New York's real-estate market would be largely insulated from the wave of home-loan defaults affecting much of the country. But lawmakers and local organizations are now working overtime to keep up with the volume of requests for help from homeowners in crisis. New York's foreclosure process is unusually long, taking more than a year for defaulting homeowners to lose their homes, so experts say the data probably does not reflect the level of foreclosures that will hit the area. "We are still waiting for the other shoe to drop," said RealtyTrac spokesman Daren Blomquist about the foreclosure rate in the city... In Brooklyn, one in every 241 homeowners is now in the foreclosure process. That is more than double the number of Brooklyn households in that situation a year ago. Even in Manhattan, with relatively strong property values, foreclosures have increased 66 percent since the first quarter of 2007, and Queens' numbers are up 41 percent. Staten Island may be the hardest hit among the boroughs, with 737 foreclosures representing a 101 percent increase in the first three months of this year over the first quarter of 2007. New York's suburbs have not been spared. In Westchester County, foreclosures are up 138 percent this year, the report found. Overall, the metropolitan area rates 80th among the top 100 regions most affected by the foreclosure crisis...

Defaults Rising Rapidly For 'Pick-a-Pay' Option Mortgages by WSJ - snips:

...These mortgages, which are sometimes known as "pick-a-pay" or payment-option mortgages but are generically called option adjustable-rate mortgages, are turning out, in some cases, to be even more caustic than subprime loans, in part because the loan balance and the monthly payments on some loans is growing even as home prices are falling... Losses on option ARMs could be "in some cases close to subprime" mortgage levels, according to a recent report by Citigroup... On Tuesday, Countrywide Financial Corp. said that 9.4% of the option ARMs in its bank portfolio were at least 90 days past due... Washington Mutual Inc. reported earlier this month that option ARMs account for 50% of prime loans in its bank portfolio, but 70% of prime nonperforming loans... Unlike subprime loans, which went to people with weak credit, option ARMs were generally given to borrowers considered to be lower-risk. But lending standards weakened in recent years and many borrowers now have little or no equity. Many lenders reduced the teaser rates on these loans as home prices climbed, making them appealing to borrowers looking to make the lowest monthly payment possible. Now, with home prices dropping... where option ARMs were popular, a growing number of borrowers with these loans now owe more than their homes are worth, one reason delinquencies are climbing, lenders say...

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VIDEO - Bloomberg: Stephen Roach of Morgan Stanley, Housing Bust, Recession, Weak USD
NYT - Getting A Jumbo Mortgage Was Supposed to Get Easier
NYDN - Landlords out to pass buck on RSA rents
NY Real Deal - Sales drop in Long Island Hamptons, North Fork
AP - Mortgage application volume falls on few refinancings
Bloomberg - US Economy Expanded 0.6% on Increased Inventories as Consumer Retrench
Reuters - Jobs growth has "ground to a halt"