A lot of Nine West condos posing as Manolo Blahniks in Florida... the really sad part is that they'll prove to be Payless brand when all is said and done.
Now required to use cash for a down payment, liquidity will be removed from the system on every transaction. The required down payments on home purchases, will reduce the size of savings accounts. This will be a shock to the fractional reserve system. Perhaps this is what the bankers and wall street fears the most. Liquidity in a constant state of decline.
So many shoes are dropping, the turmoil will be named Imelda!
is that a triple reference to the WaPo article, the "Steel Butterfly", and the french SIV shoe company that's going down due to US subprime exposure? if so, bravo sir!
With single-family homes, "you put up a couple of model homes and build the rest as you get sales contracts." says James Haughey, director of research at Reed Construction Data in Norcross, Ga. "But you have to build the entire...building before you can sell a single condo."
Did they mean to put the word "Fu&*ing" in that space?
Okay, kudos indeed for not lumping in with subprime. This is actually a pretty smart article... but there are really three condo issues.
there actually is a link to "subprime", b/c subprime, 100% CLTV and other low-quality Alt-A (Alt-B?) were key to keeping the new home mkt going, and hence are drivers of the collapse in most markets, including condo markets.
the downtown de novo condo boom in places like LV, SD and Miami, are primarily an oversupply problem. Everyone's building the same "luxury" condo, and while I'm actually a fan of increasing density in downtown centers and a believer in the investment hypothesis around "boomers will downsize and move closer in during retirement" -- clearly supply is way ahead of demand in these markets.
and finally, we have the mostly unrelated condo conversion issue, which was nothing more than an arb of the overheated housing market vs. relatively low rents. Look, when a developer options a piece of property or buys an empty industrial space, goes through the incredible brain damage of getting entitlements to build/rebuild residential units and then actually builds the thing, there is genuine value creation. Some condo conversions also genuinely add value, though the value add is much less comparatively.
But too many of these "conversions" were nothing more $1000 of new paint and countertops slapped into formerly rental units and that was supposed to support valuations 20, 30 even 50% over the income property valuation (even at today's crazy cap rates). That arb play has failed, and the "developers" behind them are going down, and good riddance. Likewise for the banks that should have stopped lending at 75% of the lower of rental or for sale value... not the higher of!
As for the true developers, well, those guys (and they're almost all guys) have big cojones and they deserve their profits when they succeed and certainly don't deserve scorn when they don't.
Look, when a developer options a piece of property or buys an empty industrial space, goes through the incredible brain damage of getting entitlements to build/rebuild residential units and then actually builds the thing, there is genuine value creation.
If you spend a lot of time building something that nobody wants, are you really creating value? Nice rant, but I'm not moved.
bacon dreamz - you are too young to remember Imelda Marcos from the Phillipines? Had thousands upon thousands of pairs of shoes while her husband was dictator and the rest of the population lived very poorly. Hmmmm... maybe Imelda is a good name for this turmoil!
Whaddaya guys think the FXY might do Sept&Oct if the S&P takes a dump and the fed lowers a couple of times? Will the Japanese manipulate down in PPT fashion, so they minimize the added disruptions?
the downtown de novo condo boom in places like LV, SD and Miami, are primarily an oversupply problem. Everyone's building the same "luxury" condo
I agree with the quotes around "luxury." Stick some granite and stainless in a condo unit and all of the sudden the price rises by 100 k$. Buyers really have no clue how relatively inexpensive it is to refurnish something as small as a condo...
WASHINGTON Amid a severe housing market slump, Rep. John Dingell is raising eyebrows with a proposal to eliminate interest-tax deductions for owners of big houses.
The Michigan Democrat says doing so would discourage excess energy consumption and lessen emissions linked to climate change.
Dingell said Friday he plans to introduce legislation next month that would eliminate the tax deduction on mortgage interest for owners of so-called McMansions houses bigger than 3,000 square feet. Page not found
It looks like the Fed's recent actions are being interpreted as a "Bernanke Put":
Clearly the Fed stepped up,'' said Jeffrey Kleintop, who helps oversee more than $173 billion as chief market strategist at LPL Financial Services in Boston. With the discount rate cut, the Fedtold the markets they're not going to let this liquidity crisis become a major contagion.''
...
The decision helped ignite a rally in global equities. The Morgan Stanley Capital International World Index of 23 developed markets has since rebounded 5.4 percent, after plummeting 11 percent from its record on July 19.
Okay, this is what I'd like to know. With all this housing distress being reported, why are prices not dropping more appreciably?
Here in Seattle, it's condos everywhere. I received a flyer in the mail advertising a 280 sq. ft. condo for $360,000. That isn't reasonable.
In places like California and Florida, we see depreciation in the 10 percent range, but here, in spite of increasing inventory and a rapid rate of foreclosures, prices still appreciate (modestly). What gives?
Finally, I asked this before a few weeks ago, but what sort of macro national events might effect local robustness? The NY Times recently did an enthusiastic article about how commercial RE in Seattle is booming, and how everyone is trying to get into that market. I know we are "behind the curve" here, but still, we read that because of high employment and high salaries, the real estate bust simply can't occur in Seattle. (By "bust," I mean a significant drop in prices for condos and SFHs).
I'm interested in this question mostly for theoretical reasons, as even if prices here declined 10 percent, I still couldn't afford to buy property in Seattle.
Been in transit for the afternoon. Arrived in SoCal. Staying in Laguna. Used to live in Laguna. Still love it!
Rented my car from JW airport. Hooked onto PCH. Still a nice place to be!
Got to Newport X. What? Six signs at the intersection. For Sale signs.
Continued on PCH. Gosh the country drive seems like a road through the burbs. More signs.
Arrived in Laguna. More signs.
Checked in. Realtor cards everywhere..now I know it is Laguna and lots try to sell in the Summer season so whats new.
Got to my room. More brochures. More cards. Goshhhh.
As I'm waiting to meet w/ some old friends I call the agent who sold my place in Laguna five years ago (we kept in touch since that time)..according to him, he is seeing 4 to 5 REOS per day cross his desk. Now understand this, 92651 is a small zip!!)
Funny how so many people here were shooting down that dude(tte) who posted on CR yesterday, talking about the very same idea of eliminating the mortgage interest tax deduction. Looks like his/her inside scoop was pretty legit. Maybe he/she will come back and enlighten us some more.
And by the way, what a Dingelberry of move that legislation is. Or does he just have some kind of deathwish?
Even here in LA, prices are dropping but sellers are holding onto their 2005 for dear life. On Ziprealty, LA unsold inventory crossed over 140,000 for the first time today. It was 'only' 132,000 three weeks ago. Newsflash; sellers, no renter wants your $550,000 compton bungalow.
Prices will fall... when people lower their wish-price enough to initiate a transaction. Then people will realize that we are going to drop 15% or more.
He has been a virulent opponent to green house gas caps since they would damage his constituents. Ford, GM and Chrysler.
So he is turning the greenhouse gas argument over and applying it to the housing sacred cow.
I'd support both bills, but like the housing one better.
And yes, he is lying through his teeth as to the reason for the bill.
Check out some of his interviews, where he goes postal about the impact of green house gas regulations on the US auto industry.
BTW, Rocky Mountain Institute was out promoting hyrbids amongst all of the auto mfrs but Toyota was the one that took the lead. Had there been some vision at Ford or GM an American company could have been leading the world in hybrids.
NAHB's comment about home size not being an indicator of energy consumption is BS.
Here in Seattle, it's condos everywhere. I received a flyer in the mail advertising a 280 sq. ft. condo for $360,000. That isn't reasonable.
Seattle was one of the very last markets to peak. I assume the bubble started late there and was a strong market until relatively recently.
Owners still have a lot of equity, the heady days of bidding wars fresh in their mind, and their houses have been on the market for much less time.
Also, later bubble means later loan resets.
I think Seattle is a year behind most other markets in terms of correction.
But barring significant government intervention, prices will fall when the foreclosures, mortgage resets, and job losses pick up.
Housing busts aren't like stock market crashes. In Japan it took 15 years for home prices to "crash" 60%.
Still, I'd keep an eye out for "fire sales" by builders and through foreclosure auctions in the near future. Some properties in San Diego are reportedly selling for close to 40% below their last sale price (IIRC) at auctions.
But more likely it's going to be a slow process for home values to normalize in most markets.
Word of warning: It's tough to buy when prices reach bottom in a bust. I remember in the late 80s in Houston after the real estate bust (when prices were slowly recovering) people hated houses. A house was a prison. There was almost a stigma attached to homeownership.
And by the way, what a Dingelberry of move that legislation is. Or does he just have some kind of deathwish?
He's got a safe seat in the 15th... plus there aren't a high percentage of MiniMcMansions in his district anyway compared to working class homes (the 15th includes the city of Detroit). Plus those in the suburban parts of the 15th who would own Mini-M's wouldn't vote for him anyway, no matter what he did... F' them.
It's about as politically suicidal as someone from Manhattan taking potshots at farm subsidies or someone from Iowa taking pot shots at mass transit.
"I think Seattle is a year behind most other markets in terms of correction."
But could strong employment and high salaries still prevent a deflation in prices, theoretically? In other words, how do macro events in the banks, mortage houses, etc., affect people's private wealth?
IMHO I think that Dingell is fighting fire with fire. His auto industry constituents are under attack by the environmentalists in his own party and by the oil industry in the other party. What's Dingell to do given the Detroit auto industry aversion to real investment in fuel efficient autos and the ease one can point an accusing finger at Detroit for our gas guzzling ways. Simple, start shining a light on the hypocrisy of other tax payer subsidized fossil fuel consuming segments of our economy.
Gotta admit, I find Dingell's actions to be intriguing and am glad somebody is pointing out the environmental damage caused by McMansion neighborhoods. Here in Texas, you don't need the deduction if you can afford a McMansion. It doesn't make sense to me to subsidize more than basic housing. Of course, definition of basic housing is the catch (regional, personal, etc). Anyhow, completely eliminating the deduction assures no chance of success. I'd be happy for a cap of the mortgage interest and taxes deduction. Not holding my breath though.
Word of warning: It's tough to buy when prices reach bottom in a bust. I remember in the late 80s in Houston after the real estate bust (when prices were slowly recovering) people hated houses. A house was a prison. There was almost a stigma attached to homeownership. - ac
I remember that period... had friends in the Houston oil patch who were cast adrift for about 5 years.
Same thing happened in the farm crisis. Land ballooned in values then bust. Around 1975 farm land was running about $800/acre near me. By 1982 it was $3000/acre. By 1989 it was in the $400-$500/acre range.
I almost bought a 500 acre historic farm, 4BR 'prairie square', huge old barn in good shape, modern machine shed about 2 miles off a decent black top state highway a little over an hour from downtown Minneapolis.
It had more than a half mile of top quality trout stream meandering through it, beautiful views from bluff tops plus a 150 acres of mature hardwoods (oak, cherry, walnut) full of deer, turkey & grouse.
The retiring farmer wanted $240K CASH for it - thats all. No CFD or funny paper. His son wanted to buy it CFD but the old man didn't want his son to have the ball and chain - he wanted him to inherit something 'valuable' - cash.
Plus he was scared his son would lose the farm like so many others in the county had done throughout the decade. They'd both be screwed then.
In the end no one met the $240K asking price so he 'gave it' to the son & the old farmer stayed on (lived with his kid & their family).
I know the story 'cause I still fish the stream, they are still there. That land, in THIS environment, is now worth millions.
I obviously didn't buy it (even though I had the income at the time) because as a self-employed person I couldn't be certain I'd continue to have the income to support it.
Sure enough within 2 years after I looked at the place my income tanked about 90% in the recession of the early 1990s and I too wouldn't have been able to make the payments. So I made the right decision to walk away but it was tempting at the time.
The point is that was the bottom and it was hard then to even buy 'paradise'.
But could strong employment and high salaries still prevent a deflation in prices, theoretically?
Yup... it sure could.
In places that are really landlocked, where geography constrains new building, lack of supply coupled with stronger demand due to higher than average incomes could slow or moderate the correction. More money chasing fewer homes means higher prices.
I still think Seattle will correct but probably not as abruptly as other cities and it might require some kind of 'shock'... like a Boeing layoff... to kick it off.
Some places are so expensive 'average folks' should rent... or consider relocating to where prices are more reasonable if they 'must' own.
We have several condo developments in this very small town. One the Sonoma Loft opened up couple months ago with the 2br units going for $700K and one 1br 500K ish. Anyway nobody bought and they recently reduced prices to $575K for the 2 br and $375K for the single. It's still a ghost town, the wife and I checked it out last sunday, neither one of us could imagine why they built them to begin with, no jobs anywhere that would support those prices and its weird to see condo development in a rural area.
That should be the opening to any number of good jokes. Christ, I hate Lou Holtz. A man who never coached anywhere that he didn't produce NCAA sanctions that took effect after he'd left.
That should be the opening to any number of good jokes. Christ, I hate Lou Holtz. A man who never coached anywhere that he didn't produce NCAA sanctions that took effect after he'd left.
What you don't like Lou Hoax?
But what you just wrote defines a lot of 'winning' coaches - unfortunately. And few bitch while they win - they only start bitching after they leave the university in shambles.
Regardless - the quote is right on the money. And also explains Holtz' modus operandi... do whatever it takes to sign speed, let the next coach worry about the consequences. Not too unlike our recent experience with central bankers and liquidity, no?
Anyway nobody bought and they recently reduced prices to $575K for the 2 br and $375K for the single. It's still a ghost town, the wife and I checked it out last sunday, neither one of us could imagine why they built them to begin with, no jobs anywhere that would support those prices and its weird to see condo development in a rural area.
I see them in rural America near 'desirable' vacation & retirement locations. They are expecting people to buy them as 'second homes' and vacation condos.
Okay, maybe in Aspen but not in some small nondescript Midwestern town that just HAPPENS to have a lake (not a unique concept in a place like Minnesota, i.e. 'Land of 10,000 lakes'). Many of the developments I see have units perpetually for sale - I don't even stop to inquire the price.
Don, back in the day my parents had 4 kids in a one bedroom apartment in Queens. No dogs, but my sister was a preemie with a heart condition. As kids we did not know any better.
Some places are so expensive 'average folks' should rent
If someone can afford to rent a house but not buy it, that means the landlord is losing money and prices are not supported by fundamentals. How hard is that to understand?
Anne - with the collapse of so many lenders, the inability of wall street to continue funding new loans, the fed raising the cost of funds (until last week) the supply of money for homes has shrank dramaticaly and that reduces prices (less money for the same # of homes)
I have a simple theory for one direct support for home prices in the Bay Area that might apply to Seattle too...
Where does the credit bubble money flow? Many beneficiaries are (once again) tech firms like Google, VC-funded companies, the new Web 2.0 firms, etc The employees of these companies, especially the upper management and other recipients of generous stock option packages, drive up median prices by continuing to buy homes in the high end locales while the low end homes languish.
Also, jobs and salaries for other positions are higher than they would be without the credit bubble, because many Zombie companies survive and thrive only because of the credit bubble. This is especially true in locales like the Bay Area and Seattle. As the credit bubble unwinds, it will inflict pain on the hot-job markets more so than markets like Las Vegas and Phoenix. Those markets will suffer from severe overbuilding. Markets like Seattle and San Jose will suffer because we are again spawning more Pet.Com types of businesses.
Its just one aspect -- there are other reasons too.
One thing is for sure, our areas cannot escape the limits of traditional price-to-rent and price-to-income ratios.
The average Seattle home/condo price is already beyond what most first-time buyers could probably afford and probably beyond what many moving-up buyers from a less pricy location could afford too.
Could it be different for Seattle? Perhaps, but more stringent credit conditions have implications that I rather doubt the wage-base of Seattle can overcome even if it's significantly higher than usual (I am not aware if it is or not and haven't researched it).
In any case if Seattle follows the trajectory of most growing urban areas that managed to avoid becoming raging hot but are encountering affordability barriers then the buildup in residential inventory will likely be slow but inexorable and when that fact becomes inescapable prices will flatten. This won't hit the top end first, it will hit the bottom and then the middle so an influx of wealthy buyers such as California retirees looking for top-end houses won't make any difference except to keep the average home price moving up even as the median price slips.
Some neighborhoods will do better than others and these will make news so hope will die slowly even though more and more neighborhoods will be showing the signs of a slow-down: For Sale signs up longer, lower comparable prices, proliferating For Rent signs, empty windows.
It's not a bad time to be a renter in most places frankly. For the next 7-10 years investing the difference between the monthly rental nut and what it would cost to own will probably provide better returns than owning a house or condo even if the selected investment vehicle is T-notes. JMO
But could strong employment and high salaries still prevent a deflation in prices, theoretically? In other words, how do macro events in the banks, mortage houses, etc., affect people's private wealth?
Thanks for any thoughts.
Yes, absolutely.
If house prices rise at the same rate as salaries there's no problem, so long as salaries are not dependent on house prices.
So if house prices have doubled in the past 5 years where you live and salaries have doubled also, then there is no problem.
IRRC, however, this is not the case in Seattle, or most anywhere else in the US.
If someone can afford to rent a house but not buy it, that means the landlord is losing money and prices are not supported by fundamentals. How hard is that to understand?
Fed bends rules to help two big banks
If the Federal Reserve is waiving a fundamental principle in banking regulation, the credit crunch must still be sapping the strength of America's biggest banks. Fortune's Peter Eavis documents an unusual Fed move.
I think, I hope, that the Fed is trying to make sure that investors in MBS are not bailed out. [rhymes with 'truck'] 'em.
You might occasionally check housingtracker.net, which lists inventory and asking prices for major markets. According to the current listing, Seattle prices were going up until last month, when asking prices started going down and inventory started going up.
So, how serious is this rule-bending? Very. One of the central tenets of banking regulation is that banks with federally insured deposits should never be over-exposed to brokerage subsidiaries; indeed, for decades financial institutions were legally required to keep the two units completely separate. This move by the Fed eats away at the principle.
Sure, the temporary nature of the move makes it look slightly less serious, but the Fed didn't give a date in the letter for when this exemption will end. In addition, the sheer size of the potential lending capacity at Citigroup and Bank of America - $25 billion each - is a cause for unease.
Unfortunately, Alan Abelson, a man of much greater experience and intelligence than I (I know, damning with faint praise again), is not entirely swayed by the market's recent signs of life.
His article this week in entitled "Debt Rattle", which I guess says, if not it all, at least some large portion of it.
He also takes the time to point out that Mr. Mozilo has sold over $250 million of Countrywide stock over the past year. I guess you could say that's putting your money in a pig's mouth before it runs out. The money, that is.
From Randall Forsyth at Barron's as we rummage through Imelda's closet:
While subprime mortgages get all the bad press, the CP market has been at the credit crisis' center. But the subprime slime has oozed even into the paper market. Asset-backed commercial paper was issued by so-called special investment vehicles, or SIVs, many of which invest in collateralized debt obligations, or CDOs, which in turn would often hold subprime mortgage paper. As the market got nervous, this ABCP from SIVs backed by subprime CDOs seemed like so much BS.
As a result, holders didn't roll over suspect paper, resulting in a massive contraction in the market. In the week ended Wednesday, the amount of commercial paper outstanding plunged by $77.7 billion, most of which was ABCP, which fell by $70.9 billion, according to the Fed. In the past two weeks, total CP shriveled by $159.4 billion, including a $120.9 billion drop in ABCP. Borrowers in that market must find money elsewhere, so the Fed said that banks could borrow against ABCP issued by customers who couldn't roll over their paper."
So with this contraction, are bank lines of credit the only remaining option for CP debt rollover? If a bank line of credit facility is tapped, I presume the bank holds capital against it, which is already under pressure from pier loans & resi defaults. Big writedown for the banks by the end of Q3?
I would also like to point out what I regard as a subtlety.
Many companies, such as Apple Computer, have benefited enormously from the weak dollar. Apple sells its products for the same price in Europe as in the United States...in Euros, i.e. at a premium of 40%.
I have been sounding the tocsin for many, many months about the fall of the dollar.
But, the outcome of all this may be just the opposite.
If there are fewer dollars, then the Euro will be worth less. And with the unraveling of leverage, there will be fewer dollars.
Of course, not to worry, Apple etc. can always rely on the American Consumer.
I lived in Seattle for a dozen years before moving to Houston 5 years ago. Both cities had/have very robust local economies and this was and remains a strong driver of housing prices. The great difference between the two cities is that Houston is not physically constrained by natural barriers like the Sound and the Cascade foothills. Houston also lacks a lot of zoning restrictions.
Getting back to Seattle, I think that prices will moderate but never fall to the home price / household income ratio seen now in Houston simply because of factors like desirability (compare the summer weather of each place), building restrictions. Admittedly I have a West Coast bias and I myself would probably take a "pay cut" if the right job were offered to me (read this as: same pay but more expensive house). Even so, I don't see me moving back within the next 5 years simply because housing prices won't fall enough before then.
I am going to be out of town today to visit my 80 year old parents and celebrate my birthday and dad's which is 8/31. I cannot wait to hear what they have to say about recent financial events - information they get mainly from television because their local news papers mainly cover weather, DUIs, car wrecks, Texas politics, weather, Tyler rose festival, highschool football and the all important weather. They have voted Republican all my life and thought Bob Dole was too liberal. Now, however they are over all of it in a big way. I have finally lived long enough to see my conservative Depression era parents turn and it is a wonderful sight to behold.
Pearson,
Thanks. When the FDIC insurance fund is depleted (and, I think it will be this time as it was in the 80s) insured depositors may have something to say about this rule change which at the moment the majority of the public knows nothing about this 'tweaking' of the rules. The public will be livid once it understands their sacred FDIC insurance is protecting hollowed out hedge funds of the rich & mighty.
"The smartest, most resourceful, and most motivated people in the world work on Wall Street."
Please. I wish you could spend one day on Wall Street, so you would know the truth.
The average portfolio manager on Wall Street is 30 years old, only looks at a narrow niche of the market, and always thinks it's going up.
You've never seen such myopia in your life. That's why the open and diverse views on this board are a breath of fresh air for those of us who do work on Wall Street.
""The smartest, most resourceful, and most motivated people in the world work on Wall Street."
Please. I wish you could spend one day on Wall Street, so you would know the truth.
The average portfolio manager on Wall Street is 30 years old, only looks at a narrow niche of the market, and always thinks it's going up.
You've never seen such myopia in your life. That's why the open and diverse views on this board are a breath of fresh air for those of us who do work on Wall Street."
I would like to be associated with the remarks of the last speaker!
If you're wondering who lent the money on the Condo projects that are in bankruptcy, look no further than Credit Suisse. Wachovia is also involved at some levels, but CS is the real player. They have a few CMBS transactions with Large Loan Condo-Conversions in them that are in the process of blowing up (CSFB 2005-CND2 and CSFB 2005-CND1). The projects have been mentioned in the WSJ a couple of times, but they haven't made the link to CMBS in the articles for some reason. The loans that are having problems have a extremely high leverage, even using the stabilized numbers (and none of these are stabilized), you're looking at 5-10% equity, 5-15% Mezz, Sometimes a junior piece, and then a 70-80% senior mortgage -- and then if you use the more historically weighted rating agency cap rates you're looking at well in excess of 100% leverage on just about all of these.
From the very start, everyone thought these were a horrible idea, and I never have figured out why they went down this path. There are only so many single bachelors with a few million dollars to spend on a condo in what used to be a hotel in Manhattan or in Miami; you have James bond, the few traders who haven't quite made it big enough to move outside the city, maybe a doctor or divorced lawyer... I'm just saying, its too small a group to support the number of projects.
To a politician like Dingle it is - that's all that matters to him (the politics not necessarily the policy, if the two dovetail great... if not well, politics trump).
If someone can afford to rent a house but not buy it, that means the landlord is losing money and prices are not supported by fundamentals. How hard is that to understand?
That isn't the renters problem though is it? If they want to give milk away why buy a cow?
In reverse some places are still MUCH cheaper to buy than rent (my town)... and I mean MUCH.
Why you ask?
Because property doesn't sell and we have a high turn over in the labor pool & it isn't level... So nice rentals run much higher on a monthly basis than buying... but once you own you are stuck here for a long time unless you sell at a severe discount.
Lots of non-bubble zones fit this kind of profile.
Anne- Landlords don't lose money on rents for long. You can't afford to subsidize someone else's housing for long. "Basis" means they've owned it for a while and don't owe much. Real estate is local and guessing where Seattle is going needs a good feeling for the local economy. Go back and read 10 or 20+ year old real estate investment books and then look for a place. You'll be amazed at what you can do.
Anne asked: "Finally, I asked this before a few weeks ago, but what sort of macro national events might effect local robustness?"
Recession, but nobody listens.
Housingtracker will show you what the individual markets (incl. Seattle) look like in terms of affordability. There are huge differences from one city/state/region to another.
At the top of the list in "price/income" there's LA at 10.4. Seattle is at 5, a screaming bargain by comparison.
Naturally, these numbers don't tell the whole story. LA, for example, is prone to booms/busts in housing. NYC, however, has had rent-control for decades, which has the effect of discouraging new construction and supporting prices. Yet both cities are almost equally "unaffordable."
The "poster child for condo loans is Corus Financail (CORS)which is a Chicago hqed Bank that has 95%+ of its loan portfolio in condo construction & conversions. The majority of their loans are in South Florida, DC, Las Vegas, Phoenix and Southern Califonia. Yet the regulators allowed them to take on about $65 million in preferred stock to pay a like amount in dividends.
"If you look at the markets, you'd think that Sebastian was President of the United States."
Hey wait a minute . . . this merits a little thought. Let's see, simplistic worldview, check. Refusal to acknowledge when he is called out for being wrong, check. Actually made a modestly constructive suggestion to Anne - nope, GWB never did anything that useful.
Building constraints, desirability, strong employment... how many of those have changed during the bubble??? None.
Come on, how many times do we have to dispel these silly notions? If it went up abnormally, it'll come back down to at least normal. This isn't rocket science.
I think Seattle is a year behind most other markets in terms of correction."
I just came back from a week in both Portland and Seattle. I grew up in Tacoma and have family all around the state. Overall Seattle/Tacoma/Portland looks like somebody dropped a money bomb on the place. Has a erie SV right before the dot.com bust, I hate to say that.
I drove around Seattle, Bellevue and down Federal Way along the water into Tacoma then around Puyallup. Lots of homes forsale and nothing moving, very overpriced accross the board, only the older very upscale areas did not have many forsale signs out. People including my family members are in a melt up about the housing dollars, almost LA like in its impact. Looks like a bubble acts like a bubble well you know the rest..
Seeing as how I'm shopping for a condo or townhouse next year, this is actually good news for me.
If I can get a mortage, with all the tightening up being done.
A lot of Nine West condos posing as Manolo Blahniks in Florida... the really sad part is that they'll prove to be Payless brand when all is said and done.
Now required to use cash for a down payment, liquidity will be removed from the system on every transaction. The required down payments on home purchases, will reduce the size of savings accounts. This will be a shock to the fractional reserve system. Perhaps this is what the bankers and wall street fears the most. Liquidity in a constant state of decline.
So many shoes are dropping, the turmoil will be named Imelda!
is that a triple reference to the WaPo article, the "Steel Butterfly", and the french SIV shoe company that's going down due to US subprime exposure? if so, bravo sir!
Payless brand when all is said and done.
Geoff | 08.24.07 - 8:54 pm | #
dollar general
Seeing as how I'm shopping for a condo or townhouse next year, this is actually good news for me.
If I can get a mortage, with all the tightening up being done.
Meryl Yourish: By then maybe you'll be able to pay cash.
Ellipsis Alert!!!
With single-family homes, "you put up a couple of model homes and build the rest as you get sales contracts." says James Haughey, director of research at Reed Construction Data in Norcross, Ga. "But you have to build the entire...building before you can sell a single condo."
Did they mean to put the word "Fu&*ing" in that space?
This is going to crush FMT.
The Imelda Syndrome. Sort of like The China Syndrome.
Okay, kudos indeed for not lumping in with subprime. This is actually a pretty smart article... but there are really three condo issues.
But too many of these "conversions" were nothing more $1000 of new paint and countertops slapped into formerly rental units and that was supposed to support valuations 20, 30 even 50% over the income property valuation (even at today's crazy cap rates). That arb play has failed, and the "developers" behind them are going down, and good riddance. Likewise for the banks that should have stopped lending at 75% of the lower of rental or for sale value... not the higher of!
As for the true developers, well, those guys (and they're almost all guys) have big cojones and they deserve their profits when they succeed and certainly don't deserve scorn when they don't.
"Seeing as how I'm shopping for a condo or townhouse next year, this is actually good news for me."
You better not repeat that in public. You might get stampeded by desperate sellers.
Look, when a developer options a piece of property or buys an empty industrial space, goes through the incredible brain damage of getting entitlements to build/rebuild residential units and then actually builds the thing, there is genuine value creation.
If you spend a lot of time building something that nobody wants, are you really creating value? Nice rant, but I'm not moved.
CR - very funny! Imelda!
bacon dreamz - you are too young to remember Imelda Marcos from the Phillipines? Had thousands upon thousands of pairs of shoes while her husband was dictator and the rest of the population lived very poorly. Hmmmm... maybe Imelda is a good name for this turmoil!
When these buildings come on market en masse is when the bargain prices start to happen.
Whaddaya guys think the FXY might do Sept&Oct if the S&P takes a dump and the fed lowers a couple of times? Will the Japanese manipulate down in PPT fashion, so they minimize the added disruptions?
the downtown de novo condo boom in places like LV, SD and Miami, are primarily an oversupply problem. Everyone's building the same "luxury" condo
I agree with the quotes around "luxury." Stick some granite and stainless in a condo unit and all of the sudden the price rises by 100 k$. Buyers really have no clue how relatively inexpensive it is to refurnish something as small as a condo...
Elvis - you've got reading comp problems.
Price Stout,
You might be right. I agreed with the gist, but only focused on a non-salient point. Good thinking.
RB session "boston" cool the engines
WASHINGTON Amid a severe housing market slump, Rep. John Dingell is raising eyebrows with a proposal to eliminate interest-tax deductions for owners of big houses.
The Michigan Democrat says doing so would discourage excess energy consumption and lessen emissions linked to climate change.
Dingell said Friday he plans to introduce legislation next month that would eliminate the tax deduction on mortgage interest for owners of so-called McMansions houses bigger than 3,000 square feet.
Page not found
Uh-Oh
What category level do we expect market turmoil event Imelda to reach? How do we measure? By the number of dropping shoes?
3000 sq ft is a F$%*ing McMansion? He should try it with 4 kids!!
and two dogs.
So, who are the primary holders of THIS [shopping] bag?
It looks like the Fed's recent actions are being interpreted as a "Bernanke Put":
Clearly the Fed stepped up,'' said Jeffrey Kleintop, who helps oversee more than $173 billion as chief market strategist at LPL Financial Services in Boston. With the discount rate cut, the Fedtold the markets they're not going to let this liquidity crisis become a major contagion.''
...
The decision helped ignite a rally in global equities. The Morgan Stanley Capital International World Index of 23 developed markets has since rebounded 5.4 percent, after plummeting 11 percent from its record on July 19.
Global Stock Gains Show Fed `Stepped Up' to Avert Credit Crisis
Everybody thinks a bust is in the bag, but I'm not convinced.
The smartest, most resourceful, and most motivated people in the world work on Wall Street.
If the Fed gives them too much breathing room we might see a financial distortion far beyond anything we've ever seen before.
CR, you've found your inner Tanta!
Okay, this is what I'd like to know. With all this housing distress being reported, why are prices not dropping more appreciably?
Here in Seattle, it's condos everywhere. I received a flyer in the mail advertising a 280 sq. ft. condo for $360,000. That isn't reasonable.
In places like California and Florida, we see depreciation in the 10 percent range, but here, in spite of increasing inventory and a rapid rate of foreclosures, prices still appreciate (modestly). What gives?
Finally, I asked this before a few weeks ago, but what sort of macro national events might effect local robustness? The NY Times recently did an enthusiastic article about how commercial RE in Seattle is booming, and how everyone is trying to get into that market. I know we are "behind the curve" here, but still, we read that because of high employment and high salaries, the real estate bust simply can't occur in Seattle. (By "bust," I mean a significant drop in prices for condos and SFHs).
I'm interested in this question mostly for theoretical reasons, as even if prices here declined 10 percent, I still couldn't afford to buy property in Seattle.
Been in transit for the afternoon. Arrived in SoCal. Staying in Laguna. Used to live in Laguna. Still love it!
Rented my car from JW airport. Hooked onto PCH. Still a nice place to be!
Got to Newport X. What? Six signs at the intersection. For Sale signs.
Continued on PCH. Gosh the country drive seems like a road through the burbs. More signs.
Arrived in Laguna. More signs.
Checked in. Realtor cards everywhere..now I know it is Laguna and lots try to sell in the Summer season so whats new.
Got to my room. More brochures. More cards. Goshhhh.
As I'm waiting to meet w/ some old friends I call the agent who sold my place in Laguna five years ago (we kept in touch since that time)..according to him, he is seeing 4 to 5 REOS per day cross his desk. Now understand this, 92651 is a small zip!!)
Funny how so many people here were shooting down that dude(tte) who posted on CR yesterday, talking about the very same idea of eliminating the mortgage interest tax deduction. Looks like his/her inside scoop was pretty legit. Maybe he/she will come back and enlighten us some more.
And by the way, what a Dingelberry of move that legislation is. Or does he just have some kind of deathwish?
Hmmmm... maybe Imelda is a good name for this turmoil!
For you, we have this.
RB session "boston" cool the engines
Good heavens, no. Here's the You Tube version of the above lyrics. As is often the case, Mark Knopfler has the perfect piece for whatever you require.
@Anne
Even here in LA, prices are dropping but sellers are holding onto their 2005 for dear life. On Ziprealty, LA unsold inventory crossed over 140,000 for the first time today. It was 'only' 132,000 three weeks ago. Newsflash; sellers, no renter wants your $550,000 compton bungalow.
Prices will fall... when people lower their wish-price enough to initiate a transaction. Then people will realize that we are going to drop 15% or more.
Dingell's bill is politics.
He has been a virulent opponent to green house gas caps since they would damage his constituents. Ford, GM and Chrysler.
So he is turning the greenhouse gas argument over and applying it to the housing sacred cow.
I'd support both bills, but like the housing one better.
And yes, he is lying through his teeth as to the reason for the bill.
Check out some of his interviews, where he goes postal about the impact of green house gas regulations on the US auto industry.
BTW, Rocky Mountain Institute was out promoting hyrbids amongst all of the auto mfrs but Toyota was the one that took the lead. Had there been some vision at Ford or GM an American company could have been leading the world in hybrids.
NAHB's comment about home size not being an indicator of energy consumption is BS.
I am in the energy business.
Increase my const loan so I have enough to pay my credit card in order to pay my treo bill. . . .
Its the circle of life. . . .
Here in Seattle, it's condos everywhere. I received a flyer in the mail advertising a 280 sq. ft. condo for $360,000. That isn't reasonable.
Seattle was one of the very last markets to peak. I assume the bubble started late there and was a strong market until relatively recently.
Owners still have a lot of equity, the heady days of bidding wars fresh in their mind, and their houses have been on the market for much less time.
Also, later bubble means later loan resets.
I think Seattle is a year behind most other markets in terms of correction.
But barring significant government intervention, prices will fall when the foreclosures, mortgage resets, and job losses pick up.
Housing busts aren't like stock market crashes. In Japan it took 15 years for home prices to "crash" 60%.
Still, I'd keep an eye out for "fire sales" by builders and through foreclosure auctions in the near future. Some properties in San Diego are reportedly selling for close to 40% below their last sale price (IIRC) at auctions.
But more likely it's going to be a slow process for home values to normalize in most markets.
Word of warning: It's tough to buy when prices reach bottom in a bust. I remember in the late 80s in Houston after the real estate bust (when prices were slowly recovering) people hated houses. A house was a prison. There was almost a stigma attached to homeownership.
And by the way, what a Dingelberry of move that legislation is. Or does he just have some kind of deathwish?
He's got a safe seat in the 15th... plus there aren't a high percentage of MiniMcMansions in his district anyway compared to working class homes (the 15th includes the city of Detroit). Plus those in the suburban parts of the 15th who would own Mini-M's wouldn't vote for him anyway, no matter what he did... F' them.
It's about as politically suicidal as someone from Manhattan taking potshots at farm subsidies or someone from Iowa taking pot shots at mass transit.
"I think Seattle is a year behind most other markets in terms of correction."
But could strong employment and high salaries still prevent a deflation in prices, theoretically? In other words, how do macro events in the banks, mortage houses, etc., affect people's private wealth?
Thanks for any thoughts.
IMHO I think that Dingell is fighting fire with fire. His auto industry constituents are under attack by the environmentalists in his own party and by the oil industry in the other party. What's Dingell to do given the Detroit auto industry aversion to real investment in fuel efficient autos and the ease one can point an accusing finger at Detroit for our gas guzzling ways. Simple, start shining a light on the hypocrisy of other tax payer subsidized fossil fuel consuming segments of our economy.
Gotta admit, I find Dingell's actions to be intriguing and am glad somebody is pointing out the environmental damage caused by McMansion neighborhoods. Here in Texas, you don't need the deduction if you can afford a McMansion. It doesn't make sense to me to subsidize more than basic housing. Of course, definition of basic housing is the catch (regional, personal, etc). Anyhow, completely eliminating the deduction assures no chance of success. I'd be happy for a cap of the mortgage interest and taxes deduction. Not holding my breath though.
Best,
Word of warning: It's tough to buy when prices reach bottom in a bust. I remember in the late 80s in Houston after the real estate bust (when prices were slowly recovering) people hated houses. A house was a prison. There was almost a stigma attached to homeownership. - ac
I remember that period... had friends in the Houston oil patch who were cast adrift for about 5 years.
Same thing happened in the farm crisis. Land ballooned in values then bust. Around 1975 farm land was running about $800/acre near me. By 1982 it was $3000/acre. By 1989 it was in the $400-$500/acre range.
I almost bought a 500 acre historic farm, 4BR 'prairie square', huge old barn in good shape, modern machine shed about 2 miles off a decent black top state highway a little over an hour from downtown Minneapolis.
It had more than a half mile of top quality trout stream meandering through it, beautiful views from bluff tops plus a 150 acres of mature hardwoods (oak, cherry, walnut) full of deer, turkey & grouse.
The retiring farmer wanted $240K CASH for it - thats all. No CFD or funny paper. His son wanted to buy it CFD but the old man didn't want his son to have the ball and chain - he wanted him to inherit something 'valuable' - cash.
Plus he was scared his son would lose the farm like so many others in the county had done throughout the decade. They'd both be screwed then.
In the end no one met the $240K asking price so he 'gave it' to the son & the old farmer stayed on (lived with his kid & their family).
I know the story 'cause I still fish the stream, they are still there. That land, in THIS environment, is now worth millions.
I obviously didn't buy it (even though I had the income at the time) because as a self-employed person I couldn't be certain I'd continue to have the income to support it.
Sure enough within 2 years after I looked at the place my income tanked about 90% in the recession of the early 1990s and I too wouldn't have been able to make the payments. So I made the right decision to walk away but it was tempting at the time.
The point is that was the bottom and it was hard then to even buy 'paradise'.
The smartest, most resourceful, and most motivated people in the world work on Wall Street.
Did they take 2000 & 2001 off?
But could strong employment and high salaries still prevent a deflation in prices, theoretically?
Yup... it sure could.
In places that are really landlocked, where geography constrains new building, lack of supply coupled with stronger demand due to higher than average incomes could slow or moderate the correction. More money chasing fewer homes means higher prices.
I still think Seattle will correct but probably not as abruptly as other cities and it might require some kind of 'shock'... like a Boeing layoff... to kick it off.
Some places are so expensive 'average folks' should rent... or consider relocating to where prices are more reasonable if they 'must' own.
JMHO.
Did they take 2000 & 2001 off?
My father once saw Lou Holtz speak... his best line:
"Speed makes coaches smarter."
I think it apples to Wall Street...
"Liquidity makes fund managers smarter."
The smartest, most resourceful, and most motivated people in the world work on Wall Street.
Did they take 2000 & 2001 off?
Good god, you expect someone in the financial industry to remember six years ago?
We have several condo developments in this very small town. One the Sonoma Loft opened up couple months ago with the 2br units going for $700K and one 1br 500K ish. Anyway nobody bought and they recently reduced prices to $575K for the 2 br and $375K for the single. It's still a ghost town, the wife and I checked it out last sunday, neither one of us could imagine why they built them to begin with, no jobs anywhere that would support those prices and its weird to see condo development in a rural area.
My father once saw Lou Holtz speak
That should be the opening to any number of good jokes. Christ, I hate Lou Holtz. A man who never coached anywhere that he didn't produce NCAA sanctions that took effect after he'd left.
That should be the opening to any number of good jokes. Christ, I hate Lou Holtz. A man who never coached anywhere that he didn't produce NCAA sanctions that took effect after he'd left.
What you don't like Lou Hoax?
But what you just wrote defines a lot of 'winning' coaches - unfortunately. And few bitch while they win - they only start bitching after they leave the university in shambles.
Regardless - the quote is right on the money. And also explains Holtz' modus operandi... do whatever it takes to sign speed, let the next coach worry about the consequences. Not too unlike our recent experience with central bankers and liquidity, no?
Anyway nobody bought and they recently reduced prices to $575K for the 2 br and $375K for the single. It's still a ghost town, the wife and I checked it out last sunday, neither one of us could imagine why they built them to begin with, no jobs anywhere that would support those prices and its weird to see condo development in a rural area.
I see them in rural America near 'desirable' vacation & retirement locations. They are expecting people to buy them as 'second homes' and vacation condos.
Okay, maybe in Aspen but not in some small nondescript Midwestern town that just HAPPENS to have a lake (not a unique concept in a place like Minnesota, i.e. 'Land of 10,000 lakes'). Many of the developments I see have units perpetually for sale - I don't even stop to inquire the price.
Don, back in the day my parents had 4 kids in a one bedroom apartment in Queens. No dogs, but my sister was a preemie with a heart condition. As kids we did not know any better.
Deathwishes arent necessarily political, dryfly.
Some places are so expensive 'average folks' should rent
If someone can afford to rent a house but not buy it, that means the landlord is losing money and prices are not supported by fundamentals. How hard is that to understand?
Anne - with the collapse of so many lenders, the inability of wall street to continue funding new loans, the fed raising the cost of funds (until last week) the supply of money for homes has shrank dramaticaly and that reduces prices (less money for the same # of homes)
Anne in Seattle,
I have a simple theory for one direct support for home prices in the Bay Area that might apply to Seattle too...
Where does the credit bubble money flow? Many beneficiaries are (once again) tech firms like Google, VC-funded companies, the new Web 2.0 firms, etc The employees of these companies, especially the upper management and other recipients of generous stock option packages, drive up median prices by continuing to buy homes in the high end locales while the low end homes languish.
Also, jobs and salaries for other positions are higher than they would be without the credit bubble, because many Zombie companies survive and thrive only because of the credit bubble. This is especially true in locales like the Bay Area and Seattle. As the credit bubble unwinds, it will inflict pain on the hot-job markets more so than markets like Las Vegas and Phoenix. Those markets will suffer from severe overbuilding. Markets like Seattle and San Jose will suffer because we are again spawning more Pet.Com types of businesses.
Its just one aspect -- there are other reasons too.
One thing is for sure, our areas cannot escape the limits of traditional price-to-rent and price-to-income ratios.
The average Seattle home/condo price is already beyond what most first-time buyers could probably afford and probably beyond what many moving-up buyers from a less pricy location could afford too.
Could it be different for Seattle? Perhaps, but more stringent credit conditions have implications that I rather doubt the wage-base of Seattle can overcome even if it's significantly higher than usual (I am not aware if it is or not and haven't researched it).
In any case if Seattle follows the trajectory of most growing urban areas that managed to avoid becoming raging hot but are encountering affordability barriers then the buildup in residential inventory will likely be slow but inexorable and when that fact becomes inescapable prices will flatten. This won't hit the top end first, it will hit the bottom and then the middle so an influx of wealthy buyers such as California retirees looking for top-end houses won't make any difference except to keep the average home price moving up even as the median price slips.
Some neighborhoods will do better than others and these will make news so hope will die slowly even though more and more neighborhoods will be showing the signs of a slow-down: For Sale signs up longer, lower comparable prices, proliferating For Rent signs, empty windows.
It's not a bad time to be a renter in most places frankly. For the next 7-10 years investing the difference between the monthly rental nut and what it would cost to own will probably provide better returns than owning a house or condo even if the selected investment vehicle is T-notes. JMO
But could strong employment and high salaries still prevent a deflation in prices, theoretically? In other words, how do macro events in the banks, mortage houses, etc., affect people's private wealth?
Thanks for any thoughts.
Yes, absolutely.
If house prices rise at the same rate as salaries there's no problem, so long as salaries are not dependent on house prices.
So if house prices have doubled in the past 5 years where you live and salaries have doubled also, then there is no problem.
IRRC, however, this is not the case in Seattle, or most anywhere else in the US.
If someone can afford to rent a house but not buy it, that means the landlord is losing money and prices are not supported by fundamentals. How hard is that to understand?
try again. all depends on the LL's basis.
So, CR, Tanta is not the only whip on the team!
"Imelda", indeed!
Have you already picked up on this one:
Fed lifts limits on big bank loans to affiliates
Citigroup and Bank of America can lend up to $25 billio
Same story, more lurid headline, from Fortune:
Fed bends rules to help two big banks
If the Federal Reserve is waiving a fundamental principle in banking regulation, the credit crunch must still be sapping the strength of America's biggest banks. Fortune's Peter Eavis documents an unusual Fed move.
I think, I hope, that the Fed is trying to make sure that investors in MBS are not bailed out. [rhymes with 'truck'] 'em.
Look, I think everyone should be up front saying that Bernanke has done a terrific job.
Greenspan loved the limelight. Bernanke works behind the scenes.
If you look at the markets, you'd think that Sebastian was President of the United States.
But in the background, major horrors are being averted by Bernanke.
How does that jibe with the view from the Bankerdome?
What are the prospects for leasing in new unsold or undersold high rise buildings?
I found a very reasonable rental in an elegant condo tower during the 1990 downturn, and wouldn't regret a chance to repeat the experience.
The smartest, most resourceful, and most motivated people in the world work on Wall Street.
No, ac, the smartest, most resourceful, and most motivated people in the world have better things to do.
Anne:
You might occasionally check housingtracker.net, which lists inventory and asking prices for major markets. According to the current listing, Seattle prices were going up until last month, when asking prices started going down and inventory started going up.
Here's the link to the Fortune article Arbogast cited:
http://money.cnn.com/2007/08/24/magazines/fortune/eavis_citigroup.fortune/index.htm?postversion=2007082417
Here's an excerpt:
So, how serious is this rule-bending? Very. One of the central tenets of banking regulation is that banks with federally insured deposits should never be over-exposed to brokerage subsidiaries; indeed, for decades financial institutions were legally required to keep the two units completely separate. This move by the Fed eats away at the principle.
Sure, the temporary nature of the move makes it look slightly less serious, but the Fed didn't give a date in the letter for when this exemption will end. In addition, the sheer size of the potential lending capacity at Citigroup and Bank of America - $25 billion each - is a cause for unease.
Unfortunately, Alan Abelson, a man of much greater experience and intelligence than I (I know, damning with faint praise again), is not entirely swayed by the market's recent signs of life.
His article this week in entitled "Debt Rattle", which I guess says, if not it all, at least some large portion of it.
He also takes the time to point out that Mr. Mozilo has sold over $250 million of Countrywide stock over the past year. I guess you could say that's putting your money in a pig's mouth before it runs out. The money, that is.
From Randall Forsyth at Barron's as we rummage through Imelda's closet:
While subprime mortgages get all the bad press, the CP market has been at the credit crisis' center. But the subprime slime has oozed even into the paper market. Asset-backed commercial paper was issued by so-called special investment vehicles, or SIVs, many of which invest in collateralized debt obligations, or CDOs, which in turn would often hold subprime mortgage paper. As the market got nervous, this ABCP from SIVs backed by subprime CDOs seemed like so much BS.
As a result, holders didn't roll over suspect paper, resulting in a massive contraction in the market. In the week ended Wednesday, the amount of commercial paper outstanding plunged by $77.7 billion, most of which was ABCP, which fell by $70.9 billion, according to the Fed. In the past two weeks, total CP shriveled by $159.4 billion, including a $120.9 billion drop in ABCP. Borrowers in that market must find money elsewhere, so the Fed said that banks could borrow against ABCP issued by customers who couldn't roll over their paper."
So with this contraction, are bank lines of credit the only remaining option for CP debt rollover? If a bank line of credit facility is tapped, I presume the bank holds capital against it, which is already under pressure from pier loans & resi defaults. Big writedown for the banks by the end of Q3?
I would also like to point out what I regard as a subtlety.
Many companies, such as Apple Computer, have benefited enormously from the weak dollar. Apple sells its products for the same price in Europe as in the United States...in Euros, i.e. at a premium of 40%.
I have been sounding the tocsin for many, many months about the fall of the dollar.
But, the outcome of all this may be just the opposite.
If there are fewer dollars, then the Euro will be worth less. And with the unraveling of leverage, there will be fewer dollars.
Of course, not to worry, Apple etc. can always rely on the American Consumer.
Will read the whole article Clyde. Forsyth, Abelson's alter ego, is a very smart and prescient guy.
Debt rattle.
"Fed lifts limits on big bank loans to affiliates
Citigroup and Bank of America can lend up to $25 billion"
Are they doing this to allow the money from the discount window reach the mortgage lenders?
Anne:
I lived in Seattle for a dozen years before moving to Houston 5 years ago. Both cities had/have very robust local economies and this was and remains a strong driver of housing prices. The great difference between the two cities is that Houston is not physically constrained by natural barriers like the Sound and the Cascade foothills. Houston also lacks a lot of zoning restrictions.
Getting back to Seattle, I think that prices will moderate but never fall to the home price / household income ratio seen now in Houston simply because of factors like desirability (compare the summer weather of each place), building restrictions. Admittedly I have a West Coast bias and I myself would probably take a "pay cut" if the right job were offered to me (read this as: same pay but more expensive house). Even so, I don't see me moving back within the next 5 years simply because housing prices won't fall enough before then.
My 2 pennies.
I am going to be out of town today to visit my 80 year old parents and celebrate my birthday and dad's which is 8/31. I cannot wait to hear what they have to say about recent financial events - information they get mainly from television because their local news papers mainly cover weather, DUIs, car wrecks, Texas politics, weather, Tyler rose festival, highschool football and the all important weather. They have voted Republican all my life and thought Bob Dole was too liberal. Now, however they are over all of it in a big way. I have finally lived long enough to see my conservative Depression era parents turn and it is a wonderful sight to behold.
Pearson,
Thanks. When the FDIC insurance fund is depleted (and, I think it will be this time as it was in the 80s) insured depositors may have something to say about this rule change which at the moment the majority of the public knows nothing about this 'tweaking' of the rules. The public will be livid once it understands their sacred FDIC insurance is protecting hollowed out hedge funds of the rich & mighty.
"The smartest, most resourceful, and most motivated people in the world work on Wall Street."
Please. I wish you could spend one day on Wall Street, so you would know the truth.
The average portfolio manager on Wall Street is 30 years old, only looks at a narrow niche of the market, and always thinks it's going up.
You've never seen such myopia in your life. That's why the open and diverse views on this board are a breath of fresh air for those of us who do work on Wall Street.
""The smartest, most resourceful, and most motivated people in the world work on Wall Street."
Please. I wish you could spend one day on Wall Street, so you would know the truth.
The average portfolio manager on Wall Street is 30 years old, only looks at a narrow niche of the market, and always thinks it's going up.
You've never seen such myopia in your life. That's why the open and diverse views on this board are a breath of fresh air for those of us who do work on Wall Street."
I would like to be associated with the remarks of the last speaker!
"Please. I wish you could spend one day on Wall Street, so you would know the truth."
I second this remark!
If you're wondering who lent the money on the Condo projects that are in bankruptcy, look no further than Credit Suisse. Wachovia is also involved at some levels, but CS is the real player. They have a few CMBS transactions with Large Loan Condo-Conversions in them that are in the process of blowing up (CSFB 2005-CND2 and CSFB 2005-CND1). The projects have been mentioned in the WSJ a couple of times, but they haven't made the link to CMBS in the articles for some reason. The loans that are having problems have a extremely high leverage, even using the stabilized numbers (and none of these are stabilized), you're looking at 5-10% equity, 5-15% Mezz, Sometimes a junior piece, and then a 70-80% senior mortgage -- and then if you use the more historically weighted rating agency cap rates you're looking at well in excess of 100% leverage on just about all of these.
From the very start, everyone thought these were a horrible idea, and I never have figured out why they went down this path. There are only so many single bachelors with a few million dollars to spend on a condo in what used to be a hotel in Manhattan or in Miami; you have James bond, the few traders who haven't quite made it big enough to move outside the city, maybe a doctor or divorced lawyer... I'm just saying, its too small a group to support the number of projects.
Deathwishes arent necessarily political, dryfly.
To a politician like Dingle it is - that's all that matters to him (the politics not necessarily the policy, if the two dovetail great... if not well, politics trump).
But in the background, major horrors are being averted by Bernanke.
I think that is right but we won't know 'till it's over will we? Is it horrors delayed or horrors averted we won't know until the history is written.
If someone can afford to rent a house but not buy it, that means the landlord is losing money and prices are not supported by fundamentals. How hard is that to understand?
That isn't the renters problem though is it? If they want to give milk away why buy a cow?
In reverse some places are still MUCH cheaper to buy than rent (my town)... and I mean MUCH.
Why you ask?
Because property doesn't sell and we have a high turn over in the labor pool & it isn't level... So nice rentals run much higher on a monthly basis than buying... but once you own you are stuck here for a long time unless you sell at a severe discount.
Lots of non-bubble zones fit this kind of profile.
Anne- Landlords don't lose money on rents for long. You can't afford to subsidize someone else's housing for long. "Basis" means they've owned it for a while and don't owe much. Real estate is local and guessing where Seattle is going needs a good feeling for the local economy. Go back and read 10 or 20+ year old real estate investment books and then look for a place. You'll be amazed at what you can do.
Anne asked: "Finally, I asked this before a few weeks ago, but what sort of macro national events might effect local robustness?"
Recession, but nobody listens.
Housingtracker will show you what the individual markets (incl. Seattle) look like in terms of affordability. There are huge differences from one city/state/region to another.
HousingTracker.net: Affordabilty Measures
At the top of the list in "price/income" there's LA at 10.4. Seattle is at 5, a screaming bargain by comparison.
Naturally, these numbers don't tell the whole story. LA, for example, is prone to booms/busts in housing. NYC, however, has had rent-control for decades, which has the effect of discouraging new construction and supporting prices. Yet both cities are almost equally "unaffordable."
Sebastia
The "poster child for condo loans is Corus Financail (CORS)which is a Chicago hqed Bank that has 95%+ of its loan portfolio in condo construction & conversions. The majority of their loans are in South Florida, DC, Las Vegas, Phoenix and Southern Califonia. Yet the regulators allowed them to take on about $65 million in preferred stock to pay a like amount in dividends.
Is this not a great company.
"If you look at the markets, you'd think that Sebastian was President of the United States."
Hey wait a minute . . . this merits a little thought. Let's see, simplistic worldview, check. Refusal to acknowledge when he is called out for being wrong, check. Actually made a modestly constructive suggestion to Anne - nope, GWB never did anything that useful.
The smartest, most resourceful, and most motivated people in the world work on Wall Street.
Yeah I can see that - Jesus, Ghandi, King, Drexel Lambert...
Wake up and smell the emporer's BO
Seattle prices won't fall? Come again?!
Building constraints, desirability, strong employment... how many of those have changed during the bubble??? None.
Come on, how many times do we have to dispel these silly notions? If it went up abnormally, it'll come back down to at least normal. This isn't rocket science.
I think Seattle is a year behind most other markets in terms of correction."
I just came back from a week in both Portland and Seattle. I grew up in Tacoma and have family all around the state. Overall Seattle/Tacoma/Portland looks like somebody dropped a money bomb on the place. Has a erie SV right before the dot.com bust, I hate to say that.
I drove around Seattle, Bellevue and down Federal Way along the water into Tacoma then around Puyallup. Lots of homes forsale and nothing moving, very overpriced accross the board, only the older very upscale areas did not have many forsale signs out. People including my family members are in a melt up about the housing dollars, almost LA like in its impact. Looks like a bubble acts like a bubble well you know the rest..