Don't want to bust anybody who likes to cheerlead them, but I liquidated all of the AHR in the family retirement accounts after their first cockroach moment. Now how many folks have those high-yielding reit thingies in their portfolios?
Time to sell before the roaches are visible to the public and the exterminator of RTC approaches.
Oh well, you didn't really think 9 percent was riskless did you?
"At December 31, 2006, our portfolio of multi-family loans totaled $14.5 billion, representing 73.9% of loans outstanding, and a year-over-year increase of $1.7 billion, or 13.0%.
To diversify our asset mix, we also originate commercial real estate and construction loans, primarily in New York City and on Long Island, and, with the establishment of our commercial bank, have increased our production of commercial and industrial (C&I) loans to small and mid-size businesses."
"Multi-family Lending : Multi-family loans are our principal asset. We are the leading producer of multi-family loans for portfolio in New York City, with a focus on loans secured by rent-controlled and -stabilized buildings, which represented 52.0% of the Citys rental housing market in 2006. The loans we produce are typically based on the cash flows produced by the buildings, and are generally made to long-term property owners with a history of growing cash flows over time. The funds we provide are typically used to make improvements to the buildings and the apartments therein, thus increasing their value and the rents that may be charged. As improvements are made, the buildings rent roll increases, prompting the borrower to seek additional funds by refinancing the loan. While our typical loan has a term of ten years, with a fixed rate of interest in years one through five and a rate that adjusts in each year that follows, the majority of our loans tend to refinance within the first five years. Loans that prepay in the first five years generate penalties ranging from five percentage points to one percentage point of the loan balance, depending on the remaining term of the loan. Reflecting the structure of our multi-family credits, the average multi-family loan had an expected weighted average life of 3.8 years at December 31, 2006. In addition, the quality of these assets has been consistently solid: We have not had a loss of principal within this niche for more than twenty-five years."
What confused me about the Kash posting was the recent media focus on investment banks, freddie etc turning the traditional mortgage market into a bond tranche business combined with the talk that the banking community was getting away from loan and hold. I had assumed that the traditonal mortgage market was not focused within the banking community any longer. Kash certainly points to banks having a significant exposure to RE of some type.
A report by the Mortgage Bankers Association found that 4.2 percent of Alabama homeowners with "prime" home loans are behind on their payments, compared with 2.6 percent nationally. Among those with "subprime" loans - those who have poor credit and pay higher interest - 18.2 percent in Alabama are delinquent, compared with 13.3 percent nationally.
...
Bill May, a Birmingham mortgage broker and a former president of the Mortgage Brokers Association, said the picture in Alabama, and in Birmingham in particular, is brighter than in many other places because real estate here has held its value.
...
Barth said, the banking industry in general and Birmingham-based banks in particular haven't been hurt. Subprime lending is a much smaller part of most banks' business, and "a lot of lenders were wise enough to see it coming."
Notice that the article does a bit of misdirection, it does not state the total default rate just the prime and sub prime, then assures that public that subprime is not an issue. The rate for Alabama is 7.1%
The local paper apparently dug up a local pyramid scheme involving real estate investment, and it was the headline news item. A local company comprised of "real estate investors" has been buying up houses, ostensibly to fix them up and rent them out, but really the investors have just been selling them to each other over and over again for higher and higher prices, with the previous investors cashing out at the expense of the next buyer/lender. Meanwhile the houses are sitting around empty and decaying. This helps explains how house prices went up 20% last year in a local city with a shrinking population.
It's classic ponzi finance coming to a gruesome and public end.
I still do not understand how forclosures are going to effect the average person who get foreclosed on. Yes they will get a forclosure on their record but with rents less expensive than the mortgage payments, they will actually bring their cost of living down. Any bailout seems to be directed at saving the bag holders because it would only save the foreclosed homeowners pride.
--
"...but really the investors have just been selling them to each other over and over again for higher and higher prices, with the previous investors cashing out at the expense of the next buyer/lender."
I am sure that you have heard of two men trading a can of sardines (selling to each other at higher and higher price and feeling rich).
--
"...but with rents less expensive than the mortgage payments, they will actually bring their cost of living down."
Anyone who wasn't smart enough to figure this out on his, or her, own will be forced into the right thing, but after some loss and anguish.
"Any bailout seems to be directed at saving the bag holders"
That is what is meant by the "government of the Crooks, by the Crooks, for the Crooks, shall" reign over Americans.
"...because it would only save the foreclosed homeowners pride."
People kill themselves for pride. Pride cometh before the fall!
This whole mess was fully predicted four years ago. Why? Because so many Crooks were making so much money that our Lawmakers would never think of stopping them until there was not much money left to be made anymore. We have arrived at that moment.
Very painful times ahead for all Americans because of the unforeseen greed of the Crooks who rule America from their capital in New York City. I realize that most "educated" Americans are in denial about this easily observable fact.
With all the money or liquidity going to residential and commercial real estate,building more than what is needed, other things have been left behind.
As property values stagnate or go down, there will be lower tax revenues, meaning that either there will be cuts in the public sector or tax rates will need to increase. Either way a reinforcement of an economic slowdown. There are a lot people in the public sector, when you include teachers and all the contracted workers.
Those of us who have been fiscally responsible, will fair better than others, but yet will have to help pay for the excesses of those who participated in the excessive building boom of the last few years.
Jas, I also could make no sense of your question. 1.7 million whats? Then you talk about numbers in the thousands, then 100 thousands.
I think he's referring to intrinsic housing demand. I'm curious about this too. I came up with 1.4 million, but I admit my calculations were naive.
But 1.7 million combined with the current rate of housing completions doesn't jibe with the huge rise in housing vacancies we've experienced, so I remain suspicious of that figure.
funny thing is normalizing investment by GDP is somewhat deceptive since private-sector GDP growth over the past 5 years has been driven soley by these same RE loans.
--
"Jas, I also could make no sense of your question. 1.7 million whats?"
"1.7 million" was from a quote by CR.
"Then you talk about numbers in the thousands,"
I copied the data from the source, which reports in 000s. It is hard to confuse that, no?
" then 100 thousands."
Where do I report any numbers "in 100 thousands?
180K is in 000s, no?
"six percent solution."
Whatever you say. I take no offense.
MY FACTS ARE CORRECT AND CHECKED AND RECHECKED BY THE LATEST DATA. THE RECENT DEMAND, INCLUDING REPLACEMENT UNITS, HAS BEEN CLOSE TO 1.4 MILLION. THE DEMAND IN 1970s, AT THE PEAK, WAS CLOSE TO 2.0 MILLION.
Those using the 1.7-1.85 million estimate for the basic demand are using old estimates. It makes a huge difference in what the bottom in the new construction would be. I say, down 75% from the peak to 550K a year to work off the inventory. God forbid, we have a depression and the DEMAND GOES NEGATIVE. I realize that anyone born in America has hard time imagining NEGATIVE DEMAND for housing, i.e., number of occupied units going down year after year after year for several years. That IS my prediction. I predict 20,000,000 Vacant Units (total) before the end of 2009.
We have a housing recession now, bit in 2008 we shall enter the Housing Depression not seen even during the Great Depression.
I agree with ac's comments.
Jas
PS: Even though my Ph.D. is in electrical engineering, but it was all about math and statistics. I retired from Cisco in March 2000 at 51! I do manage accounts for family and friends only, on requests. For the past two years my focus has been on the housing supply and demand and its effect on the economy when the imbalance can't be artificially maintained. I am convinced that it was the fraud at the very top Bush, Bernanke and Greenspan that led to the Housing Bubble.
I'd read before that bank's exposure to real estate in general was at record highs (62%), exceeding those of Texas banks (55%) prior to the oil patch bust (which killed pretty much all of them). Retained mortgage portfolios may be historically low, but (reportedly) MBS holdings and construction loans cover the distance and then some.
Demand for housing is extremely elastic, depending, I suppose, on what you want to define as 'demand'. Price matters.
I see declining property tax revenues mentioned in a post above. I keep a running spreadsheet of a number of properties I'm interested in (no hurry... whenever I can get my price) and I noticed as I reviewed them today that 2 downtown condo buildings have revised EMV (estimated market values) and brand new - LOWER - taxes. One guy who was paying about $5200 got $1400 shaved off his bill.
I checked other condo buildings and did not find the same picture. However, I expect that word will get around as it always does. I do know that prices in those buildings - upper end downtown high-rise condos in Minneapolis - have been sliding down for over 2 years now.
Demand for housing is extremely elastic, depending, I suppose, on what you want to define as 'demand'. Price matters.
Well, I think we're talking about the rental as well as resale market. So I think all the elasticity would have to come from household size, unless people are living on the streets - it's not a rent vs. buy thing.
BTW I just realized I may have overestimated housing demand in my calculation because I accounted for the entire population purchasing 2nd homes, including renters. I don't know that renters can purchase a second home.
Lurker: "As I understand it Neg Am loans can't be securitized but rather must be kept on the originator's books. Otherwise each time neg am payment occurred some party would have to come up with real cash to pay to investor."
Is that so ?
Or is there part of the "securitized" done as a zero-copun ?
Comment by BubbleViewer
2007-03-18 14:30:56
In December 2000, I paid $210,000 for a 2000-sq ft home in Natomas Park in Sacramento. Currently probably going (define that how you want) for about $450,000-$500-000.
I wonder if Peter Schiff is right about going back to 2000 prices.
Reply to this comment
Comment by Slewfoot
2007-03-18 14:43:00
2000 sqft homes in Natomas are currently selling for about 420K. Believe me, theres about 15 within 10 blocks of me.
Reply to this comment
Comment by glorgau
2007-03-18 16:27:17
June 2000 - 2200 sqft 4/3 in Folsom for $258K (options, etc.). Sold in July 2002 for $355. Theyre going for the same 450K-500K now. Id guess that prices will fall down into the lower 300s when all is said and done - about 2009. People that bought 2004 or after are underwater for the next decade.
Reply to this comment
Comment by Louie Louie
2007-03-18 21:46:03
Santa Clara Valley 2000 sq TH same complex tracked for price.. very similar with other homes/TH/Condos for delta %
1998 181K
2000 500K
2006 660K
50% aint going to do it. Inflation has been very low over the past 10 years. Price today shoule be around 225-250K
I don't know that renters can purchase a second home.
LOL!
50% aint going to do it. Inflation has been very low over the past 10 years. Price today shoule be around 225-250K
Don't you mean "wage inflation"? What prices "should be" versus what they will be is another matter. I expect them to overshoot to the downside, therefore something in the 100's wouldn't be out of the question.
Old hat to readers of this blog, but a statement in this FT article http://tinyurl.com/23nyp2 makes me think there are still many that haven't 'war-gamed' or otherwise thought thru this mortgage lending disaster.
Many people facing resets will have banked on being able to refinance their loans. But that might not be possible if lenders continue tightening their approval standards. "The main concern is that lenders could pull back from extending credit to the reset borrowers," the Lehman fixed-income analysts say.
So the presumption going in - on day one of the POA - was that sometime prior to the reset or recast the borrower would need a refi.
And given anemic income growth, the only way the borrower would have been able to refi is if the property had continued to escalate in value, providing a revised LTV metric for the refi or sale.
The 'problem' isn't the now tighter lending standards, or the fact that the house is worth 10% less than what was paid.
The problem is the passage of time, and the fact that each day the borrower gets one closer to where he was when he started - in the position of not being able to afford the house.
I just looked, Countrywide came out with a new rate sheet, 40bp rise in all programs. 80/20 and 100% 1 loan are gone except under a heading "100% Fixed Only and the rates start at 9.950% for high FICOs)
Needless to say, nobody in California will be able to get into one of those loans.
I read the Wash Times article and this is what I got out of it:
"During the best possible economic conditions (such as high employment, high liquidity and hugh corprate profits) things started to fall apart in the most important market in the country (R/E) - but everything will be fine: it is all this sub-prime which is a small part of the R/E market and the whol thing will pass in few months anyhow"
Posative Mew is a relatively small proportion of total household spending using presumably the definition of posative Mew which is for example total net new mortgages - total private sector additions to property value via improvement. Obviously there is a huge guesstimate to the figures but since Mew excludes the massive amount of money that is spent on improving the houses value which is in itself a huge part of the economy then a tanking of total net new mortgages so that mew goes negative will have a huge effect on the economy.
If the above analysis is correct then talking of posative mew reducing not having an effect on spending because it only say 8% of household spending disguises the truth of how home borrowing supports the economy.
For what it is worth, here are some selected quotes from Time Magazine.
June 11, 1973 "The widely predicted end of the housing boom of 1971-72 has finally arrived," declares George A. Christie, chief economist of McGraw-Hill's Dodge division, which compiles construction statistics. "The housing market has nowhere to go but further down."
October 1, 1973 Out in the deserts and woodlands, people who want vacation homes are scrambling to pick up pieces of the good earth. They are being joined by speculators, who have rediscovered in real estate the fast-buck thrills that a droopy stock market rarely provides. Citizens are taking seriously the advice of Humorist Will Rogers: "Buy land. They ain't makin'any more of it."
September 30, 1974 The dream of buying the single-family house has evaporated along with the drying up of mortgage money; housing starts in August fell 45% from the year-earlier rate.
October 28, 1974 Fundamentally, the industry is caught in a terrible dilemma. It is peculiarly vulnerable to inflation; housing is the pressure point at which soaring costs of land, labor, materials and maintenance all converge. But housing is even more vulnerable to federal efforts to fight inflation by restricting the supply of credit, because both home builders and buyers rely so heavily on borrowed money.
December 9, 1974 But the decline is no longer confined to autos and home building, which is down 33% from early 1973, as it has been for most of this year. In classic fashion, the recession* has begun to work its way through the entire economy. Although demand for home freezers is still high, with housewives stocking up on food to beat rising prices, sales of other major appliancesTV sets, washing machines, dryers, vacuum cleanersare turning sick, and layoffs are spreading in the plants that make them.
September 22, 1975 A THEFT FROM YOUR GOVERNMENT IS A THEFT FROM YOU. So read the stern red-and-white warning signs put up by federal officials on thousands of abandoned homes across the U.S.
ac,
There is a lot of demand if you define it as people who want to buy a home. This country has strong immigration; there is still good household formation. This is now the third most populous country on Earth, after only China and India.
However, 'want' and 'ability' are not the same thing.
Just want to thank CR for Kash's post -- and its mention of collateralized loans in commercial mortgages - when I was a bubble ignoramus in 2005, a mortgage bank was pushing me to do this for purchase of a small multifamily.
I wonder if pushing investors to buy more buildings by using their other buildings as collateral --given the recent market -- isn't simply commercial RE's equivalent to residential speculation. A bubble behind the bubble perhaps..
PS - Saw a documentary film I recommend highly to you all - 'Maxed Out' about the lending industry -- Tanta thought of your FICO post when I saw this film - it is singing your song.
No one can know for sure the precise impact of the subprime-mortgage-market collapse, but it will not deeply affect the long-term growth of our overall economy.
The reason: Our economy is too big, too resilient and its fundamentals too strong for the subprime collapse to inflict any long-lasting collateral damage to our economic infrastructure.
That's what they said about the dot.com bust. Nearly word for word. I bet if you asked, this guy couldn't answer any basic questions about MEW or it's contribution to the economy over the past few years.
ac, There is a lot of demand if you define it as people who want to buy a home.
That's not what we're discussing, however. The discussion was in regards to the number of housing units that need to be built. This includes for sale and rental housing.
--
"The discussion was in regards to the number of housing units that need to be built."
IN WHICH PEOPLE LIVE! Demand for House-dwellings as Adam Smith defined.
"This includes for sale and rental housing."
No, sir, or madam. Many sales could be nothing more than speculative demand as was the case during 2004-06.
Demand goes negative when people double up, e.g., adult kids moving with parents and unmarried couples decide to not have two residences. There is a potential for loss of 10,000,000 in demand during a protracted recession/depression.
Demand goes negative when people double up, e.g., adult kids moving with parents
I guess that is true. At first i thought its just halved demand say. But really if there is sufficient contraction caused by doubling up then there gets a point where there is absolutely no demand at the prices and ultimately this drives prices lower.....so at current prices there is negative demand until prices fall.
Should we pitch into a fund Tanta's continuing education fund? She could report on the latest trends.
__
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Demand goes negative when people double up, e.g., adult kids moving with parents
Demand for me is a market driven yard stick. Monthly and yearly YOY sales numbers define demand. what particuliar underline causes may be driving it up and down depends on how one what's to torture available gov't data.
--
"Monthly and yearly YOY sales numbers define demand."
Do you have a clue about the FUNDAMENTAL demand versus SPECULATIVE demand? The discussion was about the FUNDAMENTAL demand, as in homes that are occupied and lived in. Homes that are added to the pile of Vacant Units don't reflect satisfaction of any demand. Got it?
Lemmee see does Jas (forget Electrified Engineer at your peril people) GET IT:
The discussion was about the FUNDAMENTAL demand, as in homes that are occupied and lived in. Homes that are added to the pile of Vacant Units don't reflect satisfaction of any demand. Got it?
or does he confuse/conflate Supply with Demand?
Anybody can make a mistake, not just PhDs...in unrelated fields.
But the issue of vacant unsold homes waiting to be rented, vandalized and rented, vandalized before being sold at a discount, or demolished --is an interesting issue as it affects rents , the chief component of the CPI proxy for housing, OER, that gives us the inflation stat (currently "danger zone" 3.6%). And major impedement to lowering interest rates...rates which some desperately believe will move mortgage rates down...ignoring the most recent history.
The discussion was in regards to the number of housing units that need to be built
Why do any need to be built today, or next month or next year?
When this crisis is over will Americans be richer or poorer? If poorer then they will need fewer houses because only the rich will live in big houses. There will be less demand for big houses and houses of any size in poor condition will be demolished for cheaper housing as a trend. And that will go all down the chain until people live in smaller units.
If you draw trends now, based on where you have been till now, and imagine that is just coming back then maybe you have faith in the ability of the economy to be reflated in a more or less indefinate manner where a primary source of "wealth" and growth comes from the house you live in. How can that be?
Jas might be a bit rude but maybe he is wanting to make a reasonable point here? His point being bad times are coming and that things will be different to what they are now. On the other hand maybe like so many of us he is assuming bad times rather than assuming it will work out.
For sure if we all simultaneously imagine bad times then bad times automatically come.
Where is Sebastian when you need him these days???
Refinancing is something many home owners do. The simple fact that mortgages have such a long length to them means that there is going to be a lot of changes in the economy and the loan market throughout the life of the loan.
To be fair, lenders often allow options, like refinancing to mortgage holders so that they can keep their mortgage competitive. This is smart on the part of the lender, as well because it protects the lender as well as the buyer.
The lender offers these options because if they didn't a borrower could easily go to another lender and refinance through them, which is basically taking away a large chunk of income from the original lender.
When you go to refinance you will often find that your lender is more than happy to work with you. Shopping around becomes essential because you have all the power in the refinancing situation. Your lender doesn't want to lose your business and will often jump over hurdles to try to keep it.
"
Good information, here is the breakdown of a smaller bank, 75.5% commercial;
The resource cannot be found.
Don't want to bust anybody who likes to cheerlead them, but I liquidated all of the AHR in the family retirement accounts after their first cockroach moment. Now how many folks have those high-yielding reit thingies in their portfolios?
Time to sell before the roaches are visible to the public and the exterminator of RTC approaches.
Oh well, you didn't really think 9 percent was riskless did you?
73.9% "Multi-family" lending;
"At December 31, 2006, our portfolio of multi-family loans totaled $14.5 billion, representing 73.9% of loans outstanding, and a year-over-year increase of $1.7 billion, or 13.0%.
To diversify our asset mix, we also originate commercial real estate and construction loans, primarily in New York City and on Long Island, and, with the establishment of our commercial bank, have increased our production of commercial and industrial (C&I) loans to small and mid-size businesses."
"Multi-family Lending : Multi-family loans are our principal asset. We are the leading producer of multi-family loans for portfolio in New York City, with a focus on loans secured by rent-controlled and -stabilized buildings, which represented 52.0% of the Citys rental housing market in 2006. The loans we produce are typically based on the cash flows produced by the buildings, and are generally made to long-term property owners with a history of growing cash flows over time. The funds we provide are typically used to make improvements to the buildings and the apartments therein, thus increasing their value and the rents that may be charged. As improvements are made, the buildings rent roll increases, prompting the borrower to seek additional funds by refinancing the loan. While our typical loan has a term of ten years, with a fixed rate of interest in years one through five and a rate that adjusts in each year that follows, the majority of our loans tend to refinance within the first five years. Loans that prepay in the first five years generate penalties ranging from five percentage points to one percentage point of the loan balance, depending on the remaining term of the loan. Reflecting the structure of our multi-family credits, the average multi-family loan had an expected weighted average life of 3.8 years at December 31, 2006. In addition, the quality of these assets has been consistently solid: We have not had a loss of principal within this niche for more than twenty-five years."
The resource cannot be found.
What confused me about the Kash posting was the recent media focus on investment banks, freddie etc turning the traditional mortgage market into a bond tranche business combined with the talk that the banking community was getting away from loan and hold. I had assumed that the traditonal mortgage market was not focused within the banking community any longer. Kash certainly points to banks having a significant exposure to RE of some type.
Bham, AL Front Page Birmingham News
Alabama ranks 10th in mortgage delinquency
State escapes worst of subprime lending crisis
I'd hate to see what not escaping consists of.
A report by the Mortgage Bankers Association found that 4.2 percent of Alabama homeowners with "prime" home loans are behind on their payments, compared with 2.6 percent nationally. Among those with "subprime" loans - those who have poor credit and pay higher interest - 18.2 percent in Alabama are delinquent, compared with 13.3 percent nationally.
...
Bill May, a Birmingham mortgage broker and a former president of the Mortgage Brokers Association, said the picture in Alabama, and in Birmingham in particular, is brighter than in many other places because real estate here has held its value.
...
Barth said, the banking industry in general and Birmingham-based banks in particular haven't been hurt. Subprime lending is a much smaller part of most banks' business, and "a lot of lenders were wise enough to see it coming."
Notice that the article does a bit of misdirection, it does not state the total default rate just the prime and sub prime, then assures that public that subprime is not an issue. The rate for Alabama is 7.1%
--
Hello again CR,
I don't know if you got a chance to look at the following. I would appreciate your response.
1.7 million. See this post for my estimates.
Based on the latest annual data, the growth for the past 4 years:
Total Units: 6,715
Total Occupied: 4,610
Total Vacant Year, Round: 1,688
Total Completed: 7,430
These give approx. 180K units per year demolished. Also, the highest estimate for demand = (7430-
1688)/4 = 1,436K
NO?
TIA,
Jas
The local paper apparently dug up a local pyramid scheme involving real estate investment, and it was the headline news item. A local company comprised of "real estate investors" has been buying up houses, ostensibly to fix them up and rent them out, but really the investors have just been selling them to each other over and over again for higher and higher prices, with the previous investors cashing out at the expense of the next buyer/lender. Meanwhile the houses are sitting around empty and decaying. This helps explains how house prices went up 20% last year in a local city with a shrinking population.
It's classic ponzi finance coming to a gruesome and public end.
I still do not understand how forclosures are going to effect the average person who get foreclosed on. Yes they will get a forclosure on their record but with rents less expensive than the mortgage payments, they will actually bring their cost of living down. Any bailout seems to be directed at saving the bag holders because it would only save the foreclosed homeowners pride.
Also, I interpret those low delinquency rates as a strong "buy" signal for stocks, credit derivatives, and high yield bonds.
Get going.
--
"...but really the investors have just been selling them to each other over and over again for higher and higher prices, with the previous investors cashing out at the expense of the next buyer/lender."
I am sure that you have heard of two men trading a can of sardines (selling to each other at higher and higher price and feeling rich).
--
"...but with rents less expensive than the mortgage payments, they will actually bring their cost of living down."
Anyone who wasn't smart enough to figure this out on his, or her, own will be forced into the right thing, but after some loss and anguish.
"Any bailout seems to be directed at saving the bag holders"
That is what is meant by the "government of the Crooks, by the Crooks, for the Crooks, shall" reign over Americans.
"...because it would only save the foreclosed homeowners pride."
People kill themselves for pride. Pride cometh before the fall!
This whole mess was fully predicted four years ago. Why? Because so many Crooks were making so much money that our Lawmakers would never think of stopping them until there was not much money left to be made anymore. We have arrived at that moment.
Very painful times ahead for all Americans because of the unforeseen greed of the Crooks who rule America from their capital in New York City. I realize that most "educated" Americans are in denial about this easily observable fact.
Sadly,
Jas
--
Correction:
"This whole mess was fully predicted four years ago."
should read
This whole mess was fully predicted four years ago butr nothing was done back then.
Jas Jain, I'm not sure what you are asking - please feel free to send me an email. I feel comfortable with my estimates.
Best Wishes.
--
"Jas Jain, I'm not sure what you are asking"
Where am I wrong in my data?
" - please feel free to send me an email."
I just did.
"I feel comfortable with my estimates."
What if your estimates are not supportable by data? Or, are you wroking with very old estimates when the demand WAS much higher, as in 1970s?
Thanks for your time.
Jas
Jas, I also could make no sense of your question. 1.7 million whats? Then you talk about numbers in the thousands, then 100 thousands.
With all the money or liquidity going to residential and commercial real estate,building more than what is needed, other things have been left behind.
As property values stagnate or go down, there will be lower tax revenues, meaning that either there will be cuts in the public sector or tax rates will need to increase. Either way a reinforcement of an economic slowdown. There are a lot people in the public sector, when you include teachers and all the contracted workers.
Those of us who have been fiscally responsible, will fair better than others, but yet will have to help pay for the excesses of those who participated in the excessive building boom of the last few years.
Jas, I also could make no sense of your question. 1.7 million whats? Then you talk about numbers in the thousands, then 100 thousands.
I think he's referring to intrinsic housing demand. I'm curious about this too. I came up with 1.4 million, but I admit my calculations were naive.
But 1.7 million combined with the current rate of housing completions doesn't jibe with the huge rise in housing vacancies we've experienced, so I remain suspicious of that figure.
I'll comment visually...
Image hosting, free photo sharing & video sharing at Photobucket
funny thing is normalizing investment by GDP is somewhat deceptive since private-sector GDP growth over the past 5 years has been driven soley by these same RE loans.
--
"Jas, I also could make no sense of your question. 1.7 million whats?"
"1.7 million" was from a quote by CR.
"Then you talk about numbers in the thousands,"
I copied the data from the source, which reports in 000s. It is hard to confuse that, no?
" then 100 thousands."
Where do I report any numbers "in 100 thousands?
180K is in 000s, no?
"six percent solution."
Whatever you say. I take no offense.
MY FACTS ARE CORRECT AND CHECKED AND RECHECKED BY THE LATEST DATA. THE RECENT DEMAND, INCLUDING REPLACEMENT UNITS, HAS BEEN CLOSE TO 1.4 MILLION. THE DEMAND IN 1970s, AT THE PEAK, WAS CLOSE TO 2.0 MILLION.
Those using the 1.7-1.85 million estimate for the basic demand are using old estimates. It makes a huge difference in what the bottom in the new construction would be. I say, down 75% from the peak to 550K a year to work off the inventory. God forbid, we have a depression and the DEMAND GOES NEGATIVE. I realize that anyone born in America has hard time imagining NEGATIVE DEMAND for housing, i.e., number of occupied units going down year after year after year for several years. That IS my prediction. I predict 20,000,000 Vacant Units (total) before the end of 2009.
We have a housing recession now, bit in 2008 we shall enter the Housing Depression not seen even during the Great Depression.
I agree with ac's comments.
Jas
PS: Even though my Ph.D. is in electrical engineering, but it was all about math and statistics. I retired from Cisco in March 2000 at 51! I do manage accounts for family and friends only, on requests. For the past two years my focus has been on the housing supply and demand and its effect on the economy when the imbalance can't be artificially maintained. I am convinced that it was the fraud at the very top Bush, Bernanke and Greenspan that led to the Housing Bubble.
I'd read before that bank's exposure to real estate in general was at record highs (62%), exceeding those of Texas banks (55%) prior to the oil patch bust (which killed pretty much all of them). Retained mortgage portfolios may be historically low, but (reportedly) MBS holdings and construction loans cover the distance and then some.
Here's a tip: Don't count on the FDIC.
Jas Jain,
so the ol' "ownership society" is really the "owing society"...
Demand for housing is extremely elastic, depending, I suppose, on what you want to define as 'demand'. Price matters.
I see declining property tax revenues mentioned in a post above. I keep a running spreadsheet of a number of properties I'm interested in (no hurry... whenever I can get my price) and I noticed as I reviewed them today that 2 downtown condo buildings have revised EMV (estimated market values) and brand new - LOWER - taxes. One guy who was paying about $5200 got $1400 shaved off his bill.
I checked other condo buildings and did not find the same picture. However, I expect that word will get around as it always does. I do know that prices in those buildings - upper end downtown high-rise condos in Minneapolis - have been sliding down for over 2 years now.
Demand for housing is extremely elastic, depending, I suppose, on what you want to define as 'demand'. Price matters.
Well, I think we're talking about the rental as well as resale market. So I think all the elasticity would have to come from household size, unless people are living on the streets - it's not a rent vs. buy thing.
BTW I just realized I may have overestimated housing demand in my calculation because I accounted for the entire population purchasing 2nd homes, including renters. I don't know that renters can purchase a second home.
Posted on on Aaron's forum... S&P downgrades WAMU to sell.
http://www.autodogmatic.com/forum/viewtopic.php?t=272&sid=4ba079bc98024adb253a272fd0ea0a98
28% of their portfolio is Option Arms? Egads! :-{
Hussman
Hussman Funds - Weekly Market Comment: March 19, 2007 - Beyond Sub-Prime
Lurker: "As I understand it Neg Am loans can't be securitized but rather must be kept on the originator's books. Otherwise each time neg am payment occurred some party would have to come up with real cash to pay to investor."
Is that so ?
Or is there part of the "securitized" done as a zero-copun ?
Comment by BubbleViewer
2007-03-18 14:30:56
In December 2000, I paid $210,000 for a 2000-sq ft home in Natomas Park in Sacramento. Currently probably going (define that how you want) for about $450,000-$500-000.
I wonder if Peter Schiff is right about going back to 2000 prices.
Reply to this comment
Comment by Slewfoot
2007-03-18 14:43:00
2000 sqft homes in Natomas are currently selling for about 420K. Believe me, theres about 15 within 10 blocks of me.
Reply to this comment
Comment by glorgau
2007-03-18 16:27:17
June 2000 - 2200 sqft 4/3 in Folsom for $258K (options, etc.). Sold in July 2002 for $355. Theyre going for the same 450K-500K now. Id guess that prices will fall down into the lower 300s when all is said and done - about 2009. People that bought 2004 or after are underwater for the next decade.
Reply to this comment
Comment by Louie Louie
2007-03-18 21:46:03
Santa Clara Valley 2000 sq TH same complex tracked for price.. very similar with other homes/TH/Condos for delta %
1998 181K
2000 500K
2006 660K
50% aint going to do it. Inflation has been very low over the past 10 years. Price today shoule be around 225-250K
I don't know that renters can purchase a second home.
LOL!
50% aint going to do it. Inflation has been very low over the past 10 years. Price today shoule be around 225-250K
Don't you mean "wage inflation"? What prices "should be" versus what they will be is another matter. I expect them to overshoot to the downside, therefore something in the 100's wouldn't be out of the question.
rate cut ??:
Fed May Lower Rates Three Times in 2007, Options Show (Update1) - Bloomberg.com
Counterargument to the bear in all of us:
Subprime shakeout - Washington Times
Old hat to readers of this blog, but a statement in this FT article http://tinyurl.com/23nyp2 makes me think there are still many that haven't 'war-gamed' or otherwise thought thru this mortgage lending disaster.
Many people facing resets will have banked on being able to refinance their loans. But that might not be possible if lenders continue tightening their approval standards. "The main concern is that lenders could pull back from extending credit to the reset borrowers," the Lehman fixed-income analysts say.
So the presumption going in - on day one of the POA - was that sometime prior to the reset or recast the borrower would need a refi.
And given anemic income growth, the only way the borrower would have been able to refi is if the property had continued to escalate in value, providing a revised LTV metric for the refi or sale.
The 'problem' isn't the now tighter lending standards, or the fact that the house is worth 10% less than what was paid.
The problem is the passage of time, and the fact that each day the borrower gets one closer to where he was when he started - in the position of not being able to afford the house.
I just looked, Countrywide came out with a new rate sheet, 40bp rise in all programs. 80/20 and 100% 1 loan are gone except under a heading "100% Fixed Only and the rates start at 9.950% for high FICOs)
Needless to say, nobody in California will be able to get into one of those loans.
A question about ARMs:
I was looking at several rate tables on the web (for example WMC rates) and I am trying to find out the simple number:
After the rate adjustment what does the loan adjust too ?
Is it LIBOR + 6% ? (for example) no where seems to tell me what is the spread/margins between the rate of the loan and the rate index is it based on ?
Why is it so hard to find those numbers ?
Is it indeed around 6% or is it closer to 2% ?
Thanks.
Yal,
From what I have seen, prime and Alt-A loans tied to LIBOR usually have a 2.25 to 2.75 margin, whereas subprime loans are usually more like 6% or 7%.
I read the Wash Times article and this is what I got out of it:
"During the best possible economic conditions (such as high employment, high liquidity and hugh corprate profits) things started to fall apart in the most important market in the country (R/E) - but everything will be fine: it is all this sub-prime which is a small part of the R/E market and the whol thing will pass in few months anyhow"
Did I mis anything ?
Can somene analyze how much real-estate price contrubute to this:
http://serviciodeestudios.bbva.com/TLBB/fbin/070309_FlowFundsEEUU_02_tcm208-89041.pdf
Posative Mew is a relatively small proportion of total household spending using presumably the definition of posative Mew which is for example total net new mortgages - total private sector additions to property value via improvement. Obviously there is a huge guesstimate to the figures but since Mew excludes the massive amount of money that is spent on improving the houses value which is in itself a huge part of the economy then a tanking of total net new mortgages so that mew goes negative will have a huge effect on the economy.
If the above analysis is correct then talking of posative mew reducing not having an effect on spending because it only say 8% of household spending disguises the truth of how home borrowing supports the economy.
Maybe somebody can say i am all wrong here?
Waiver from FDIC;
Coast Bank was 'undercapitalized' | HeraldTribune.com | Sarasota Florida | Southwest Florida's Information Leader
The resource cannot be found.
High Yield story unfolding and corporate default rates should be monitored;
Company Bond Risk Premiums Surge on Subprime Fallout (Update3) - Bloomberg.com
For what it is worth, here are some selected quotes from Time Magazine.
June 11, 1973
"The widely predicted end of the housing boom of 1971-72 has finally arrived," declares George A. Christie, chief economist of McGraw-Hill's Dodge division, which compiles construction statistics. "The housing market has nowhere to go but further down."
October 1, 1973
Out in the deserts and woodlands, people who want vacation homes are scrambling to pick up pieces of the good earth. They are being joined by speculators, who have rediscovered in real estate the fast-buck thrills that a droopy stock market rarely provides. Citizens are taking seriously the advice of Humorist Will Rogers: "Buy land. They ain't makin'any more of it."
September 30, 1974
The dream of buying the single-family house has evaporated along with the drying up of mortgage money; housing starts in August fell 45% from the year-earlier rate.
October 28, 1974
Fundamentally, the industry is caught in a terrible dilemma. It is peculiarly vulnerable to inflation; housing is the pressure point at which soaring costs of land, labor, materials and maintenance all converge. But housing is even more vulnerable to federal efforts to fight inflation by restricting the supply of credit, because both home builders and buyers rely so heavily on borrowed money.
December 9, 1974
But the decline is no longer confined to autos and home building, which is down 33% from early 1973, as it has been for most of this year. In classic fashion, the recession* has begun to work its way through the entire economy. Although demand for home freezers is still high, with housewives stocking up on food to beat rising prices, sales of other major appliancesTV sets, washing machines, dryers, vacuum cleanersare turning sick, and layoffs are spreading in the plants that make them.
September 22, 1975
A THEFT FROM YOUR GOVERNMENT IS A THEFT FROM YOU. So read the stern red-and-white warning signs put up by federal officials on thousands of abandoned homes across the U.S.
@ Jas & ac
re neg housing demand
Our 3 adult children (1 owns, 2 rent) are discussing moving in with the owner so that owner can keep house.
Wife and I are considering building our garage into an apartment so other family members can join us if they need to.
Our small family could reduce demand for 5 houses to 2.
Regards,
Falcor
ac,
There is a lot of demand if you define it as people who want to buy a home. This country has strong immigration; there is still good household formation. This is now the third most populous country on Earth, after only China and India.
However, 'want' and 'ability' are not the same thing.
Test
Wally, good point. But even with strong demographics driving demand, supply is still out of balance. As is affordability.
Both need to change before this downturn is over.
Whew sorry --haloscan hated me this morning
Just want to thank CR for Kash's post -- and its mention of collateralized loans in commercial mortgages - when I was a bubble ignoramus in 2005, a mortgage bank was pushing me to do this for purchase of a small multifamily.
I wonder if pushing investors to buy more buildings by using their other buildings as collateral --given the recent market -- isn't simply commercial RE's equivalent to residential speculation. A bubble behind the bubble perhaps..
PS - Saw a documentary film I recommend highly to you all - 'Maxed Out' about the lending industry -- Tanta thought of your FICO post when I saw this film - it is singing your song.
" The local paper apparently dug up a local pyramid scheme involving real estate investment, and it was the headline news item."
AC - Is this a reference to Macatawa Bank, to which you previously linked?
Thanks.
No one can know for sure the precise impact of the subprime-mortgage-market collapse, but it will not deeply affect the long-term growth of our overall economy.
The reason: Our economy is too big, too resilient and its fundamentals too strong for the subprime collapse to inflict any long-lasting collateral damage to our economic infrastructure.
That's what they said about the dot.com bust. Nearly word for word. I bet if you asked, this guy couldn't answer any basic questions about MEW or it's contribution to the economy over the past few years.
ac, There is a lot of demand if you define it as people who want to buy a home.
That's not what we're discussing, however. The discussion was in regards to the number of housing units that need to be built. This includes for sale and rental housing.
Very interesting, thanks for this great blog.
--
"The discussion was in regards to the number of housing units that need to be built."
IN WHICH PEOPLE LIVE! Demand for House-dwellings as Adam Smith defined.
"This includes for sale and rental housing."
No, sir, or madam. Many sales could be nothing more than speculative demand as was the case during 2004-06.
Demand goes negative when people double up, e.g., adult kids moving with parents and unmarried couples decide to not have two residences. There is a potential for loss of 10,000,000 in demand during a protracted recession/depression.
Jas
I guess that is true. At first i thought its just halved demand say. But really if there is sufficient contraction caused by doubling up then there gets a point where there is absolutely no demand at the prices and ultimately this drives prices lower.....so at current prices there is negative demand until prices fall.
Should we pitch into a fund Tanta's continuing education fund? She could report on the latest trends.
__
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Demand for me is a market driven yard stick. Monthly and yearly YOY sales numbers define demand. what particuliar underline causes may be driving it up and down depends on how one what's to torture available gov't data.
--
"Monthly and yearly YOY sales numbers define demand."
Do you have a clue about the FUNDAMENTAL demand versus SPECULATIVE demand? The discussion was about the FUNDAMENTAL demand, as in homes that are occupied and lived in. Homes that are added to the pile of Vacant Units don't reflect satisfaction of any demand. Got it?
Jas
Lemmee see does Jas (forget Electrified Engineer at your peril people) GET IT:
The discussion was about the FUNDAMENTAL demand, as in homes that are occupied and lived in. Homes that are added to the pile of Vacant Units don't reflect satisfaction of any demand. Got it?
or does he confuse/conflate Supply with Demand?
Anybody can make a mistake, not just PhDs...in unrelated fields.
But the issue of vacant unsold homes waiting to be rented, vandalized and rented, vandalized before being sold at a discount, or demolished --is an interesting issue as it affects rents , the chief component of the CPI proxy for housing, OER, that gives us the inflation stat (currently "danger zone" 3.6%). And major impedement to lowering interest rates...rates which some desperately believe will move mortgage rates down...ignoring the most recent history.
Why do any need to be built today, or next month or next year?
When this crisis is over will Americans be richer or poorer? If poorer then they will need fewer houses because only the rich will live in big houses. There will be less demand for big houses and houses of any size in poor condition will be demolished for cheaper housing as a trend. And that will go all down the chain until people live in smaller units.
If you draw trends now, based on where you have been till now, and imagine that is just coming back then maybe you have faith in the ability of the economy to be reflated in a more or less indefinate manner where a primary source of "wealth" and growth comes from the house you live in. How can that be?
Jas might be a bit rude but maybe he is wanting to make a reasonable point here? His point being bad times are coming and that things will be different to what they are now. On the other hand maybe like so many of us he is assuming bad times rather than assuming it will work out.
For sure if we all simultaneously imagine bad times then bad times automatically come.
Where is Sebastian when you need him these days???
Very Nice Article you have written.
Finding The Best Refinance Deals \t
Refinancing is something many home owners do. The simple fact that mortgages have such a long length to them means that there is going to be a lot of changes in the economy and the loan market throughout the life of the loan.
To be fair, lenders often allow options, like refinancing to mortgage holders so that they can keep their mortgage competitive. This is smart on the part of the lender, as well because it protects the lender as well as the buyer.
The lender offers these options because if they didn't a borrower could easily go to another lender and refinance through them, which is basically taking away a large chunk of income from the original lender.
When you go to refinance you will often find that your lender is more than happy to work with you. Shopping around becomes essential because you have all the power in the refinancing situation. Your lender doesn't want to lose your business and will often jump over hurdles to try to keep it.
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