03.26.2007 - Monday Open Thread
This is your open thread for Monday, March 26, 2007. You may post random links and off-topic discussions here.
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55 comments:
I'll start today off with a little doom and gloom-
New home sales: Slowest in 6 years
NEW YORK (CNNMoney.com) -- Sales of new homes sank to the slowest pace in more than six years in February, as the government's latest reading of the strength of the battered real estate market showed more pricing weakness and a growing glut of homes on the market.
http://tinyurl.com/2okhbq
BTW, I'm on the east coast right now, and the markets were supposed to open up. That didn't last long after this home report. This report seems a little more realistic in comparison to the NAR report of last week.
http://money.cnn.com/2007/03/26/news/economy/new_home_sales/index.htm?postversion=2007032610
Oh hell yeahhhhhh!
Jazen,
You just linked the exact same article as me.
Oh well, double our pleasure, I knew this would happen. It pleases me much to see.
Dow down 96 points, 9:15 Pacific Time. I grew up in LA and saw people lose their ass on housing in mid 90's. Then saw the same people make a boatload on Tech in the late 90's and then lose that. Now they made it back in housing, (not nearly as much as they lost in tech stocks), now they are about to lose it (if they sell). Most of these people are pretty stable, long term employment, but I guess you really don't ever know someone's economic situation, no matter what it looks like on the surface.
Here is my question to you folks:
After the housing crash in the mid 90's, the tech stocks BOOMED (i've got family from silicon valley who made millions, but now aren't making a penny). The Tech stocks then crashed, and then the housing market took off.
Will the market follow the last housing crash, and take off? If so why, if not, why not?
BTW: I'm still waiting for someone to explain Money Merge Account Mortgages in dumbed down terms so my ex pothead, mushroom eating, calculus failing, but somehow successful salesman's brain can understand.
Interestingly...sales were up 24.6 percent for new houses in the west:
Sales of New Homes Fall Sharply
By region of the country, sales were up 24.6 percent in the West
Up 24.6 in Feb. down 25.8 in Jan. Still negative on the year!
And don't even bother to ask me where, do your own research, dude.
That's very persuasive...
It would be interesting to see new home sales info for Washington/PNW. I think the statistics for the "west" shown in the report are so skewed by California that I am hesitant to read any implications for our market.
However, overall I do not think this olooks good for the economy. There is an interesting entry on RGE today - on potential impact. Good quote from an article in the FT too.
Remember last time the economy sneezed, the PNW caught cold...
Seattle must be bucking the trend big time on new home sales. The Feb MLS report shows:
King County New Homes sold Feb 2006: 266
King County New Homes sold Feb 2007: 314
Wow..an 18% increase in new home sales for KC!
Pending Sales also way, way up for KC:
King County New Homes pending Feb 2006: 457
King County New Homes pending Feb 2007: 663
A 45% increase in pending sales...this leading indicator bodes very, very well for the Spring selling season in KC.
I admire your optimism shug, but you sound to me like a passenger on the stern of the titanic, boldly proclaiming that the ship isn't sinking because you can't see the water.
Shug,
Why don't you list some inventory numbers along with those sales numbers?
WASHINGTON (MarketWatch) -- Sales of new homes unexpectedly dropped in February to the lowest level seen in nearly seven years, while inventories of unsold homes rose to a 16-year high, suggesting that the nation's housing market was softening heading into the vital spring buying season.
Yeah, 16 year HIGH of inventory. Not a good thing.
In this weekends Open Thread I saw several examples of Cap Rates. Here is one way to rationalize the ROI (using leverage through a mortgage, which is actually ROE). Lets just take the historical 4% nominal appreciation rate due to inflation (or 1% real rate of return). For all intensive purposes lets assume you have 10% equity and 90% loan. For every 1% return on your property you would have a 10% return [1% appreciaton/10% equity]. Thus if you had a 2% real appreciation rate you would have a 20% return.
Like with stocks you have to take the dividend portion into perspective in real estate (rents) and the appreciation of the value as well (since it fluctuates). For choosing stocks to invest in, does anyone here look exclusively to at the dividend rate as the only determinant of what company to invest in…hope not.
As the housing market cools nationwide the FED will probably be forced to cut interest rates this summer, which should reduce (or delay) the impact of the credit bubble to some extent in Seattle. Overall this should allow the Seattle market to digest refi’s and increase affordability to some degree at a more moderate pace.
FYI: About a year ago at WAMU they started to take on more Credit Risk and reduce Market Risk in their loan portfolio (as I dealt directly with this group in Home Loans). Just giving you guys out there a heads up. However, they sold a significant portion of the riskiest MSR (Mortgage Servicing Rights, a very lucrative yet highly volatile income stream). Looks like WAMU sold (much of) their MSR rights to Wells Fargo at exactly the right time last summer!
Sure...
Feb. 475 listings
Feb. 650 listings
35% increase in inventory...which is lagging behind the 45% increase in sales.
Sorry...first # is 2006, second is 2007.
2006 Feb. 475 listings
2007 Feb. 650 listings
FG,
Your 10:1 leverage on a 1% real return is unfiltered BS.
You don't have dinky-doo. You have to pay interest on the 90%, plus maintenance, taxes, and sales fees. That eats up your 1%. You need a pretty big appreciation to get to where your leverage works for you rather than against you.
So 18 percent increase in houses sold (not pending) and a 35 percent increase in inventory. Interesting data Shug, thanks.
Finance,
what makes you think that the Fed will cut? Has there been any language in any fed statement that says anything other than inflation remains the main concern?
The Fed is factoring in some slack in the economy toward the end of the year that will hopefully suppress inflation. Inflation still remains too high for their liking. The economy will have to cool considerably (much more so than is occuring now) for their to be a cut.
My guess is that rates will remain stable until the very end of 07-08.
Here are some gems that I culled from this morning's light reading.
Sales of new homes unexpectedly dropped in February to the lowest level seen in nearly seven years, while inventories of unsold homes rose to a 16-year high, suggesting that the nation's housing market was softening heading into the vital spring buying season.
Sales were down 18.3% compared with February 2006.
Inventories of unsold homes rose 1.5% to 546,000, representing an 8.1-month supply, the largest inventory in relation to sales since January 1991, at the tail end of a recession.
Inventories are probably understated, however, because they don't include homes thrown back on the market due to buyer cancellations.
"It is dangerous to overinterpret the February numbers given the weather, so it is probably best to wait until March and see what a more normal weather month brings," wrote Stephen Stanley, chief economist for RBS Greenwich Capital.
Residential builders have piled on incentives, including free vacations and new cars, to sell homes and reduce inventories. Such incentives are not subtracted from the sales price reported to the government.
Sales are reported when a contract is signed, not at the closing of the sale. Builders have reported a large increase in cancellations in recent months. Since cancellations are not reflected in the government data, reported sales are likely overstated.
I'll reserve my comments, as these quotes are easy enough for even the bulls to decipher.
Finance,
Your thinking on rates is so typical of the average broker/day trader/ market bull. Most economists have been saying that rates will stay the same, while most of Wall St. seems to think that a cut is in order.
Re-read all of BB's statements to date. The main concern is inflation. Now look at the inflation guage, it's too high. How do you figure a cut is in place for the summer? Are you predicting a major slowdown of GDP before then?
I think the FED is going to cut at its first opportunity.
They cut to save the housing market, but smoke the dollar, which kills the housing market.
They hike to save the dollar but kill the housing market, which kills the dollar.
They just sit still, crap their pants and hope Japan and China save them.
E-
I don't think they are going to cut. I have been reading BB for a while, and he is a totally different animal than Greenspun. Easy Al would have probably already cut rates.
I think that BB knows what he has inherited. He can either prolong the agony and exacerbate the problem by cutting, or hold rates and let it play itself out. Either way, its going to unravel eventually. I think BB knows that, and I think he will hold steady for a while.
I don't know how different B-52 Ben is from Al.com. You still have all the problems with the other FED governors, and they are just itching to cut.
They are not stupid (although they are fools). They know that housing IS the economy, and their only chance is to save housing and hope the dollar gets a buy from China and Japan.
They are screwed to the wall. They know it. The panic statement on 3/21 showed it.
I could be wrong, but I doubt it.
IMHO, the funds rate is a red herring when it comes to housing.
The fed funds rate doesn't really affect the price of mortgages. A quick drop in the rate might temporarily juice the economy, leading to greater consumer confidence, and therefore greater home sales. But that's an extremely indirect phenomenon, if it happens at all.
More likely, lowering the rate will cause asian banks to unload US debt, leading to greater economic instability. Credit will tighten, spending will drop, and the economy will slow.
In short, I think I agree with Eleua in spirit (the Fed is hosed no matter what they do), but not in detail....
Shug, can we get a link to that data of yours?
I agree that the FED can not directly control mortgage rates.
My concern is they will cause unfounded euphoria in the mortgage lenders and building industry, because those morons believe the FED can save them.
Right now, I am fully short the entire sector, but I may trim that back so I can try reentry from a better price.
I don't think the FED can keep up any appearance of control past a few months. The mortgage rates are secondary to the new lending standards and building inventory.
I know they have only one bullet in the gun. I've got multiple shooters.
Just because these things annoy me, it's not for all intensive purposes; it's for all intents and purposes.
Also, I'll say it because I haven't seen it said yet today: speculative leverage cuts both ways. Subprime borrowers are discovering that right now. Alt As will be learning about leverage soon enough. Primes will be feeling it when the recession hits and the layoffs commence.
Free Money Tomorrow....Get in line today.
March 24, 2007
Ohio to Sell Bonds to Avert Home Foreclosures
By BLOOMBERG NEWS
Ohio, which had the highest foreclosure rate in the nation at the end of last year, plans to issue $100 million in taxable municipal bonds next month to help homeowners refinance mortgages.
Proceeds of the bond issue by the Ohio Housing Finance Agency will finance 1,000 loans with a fixed rate of 6.75 percent, said Robert Connell, director of debt management at the agency.
“We believe that it is incumbent on this agency to do something to assist these folks to enable them to keep their homes,” Mr. Connell said. “A $100 million bond from this agency is not going to solve Ohio’s foreclosure problem. We hope to at least make a dent.”
A survey on March 13 by the Mortgage Bankers Association found that Ohio had the highest rate of homes in foreclosure. The state, whose economy has suffered declines in manufacturing, also had the highest rate of subprime loans in foreclosure. Subprime mortgages are granted to people with poor credit histories or high debts and often have rates at least 2 or 3 percentage points above prime loans.
Gov. Ted Strickland, a Democrat, has formed a panel to stem foreclosures. The group will develop strategies to help homeowners facing foreclosure and to educate buyers.
Ohio will roll out the program on April 2, Mr. Connell said. The loans will be limited to homeowners whose income is up to 125 percent of the median income of their county.
“It will be available to the residents of Ohio to take them out of their adjustable-rate mortgages, their interest-only mortgages, and avail them the opportunity to move into a fixed-rate mortgage, which may now benefit their individual financial situation,” he said.
George K. Baum & Company of Kansas City, Mo., will manage the bond sale. The bonds will be taxable because the federal tax code prohibits states and local governments from using proceeds of tax-exempt bonds to refinance existing mortgages, Mr. Connell said.
The bankers’ association survey found the foreclosure rate in Ohio across all loan types was 3.38 percent. Indiana was second highest, with 2.97 percent. Ohio also led the nation will 11.32 percent of subprime loans in foreclosure.
Lawmakers in California and New Jersey said Friday that they planned hearings on subprime lending.
http://tinyurl.com/33m9t2
On Redfin sales history:
20215 NE 50TH ST
REDMOND, WA 98053-6137
Beds: 2
Baths: 1
Size: 1,180 sq. ft*
Housing: Residential
Year Built: 1942
Sales History:
Date Price Apprec
02/02/2007 $120,244 -31.0%/yr
04/28/2004 $335,000
That is a 64% drop in price over three years! Can anyone verify that this isn't a typo? Maybe a foreclosure? I would really like to know to story behind this. I think I am going to have to drive by and make sure it did not burn down or something.
Here's one for ya...
“Developers in Everett talk about ‘pent-up demand’ and say they aren’t deeply concerned their projects will create a glut of vacant condos for sale, as is the case in Las Vegas and parts of Florida.”
“‘I’ve always said Everett is the best kept secret in Washington, and people are finally starting to see that,’ said Donna Corpus, owner of Studio Donna. Corpus and her husband bought the salon’s current building and began quietly assembling other downtown properties.”
“They hope to begin construction this year on Colby Tower. With Sub-Zero refrigerators, Wolf gas ranges and other luxury accouterments, condos are expected to range from $950,000 to $1.1 million.”
“‘We’re just hoping for something kind of special and elite for people who want that,’ Donna Corpus said.”
Everett. One Million Dollar condos. Genius salon owners.
ROTFLMAO
That is 9 acres of property. They must have subdivided it and Redfin and Zillow do not know how to handle that.
I gotta say that the Ohio crisis surprises me. I have relatives in the big O, and I know for a fact that property values have been tracking inflation where they live. They've had nothing like the manic speculation that we've seen here.
From what I've read, the majority of the foreclosures are in industrial Ohio (whose economy has been in the shitter for years now), amongst poor and blue-collar buyers. These aren't risky purchases -- they're just people who got screwed by the economy (like many in Seattle will get screwed in 2008-2010).
I think this story is just the retreat of the ocean in advance of the tsunami. Everyone is focused on the newly-exposted shoreline, but they don't notice the looming shadow and the decidedly twitchy animals (i.e. Hammer)....
More Redfin weirdness:
10121 NE 64TH ST
KIRKLAND, WA 98033-6819
02/12/2007 $196,666 -86.1%/yr
06/14/2006 $730,000 23.2%/yr
06/13/2003 $390,000 1.2%/yr
11/30/2000 $378,500 10.6%/yr
05/24/1999 $324,500 25.4%/yr
11/14/1988 $30,000
86% drop over one year, but still selling at more than $100sqft. Zillow does not list the sale, but the land is too small to subdivide. My gut says this is an error in the Redfin db, but my gut is often known to be wrong.
John Hussman at Hussman Funds seems to agree with Eleua:
A Fed cut is likely to be put into practice only under conditions that nobody would wish on this economy.
Darned, crazy, Phd-in-Economics-having, fund managers. Like they know anything...
Mr B. -
Wasn't there a NYT article about all the foreclosed properties in Cleveland, and how they are having to keep up the empty properties? Maybe it wasn't Ohio. Anyway - I have a buddy moving to Indianapolis. He is in the business of buying homes for rentals, so very attuned to the RE market. He said he saw the same thing there. I think it is a real midwest phenomenon. Especially when one adds Michigan to the mix.
Alan-
Sales to a family member (at a reduced price) could also explain the price drops.
Alan, regarding the 20215 NE 50TH ST listing you provided, Redfin, Zillow, and other sites pick up any type of property transfer as a sale. What often happens is two people get divorced, and one gets half of the money out of the house. Therefore, you may see a sale of 300,000 in 2004, then a sale of 150,000 in 2005 when the divorce occurs. Another thing I have seen happen is for one person to have trouble paying for a place and give half ownership to a new person for a low amount of money in return for help making payments. If you see a substantial drop, these types of transfers are typically the reason.
In King County, you can use the following to get the true scoop:
Parcel Viewer:
http://tinyurl.com/62fde
King County Records:
http://tinyurl.com/ywplwl
Looking up the specific example you provided, Sara Slatten, Samantha Slatten, and Craig Hall all purchased together for $335,000 in the deed of 4/2004. Then in 2007, Craig released his interest for $120,244 (likely what they all agreed was 1/3 of the value). So the true value in their opinion was likely 360,732, a 7.7% increase in 3 years.
Alan, I also looked up the 10121 NE 64TH ST listing for fun. It looks like Timothy and Joanna Collins (husband and wife) bought in 2006, then transferred their interest for the lower amount to Collins Diedrich LLC this year. There could be a lot of reasons for the lower amount, such as cancelling a debt, desire to avoid Washington Excise tax. In any event, this doesn't really represent a sale since the same owners still have the home, albeit with some new owners involved.
Too bad Redfin and Zillow can't filter all of these out. If they are using them for their estimates then they will be very skewed. I prefer to use Zillow like I used to use the Kelley Blue Book. It's a great start, but you have to take a look at the actual condition and make deductions and additions to the value as appropriate.
While I was playing around in the King County records, I thought another interesting statistic might be the number of foreclosures filed on the same day each of the last three years. I picked 3/22 because this was a weekday each of the last four years:
3/22/2007 - 25 filed
3/22/2006 - 17 filed
3/22/2005 - 8 filed
3/22/2004 - 11 filed
Not sure how scientific it is to snapshot one day, but interesting nonetheless.
Thanks for the information, SH. I learned something new today.
I had my ACL repaired about 2 weeks ago so I'm in the PT phase... I was having the electro-stim treatment done to my knee (probably should apply to my temples) and struck up a conversation with the guy on the table next to me.
Turns out he works in IT for Zillow. No, I failed to ask anything stupid, such as "so, how do you guys plan to monetize that thing?"
His therapist walks up and says "what's Zillow?" After she understands she says "oh, I do that everyday!"
What? I say... "I look up house prices online for my husband." she says.
Turns out her husband is a "flipper" (her words), that he makes "great money" and that she is going to quit doing PT and get her RE license.
Beautiful.
So, unable to help myself, I say "well, you know we're in one the biggest RE bubbles of all time, don't you?"
"Yeah! My husband says it's a buyers market now!" (excited voice)
"So you don't think home prices will come down here?" I said.
"Come down? The house we bought near Greenlake doubled in value between 2003 and 2005!" she says.
"Um, and doesn't that seem odd to you in some way?" I say.
I go on to explain expansion of credit and the resulting bubbles that have formed and her only response was "well, that may be happening in the rest of the US but not here in Seattle."
I'm finding that there are some people I don't pity.
Oh, I forgot, she added: "After we sold our house in Greenlake we were able to buy a MUCH MUCH larger house!"
There's your 20% down payment. This type of behavior is normal. Why not be happy with the $200K you just made, roll it over into the $800K house with a option arm loan! Everyone's doin' it!
Geez, is blogger getting slow again or is it just me?
Synthetik,
You may have found the 'peak idiot.'
He's a "flipper", like it's a job. Hahahaha
He's a "flipper", like it's a job. Hahahaha
"They call him Flipper, Flipper, faster than lightning,
No-one you see, is smarter than he,
And we know Flipper, lives in a world full of wonder,
Flying there-under, under the sea!"
Flipper.
Who knew that song would have so much relevance today...
synthetik:
Why do you torture yourself? Trying to enlighten someone is an exercise in futility. Pain seems to be the best teacher of life's lessons and I'm afraid, for a whole lot of home owners out there, class is just beginning.
Nice goin' Syn, now everyone knows about the easy money that can be made flippin'. Have to go find something else to do now, thanks.
And here I thought I was special and had a unique idea, trading up houses.
Uh
Oh
http://www.cnbc.com/id/17810755
This sounds like an article for the Evil Dr. Lereah to spin!
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