on my way home from work there are a few billboards for re/max and other realitors with "for lease" banners for the owners of the billboard on top of them.
How can these companies go from record profits to zero in such a short time? Wasteful spending? Excessive belief in the turnaround coming any day? Stupidity?
Jimmy Dague, who has sold real estate in Las Vegas since 1978 and whose business was the No. 1 worldwide in sales for Century 21 from 2002 to 2006, filed last week for Chapter 11 bankruptcy protection from creditors while he reorganizes to pay off his debts.
The 54-year-old said that even when his business was Century 21's top seller in 2006, he still lost money. Dague said that's because his sales fell 60 percent from 2005 to 2006, but he kept the same number of staff - and the same overhead - in his nine offices.
"This is the result of an exuberant market and us growing and, honestly, I had signed leases for nine offices. Now I have five," he said. "As you can imagine, the four landlords are not happy."
Rather than fighting it out in civil court - "I can't afford to fight the market and pay attorneys, too" - he went the route of bankruptcy. In court filings, Dague lists assets of between $10,000 and $100,000 and debts totaling between $100,000 and $1 million.
Crispy,
I have not met many salesmen with more than a week's pay in the bank. Something about the MO...earn, spend, earn more, spend more.
Technical sales are a different breed and tend to be savers.
Sorry for the somewhat off-topic comment, but an issue has been bothering me for some time. This bust is often compared with Japan. I was wondering about population mobility in Japan. In the "dynamic" US economy we (especially the professional trades) are expected to move when necessary for the job. Wouldn't this require lower prices overall? Taking these transaction fees each time we move is brutal. My wife and I currently rent and are still interested in eventually buying a house. But, who knows where we will end up. Buying a house for only a few years would be slitting our financial throat. We are not buying any time soon because of this uncertainty.
I think prices will decline faster because of our culture of mobility or our economy will really grind to a halt. We really have created an economy very hostile to the family.
Its all just perception, these boobs should have hung in there and waited for NAR to adjust sales news; they should have made plenty of dough over the last 5 years, so why bail when things get a little slow? They need to hype and pump and make it look like business is growing! Boobs!
Lesson here: WEDNESDAY, DECEMBER 26, 2007
The Best Ever Press Release, 2007 Edition
Its the day after Christmas, and, unless something has gone dreadfully wrong Jeff Matthews Is Not Making This Up
Retail investors dont focus as much on total sales as they do on existing store sales, which is a far better measure of true underlying strengthhence the calcuation of same-store sales for the benefit of investors and management alike.
Ummm...I don't want to pile on here but I'm going to have to.
n September 2006, after being named Business of the Year, he said, "Each and every day there's an opportunity, and if you're not prepared to change with the times or change with the way the market is, especially in Arizona, you probably won't survive in the market."
Before going into real estate, Kline spent 23 years in banking
So, this guy honed his business skilz as a banker. Is it any wonder he didn't see the problem with his business model?
If the guy is really sharp he might make 'Business of the Year' TWICE!
In the farm crisis in the 1980s I read about a farmer who was 'Young Farmer of the Year' twice in some state (Iowa or Minnesota, So Dak - can't remember). It was something like 1989 when I read it...
Any way earlier (say 1983) he was farmer of the year the first time... using traditional 'methods'... huge farm, highly leveraged, lotsa chemicals, newest equipment, corn & beans only (no diversification).
He was making money hand over fist in the early 80s. Added to his land holdings almost every year (nearly 100% leveraged). Part of his 'income' was paper income from land appreciation - not even real cash money.
Then ag commodity prices collapsed and he went broke (along with S&Ls that borrowed he and others like him the money). That was circa 1985.
But all this guy knew how to do was farm so he went back at it - this time he bootstrapped... he rented land, used minimum chemicals and no-till, bought or borrowed used equipment and diversified (fed animals some of his low priced grains including free range chickens, pigs & turkeys he direct marketed to urban food co-ops).
He never made as much revenue as during the boom but did turn a profit and was net cash positive in a few years (I read about the guy a couple years after his second young farmer of the year prize - I think that was 1987?).
BTW you have to be under 40 I believe to be a 'young farmer'... not exactly like the idea of 'young' in finance or IT.
Anyway - my guess is some of these smarter realtors are going to do real well AFTER they pitch the denial and embrace the reality. There is money to be made out of chaos.
OT: Following is a transcript of an interview with Bill Gross conducted by the FT. It is one of the clearest and most concise discussions I have read, between an informed host and outspoken guest. My takeaway is that Gross really fears a major collapse if housing cannot be supported and is willing to accept inflation pain (an unusual stance for a bond manager) to avoid the greater risk.
"I think prices will decline faster because of our culture of mobility or our economy will really grind to a halt. We really have created an economy very hostile to the family."
That is exactly the issue here (besides real wages not keeping pace with inflation or housing prices etc). Jobs move like capital now...but our housing system is designed for the industrial age. The pain will continue for people who have to move at the drop of a hat in order to stay middle class...I say this assuming lending in the future is going to revert back to what it was 30 years ago.
I have not met many salesmen with more than a week's pay in the bank. Something about the MO...earn, spend, earn more, spend more.
lama - if you ever run your own company where you hire salesman to sell for you... the LAST thing you want to see them be is frugal & financially responsible. At least with their own money. Its about the only career path where a bad credit rating on a background check is a positive.
The hungriest salesman is the hardest working salesman - almost always. Want the salesmen to sell more? Then get them to spend more. Obviously this only applies to commissioned sales - but most salesmen are commissioned or heavily 'incentivized' somehow.
12th, I don't think the fact that that is as much of a conundrum as you think. That old-school form of banking, where people analyze the cash flow and balance sheet to see if they have a long term viable business, went out of style in the go-go 80's and 90's. It was replaced with the "growth" model, where you ignored the balance sheet and took on as much debt and investment as you could and tried to grow/expand the business into profitability before the debt caught up with you. The conventional wisdom in the Beemer driving set was that you were an overly conservative fool if you didn't do so. In the dotcom times I heard this approach referred to as the "Big Bang" theory of business creation -- "Go big, or go home." As a tech foot soldier in this period I always wondered why then it was that most of the big tech companies (Apple, HP, Google, etc.) were literally started out of the apocryphal garage and they pinched pennies until the cash flow came in.
It's not that they don't teach such methods in MBA school and banks. They are just considered old fashioned and not in vogue (as ranted upon often by our own Tanta). This is probably going to change with a vengeance.
12th, I don't think the fact that that is as much of a conundrum as you think.
Should read something like: 12th, I don't think the fact that Kline was a banker is as much of a conundrum as you think when it comes to business models.
How can these companies go from record profits to zero in such a short time? Wasteful spending? Excessive belief in the turnaround coming any day? Stupidity?
I don't know much about the theory of evolution, but I seem to recall that you either adapt or die out. The story of real estate and many other businesses today is adaptation. When the market slows, you have to act quickly - close some offices, lay off some staff. There isn't much time for hesitancy. It's not always easy.
My grandfather who admitted defeat as a homesteader in the Dustbowl left the farm in S.D. with a wife and 4 kids and moved to a place he'd never been - N.J. - to dairy farm for the first time. And he was 47. I don't know if I could do that. Adaptation can be rough.
How can these companies go from record profits to zero in such a short time? Wasteful spending? Excessive belief in the turnaround coming any day? Stupidity?
This is exactly the behavior you'd expect from a "ponzi finance" scheme. The earnings look great so long as the companies (or in this case their customers) can keep borrowing more and more money relative to their actual incomes.
Once the credit dries up you get a sudden implosion of earnings, because the borrowed money was the earnings just "laundered" to look like legitimate income.
"The hungriest salesman is the hardest working salesman - almost always. Want the salesmen to sell more? Then get them to spend more. Obviously this only applies to commissioned sales - but most salesmen are commissioned or heavily 'incentivized' somehow."
See Glen Gary, Glen Ross to get a more visceral view of this.
BTW watch for the same phenomenon to occur in the hedge fund industry. Many (not all) of these funds will look great with strong incomes until one day the bulk of them go up in a plume of dust and ash.
About 345 real estate agents found out over the weekend that Gilbert-based RE/MAX 2000 has shut down and they will have to find other brokers to work with.
As agents, we are independent contractors, said Baker, who has been with RE/MAX 2000 for five years. Ive probably had 10 e-mails from other brokers ... and probably three or four phone calls and one text message. There are many brokerages out there that would like to have real estate agents as part of their brokerages.
I dont see why these 345 people cant get together and pump a few home prices in the area, because they have a great deal of experience in already doing so! Whats the problem?
I don't know if I could do that. Adaptation can be rough.
Outsider | 12.26.07 - 4:08 pm | #
Ya its rough but you can do it - doesn't mean it will work out (automatically) but no reason it won't either if you think it all through carefully and bust ass.
My father started over at 54 - worked out real well for him. That was in the middle of the stagflation 70s. Sometimes the shittier the economy the easier it is to remake yourself. Less stigma - everyone's doin' it.
See Glen Gary, Glen Ross to get a more visceral view of this.
One of the best ever... ABC always be closing. I'm in commissioned sales and do not practice what I preach... but then I know I'd be a 'better salesman' but poorer person if I did.
While real estate brokers have long set their fee as a straight percentage of a home's sale
price, this formula is an anomaly and a primary reason why such fees may be inflated by more
than $30 billion annually
The NAR claims that the elimination of interbroker compensation would destroy the
MLS,400 but that prediction is simply not true, as explained in detail by one lawyer who
has long represented many MLSs.401 The NARs real fear about this approach, however,
is understandable. The elimination of interbroker compensation would diminish the
ability of traditional brokers to frustrate vigorous price competition, and thus likely lead
to a dramatic fall in broker revenues
"How can these companies go from record profits to zero in such a short time? Wasteful spending? Excessive belief in the turnaround coming any day? Stupidity?"
It's easy. They're real estate brokers. They make money when houses sell. Greatly reduced sales = greatly reduced income. No sales = no income. Although it's not a particularly capital intensive industry - it makes sense to go Chapter 11 to get out of contracts (like leases on offices you no longer need) - organize a debt payment schedule - etc.
That would be a tremendous benefit to the RE market by going after realtor fees. It would provide a 3-4% cushion in prices and considering where we are and what the government is considering doing to bail out people it is really a low cost option with a huge benefit to the marketplace.
The government should have an open database of all RE transactions and open it up to allow people to show their house is for sale and allow websites cheap access to the data. It would revoltionize things.
Hey a real estate broker in Phoenix with whom I have exchanged some emails tells me he made more money in 2007 than ever before. Should I believe him? LOL.
MR. GROSS: Well, I think they have no choice. You know, the question that you pose really centres around the Austrian thesis, in which it's necessary for recessions to occur for asset prices to be liquidated in order to start anew. And I think there's a semblance of logic and common sense to that.
It's just that we've gotten to the point and backed ourselves into a corner so many times that the pain may be too much to bear for, not only the American economy, but the global economy, because of the interconnection.
So, you know, it's not that that's not an appropriate policy of eventually forcing the US economy to endure some pain. It's simply my opinion that, perhaps policymakers won't be willing to go that far.
Well, that's encouraging that more and more people seem to understand the situation.
We need a good painful recession "to purge the rotteness out of the system".
That's part of the reason the US began to see tremendous economic growth as soon as mid 1933 while Japan continues to languish 17 years on.
Are we willing to trade short-term comfort for long-term progress?
What about FSBOs and using real estate lawyers in place of realtors? Seems like realtors serve little purpose and they were obviously in the loop to pump up prices in the bubble. I say start with them and make it more difficult to bump up valuations, for the next bubble (in 2012).
Sadly, it really appears that it would take longer than that to hit the bottom. Japan had it better than US, and yet they haven't experienced any bubble for a very long time. Try 2025 or onwards. Babies born on 2007+ would be graduating HS by then.
--
Whoever owned and sold the Re/Max offices is a smart guy/gal. He/she can see that there would be no money to be made in the business for at least the next three years. It is smart to keep the profits of the bubble years.
James - Maybe he was my brother's broker (my brother sold his old house and bought a new one in 2007)! If you're a broker working for 6-7% - particularly at the higher end of the market - you don't need a huge number of sales to have a good year.
Anonymous - I know FSBO's are popular in general - but they don't seem to work very well where I live unless the seller agrees to co-op with real estate brokers. As for real estate lawyers - hardly anyone uses them where I live. And I wish more people would. We're a title insurance state - so why pay the fee to a title agent who's not a lawyer when you can pay the fee to a title agent who is a lawyer and get some routine legal help thrown in for nothing (or a nominal cost)?
The hungriest salesman is the hardest working salesman - almost always. Want the salesmen to sell more? Then get them to spend more.
I had an uncle who was a salesmen. He hated his job. Wife and 3 kids. Went to his boss and said, "i hate my job". His boss told him, "buy a bigger house and a nicer car, then it won't matter if you hate your job because you will have no choice but to need it".
This was back in the early 70s, i think.
My mom told me that when i was in highschool. I didn't go into sales. I also made sure to not have a boss as soon as was possible.
12th, I don't think the fact that that is as much of a conundrum as you think.
Perhaps I wasn't clear. I don't think bankers have a clue about anything. It does not surprise me that a banker would end up a bankrupt real estate broker.
Maybe he should've found a way to charge fees to homeowners after they bought their homes. Bankers are really good at finding ways to charge fees for doing nothing.
Realtors are a good symbol for small small companies all over the U.S. in a variety of industries. They expanded too fast, borrowed too much, leveraged up growth into artificial profits, ran up ridiculous cost structures, and waited until too late to see the writing on the wall.
There's thousands of small Internet 2.0 companies that have big burn rates and everything based on getting shares of an ever-expanding online ad base. Guess what? Ad budgets always get deeply cut in recessions, and this will be no exception.
The Russell 2000 has a TTM P/E of 41. The E side of that equation will drop over the next four quarters by at least 20-30%, maybe more. It's really an unusual kind of bubble in disguise. The P/E ratio of small companies in the U.S. today should be about 20 or below, at this stage in the E cycle.
The real estate business needs to be regulated more, NAR dissolved and mortgage brokers need state licenses which can be linked to 4 year degrees and then link all loan applications to IRS records (which is about to happen), then dump FICO scores and go by IRS incomes and current verified bank hard cash assets; no more fun and games, just facts and hardcore reality!
OT - NC Jim - What Bill Gross fears is that some of the huge stacks of paper he owns on behalf of his (un)lucky clients are actually worthless after all...ooops!
I used to have some respect for the guy, now IMHO he is just another shameless shill talking the 'book value' of his portfolio up.
Chile's Superintendency of Banks (SBIF) said on Wednesday it authorized the merger between the Chilean operations of Citigroup with Banco de Chile, the country's second-largest bank.
The transaction between Banco de Chile CHI.SN, with a market share of 18 percent, and Citigroup (C.N: Quote, Profile, Research), with a share of 2 percent, will consolidate the new entity's position as the nation's No. 2 bank after Santander Chile STG.SN, a unit of Spain's Santander (SAN.MC: Quote, Profile, Research).
Gross is a pig. The only thing he wants to do is cover his own flabby white butt. You think he gives a crap about anyone but himself? Ha! Typical maggot.
I presume it means Citi in Chile can't make it alone and needs more weight. So it is merging with a local bank. Shit*y ain't what it used to be, ain't what it used to be, ain't.......etc.
This is exactly the behavior you'd expect from a "ponzi finance" scheme. The earnings look great so long as the companies (or in this case their customers) can keep borrowing more and more money relative to their actual incomes.
ac, you've just described the entire U.S. economy.
One thing to remember about the indexes that compare the price on the same house - Case Shiller and OFHEO, vs median prices that just measure averages, is that a same house index also includes the depreciation of the structure on top of the normally appreicating asset - land, plus the indexes also seem to lag "real world experience" out there.
plus the indexes also seem to lag "real world experience" out there.
Natural bias in the marketplace... price discovery is incredibly fast in a boom and almost non-existent in a bust. That's why it's far worse than any published numbers can indicate. Nonetheless, good trend indicators.
Hey Guys I have one here in Laguna Niguel, called Century 21 Superstars, the superstars was highlighted on the buidling of course, touting add to work for them, etc.
The office has been there for some years now, and while the bubble expanded so did they. They took over the whole building, but early last year they started having office space for lease, in one window, and as the months went by more windows had the more signs until this morning I went past and where there big yellow name was is now a banner saying your name here, and the whole buidling is now up for lease. Went from superstars to superduds. Also Tarbell aorund corner gave their building up too, 3 months agao.
I keep hearing how the financial stocks are a screaming buy at these levels. What happens when the coming commercial real estate loan debacle really gets going in regard to banks? I think you can guess. 2008, we cannot wait!
"Allen C posted some info on WM changing their HELOC rules"
Not changing the rules, but reducing credit lines and effectively increasing rates (due to reducing credit limits below outstanding)
MOM posted the official terms -
Guys - a HELOC is a term for a consumer purpose open-end credit line secured by a consumer's residence.
HELOCs are very different than commercial lines. What you can do with a HELOC is bound by TILA, and found in Reg Z at 226.5b(f)
(2-3).
You can call for fraud, misrepresentation, default or if "Any action or inaction by the consumer adversely affects the creditor's security for the plan, or any right of the creditor in such security". However that last means what it says and can not be abused. If, for example, your roof was knocked in during a storm and you failed to fix it, a creditor could call.
You can halt advances or lower the credit limit for the following reasons:
(A) The value of the dwelling that secures the plan declines significantly below the dwelling's appraised value for purposes of the plan;
(B) The creditor reasonably believes that the consumer will be unable to fulfill the repayment obligations under the plan because of a material change in the consumer's financial circumstances;
(C) The consumer is in default of any material obligation under the agreement;
(D) The creditor is precluded by government action from imposing the annual percentage rate provided for in the agreement;
(E) The priority of the creditor's security interest is adversely affected by government action to the extent that the value of the security interest is less than 120 percent of the credit line; or
(F) The creditor is notified by its regulatory agency that continued advances constitute an unsafe and unsound practice.
MaxedOutMama | Homepage | 12.26.07 - 4:34 pm | #
I banked with Citibank when living in Tokyo. . . the Japanese use the "shi" phoneme for the "see" sound of Citibank.
but actually Citibank was the most aggressive bank in Tokyo at that time. Apparently Shinsei, inheritor of the wonderfully corrupted Super-SIV predecessor Long Term Bank and also foreign-controlled, is outcompeting Citi now in the innovation department.
Case Shiller and OFHEO, vs median prices that just measure averages, is that a same house index also includes the depreciation of the structure on top of the normally appreicating asset - land, plus the indexes also seem to lag "real world experience" out there.
No. C-S does same unit resales. Nothing more. Case-Shiller does a careful dance around 'typical' when they use in fact 'same.' The 'same' 1890s home has by 2007 been updated somewhat. Silly, unimportant things like plumbing and electricity and size and asbestos and heating and insulation and garages and telephones and cable and... you get the idea.
Building a 900sf slat and beam and an outhouse on 1/4th acre and trying to say it has appreciated 1-2% per year because that it what a Levitt house cost in 1950 and a 1800 sf 3br/2ba 250 amp service and r-18 walls and dual pane windows home on sewer with cable and telco cost in 1980 is just silly.
ac, you've just described the entire U.S. economy.
I remember reading about Enron in 2003 and thinking "This isn't over yet. This is such a good idea people are going to try to do this with the whole economy."
I didn't catch on to the housing bubble until about 2005 probably because that's when I moved to the coast, but if I realized what was going on in 2003 I probably would have bought a couple of houses in CA for a quick flip.
Ever see the "smartest guys in the room" Enron Doc?
if you haven't, check it out.
It should've been called the "Smartest Guy in the Room". there was one guy who got out when it was still going strong but the writing was on the wall. He now owns a shitload of hawaii and colorado if I recall. to the tune of something like a half billion, the other smart kids are in jail or dead. Sure he was a criminal, but he was smarter than the other dumbasses running that joint.
AllenM,
Concern the Lennar article: The loan, which was modified four times, doesn't mature until February. But the venture defaulted by failing to sell lots according to an agreed-upon schedule and failing to maintain letters of credit, according to the complaint filed in Will County Circuit Court.
This seems to be a meme. Stretching out developments, tapping all available credit, failing to meet sales.
My greatest regret is that internet gambling isn't legal else I'd set up a dead pool for HBs.
Interesting article AllenM, thanks. I was struck by their statement that in delinquent Home Equity Credit it's severity instead of frequency that's the defining characteristic. In other words, not many folks get into trouble with HELOCs, but when they do they are in the deep stuff up to their necks and the bank is likely to lose most of their investment.
I would be curious if this is true for mortgages and real estate in general. If so, it could mean that there could be what us tech geeks call a "hysteresis" to bad real estate loans where things snap back and forth between states. Or in CR-speak, the delinquency rate of real estate loans are generally low and tend to stick/stay in that low state until "the fit really hits the shan" and then things start to get nasty in a big way and the bank losses mount fast.
"...
Home-equity credit is distinct from regular mortgage credit in part because of what bankers call "severity" rather than "frequency."
In mortgage lending, one of the most important reflections of credit quality is usually the delinquency rate. In home-equity credit, though, the defining factor is that while fewer borrowers default, a bank loses more when they do.
"We are actually seeing most of our charge-offs and problems in that portfolio coming through a relatively small portion of the portfolio," said Tom Freeman, SunTrust's chief credit risk officer, on a recent conference call.
..."
Chicago? Lennar is in real trouble if this stuff is starting.
Maybe. But beyond doubt, the bank that made the $14 million construction loan to Lennar is in big trouble.
What does this article suggest?
Lennar, one of the biggest HBs, is defaulting on a relatively small construction loan. It tells you that the security behind this loan may be limited to the property, not other assets of the HB.
What is a bank gonna do with half-built crop land?
What about the muni bonds that went into all the infrastructure to build more than 600 planned homes in the middle of cropland?
Probably right, and the reason LEN spokesman refused to comment could be legal consequences. I would have referred them to their attorneys. 2008 should be a growth year, for lawyers...
Um, I guess that LEN could be planning a trip to Ch. 11, or that they could figure default is cheaper than carrying dead assets.
Either way:
Writeoff time!
well i just got my december HELOC bill. I've got an $85K HELOC that i usually use in the $1-$10K range on any given month for operating expenses. Well I've come to find that since i don't have at least 20% of my available credit borrowed that I will be charged a usage fee of $100.
I hope this is an annual fee (too high even then). If monthly, that is equivalent to 12% interest on your $10K upper range which is hard to believe. If true, tell the bank to take a long run on a short pier.
I have a $10K unsecured LOC that I seldom use and have never been charged a penny and I am not a special customer.
Um, I guess that LEN could be planning a trip to Ch. 11, or that they could figure default is cheaper than carrying dead assets.
Either way: Writeoff time!
On Plainfield - if you're not from Chicago or do business in Chicago let me tell'ya Plainfield is out there and 'aptly named'. Plain and a not much more than a big field.
The only thing it has going for it is it is just off the I 55 strip (industrial as hell - not far from Mobil oil refinery & the Joliet Arsenal) and halfway between the city of Joliet (yuck) and Naperville (bedrooms and big boxes). Think inland empire with ice storms in winter and tornadoes in summer.
My guess is Lennar is going to walk away - they never should have gone there.
Sorry if I offended anyone from Plainfield - there are a lot of nice people there I'm sure. Nice people frequently come from awful places.
Wow. The housing market in this country has changed. I just got off the phone with Wells Fargo. We needed a pre-approval letter. I am hoping we can buy a decent sized house that is not a 2 hour commute.
Background: Married. Same house for 20 years with Wells Fargo. Never missed a payment. FICO bumping 800. 20 years on the job for me. Low six figure income with decent amount in various places. Planned on 20% down. Also a vet. Sounds like an easy approval?
The Details: 7.1 on a Jumbo. At borderline for income v. house. Asked for the highest figure just in case. They will only do it with 30% down! Who is going to be buying a house with 30% down? Nobody is going to qualify for houses in this area. (DC).
12th how much equity do you have above your limits according to Zillow?
I've got 2-3 times more equity than i'm borrowing.
I've been an appraiser (I was right out of school and it was that or sell drugs) and an investor and thus I don't put much faith in Zillow.
I use it to cover operating expenses. I also have used equity in the past to buy other income properties. If they decided to turn it off that would be a pain in the ass but to me it would signal the end of credit. I"m a good credit risk. if they won't loan to me, the rest are doomed. but I still don't want to pay them a c-note for my decision to not borrow.
Was there a time where people who had a couple hundred grand of your money treated you well?
Bought the house in '85 for 250G, paid it off in 15yrs. Never did the equity withdraw even though house once worth 1.5M. Have two lots on the side that can be built on. Salty huh? I await your flames....
The term 'z-llowed away' sucks (sorry I can't even bring myself to type it fully). Why on earth would you want to provide a gormless dotcom with more name recognition? Even used in a negative way the owners of that nearly useless site would thank you for promoting it.
My partner & I make above average wages for our area. Bought a small house on acreage within good commute to "destination jobs". 30yr fixed at 6%, with 8% down, over 2 years ago.
Our incomes have gone up, house value has gone up (reasonably, not bubble-y, we have a nice chunk of equity, and we want to build a garage, as all previous outbuildings were demolished due to extreme old age.
Now we go to our credit union and get told 9% for $25K!!
At that rate, we'll build the damn garage ourselves, stick by stick.
At that rate, we'll build the damn garage ourselves, stick by stick.
Joanna | 12.26.07 - 7:56 pm | #
That is so 80's-ish (in the midwest anyway) it warms my heart. A buddy up the street just built a new garage himself - the place is so nice I swear I might move in.
Citizens Bank. Been buying up banks in the Northeast for a while now. Used to be Charter One. Back when it was Charter One i got treated right (IMHO where someone who's equity was 2-3 times their loan amount should be treated). I also have income from my main residence so my tenants pay my mortgage, taxes and insurance.
Actually, I know someone who did exactly that in building their retirement house in NC. It took them 5 years starting with the base floor plan, then added out back for a kitchen and patio, then added a garage, then the front porch. Its a very nice place now (they included a picture of it on their Christmas card) and its also paid for.
Retail stores cant even sell candy bars in this recession and Christmas sales were as bad if not worse than trying to sell houses:
Target Corp., Macy's Inc. and Lowe's Cos. fell in New York trading after a weekend shopping surge failed to salvage the slowest-growing holiday sales season in five years.
Sales at stores open more than 12 months rose 2.8 percent last week from a year earlier, the International Council of Shopping Centers and UBS Securities LLC said in a joint statement today. The results prompted the group to lower its forecast for November and December sales growth to ``a tad below'' the 2.5 percent it was predicting.
Shoppers making last-minute purchases pushed sales up almost 20 percent over the weekend, according to Chicago-based ShopperTrak RCT Corp. Consumers burdened by higher gasoline and food prices and a deepening housing slump held off on buying gifts for much of December as they awaited steeper discounts, sending sales lower for four straight weeks, ShopperTrak said.
This consumer is spent out,'' Howard Davidowitz, chairman of Davidowitz & Associates, said in a Bloomberg Television interview.When they say sales are up three-and-a-half percent, that's an absurd number. You've got 5 percent more stores. That's why retail earnings are in the tank.''
Target, the second-biggest U.S. discounter, said Dec. 24 that sales at stores open more than a year may decline in December after customer visits slowed in the weeks after Thanksgiving. It fell $1.31 cents, or 2.5 percent, to $51.16 at 4:01 p.m. in New York Stock Exchange composite trading.
Now we go to our credit union and get told 9% for $25K!!
Welcome to the new reality, cash is king. Nowhere in the Bill of Rights are you guaranteed the right to cheap credit. Having to pay for other morons profligacy kinda sux, don't it?
You might want to try the Internet, I heard on NPR that there are "micro-credit" folks who will loan you money at rates lower than the banks.
On Plainfield - if you're not from Chicago or do business in Chicago let me tell'ya Plainfield is out there and 'aptly named'. Plain and a not much more than a big field.
Thanks for posting this. Now, I understand what's wrong with this Lennar community. The marketing strategy is all wrong.
Creekside Crossing...that's way too yuppy for the market.
Presumably, Lennar had a non-recourse loan on that Plainfield parcel, so the only downside to them walking away from the loan is reputational (i.e. will the next lender on the next loan look at them less favorably b/c of the default?).
Lennar is still a huge company, so realistically, assuming the "next deal" makes sense (and it will someday), they'll be able to get a loan at market terms anyway. The default will be swept under the rug. Makes more sense than paying off a loan when the loan is probably more than the land is worth.
The real question is, will Lennar default on a just a couple of these smaller loans, or is this just the first in a long line of defaults to come? If its the latter, I imagine it would have more dire consequences on their ability to borrow in the future.
Houses will continue falling, but what about travel and currency issues off shore??
Singapore's inflation accelerated in November to the highest in 25 years as consumers paid more for food and transportation.
The consumer price index jumped 4.2 percent from a year earlier, after gaining 3.6 percent in October, the Department of Statistics said today. The figure, the highest since May 1982, exceeded the median estimate of 15 economists surveyed by Bloomberg News for a 3.8 percent gain. Prices rose 0.6 percent from October.
The Monetary Authority of Singapore expects consumer prices to rise next year at more than double the 2007 pace, suggesting it will allow the currency to strengthen further to curb consumer price gains. The central bank in October said it would allow a ``slightly'' faster appreciation in the Singapore dollar to damp decade-high inflation by making imports cheaper.
will that inflation there make computer stuff more expensive in America, as the dollar falls with home prices; is that a recession, or does higher oil imply stagflation or hyper inflation?
Creekside Crossing...that's way too yuppy for the market.
LOL. When I read that I thought... gee what's the 'creek' - the SAG Canal*?
*This is what comes to mind when I think of that part of Illinois - heavy industry meeting industrial agriculture. The Sag doesn't actually run through Plainfield but close by - about 5-10 miles and you can smell the industry if the wind is blowing from the SE.
Now in all fairness - Plainfield does have a nice 'old small town feel' in the older central 'farm town' part... but that's like three blocks.
The guy at Lennar who dreamed this one up should wear a sign.
The Bureau of Economic Analysis (BEA) has recently improved its estimates of current-dollar gross domestic product (GDP), current-dollar gross domestic income (GDI), and real GDP as part of the 2007 annual revision of the national income and product accounts (NIPAs)
Real estimates of GDP
BEA uses three methods to estimate real GDP: The deflation method, the quantity extrapolation method, and the direct valuation method.
Re: Inflation: The dollar traded near a two-week low versus the euro on speculation reports will show falling consumer confidence and home sales, spurring the Federal Reserve to cut interest rates further.
The U.S. dollar has weakened against 14 of the 16 most- active currencies this year, as the Fed lowered its benchmark borrowing cost three times to 4.25 percent to support economic growth. The currency fell 8.8 percent against the euro, compared with last year's 10.2 percent loss and dropped 4 percent against the yen, after rising 1.1 percent in 2006.
The deteriorating housing market will slow the U.S. economy,'' said Yuji Saito, head of the foreign-exchange sales department in Tokyo at Societe Generale SA, France's second- largest bank by market value.This will force the Fed to cut rates. The dollar's decline will really get going next year.''
The dollar traded at $1.4477 per euro at 9:57 a.m. in Tokyo, from $1.4489 yesterday, when it reached $1.4505, the lowest since Dec. 14. The U.S. currency was at 114.36 yen from 114.34 yen. The euro traded at 165.57 yen, from 165.68. The U.S. currency may move between $1.40 and $1.55 a euro and 100 yen and 118 yen next year, Saito forecast.
Re: dollar and inflation adding pressure to housing decreases and both related to oil
Do not cast aside the possibility of $100 oil just yet. Perhaps boosted by thin trading conditions, the February crude-oil contract ended the day at its highest close in more than a month, closing at $95.97, or just 2.3% below its exchange record close of $98.18, which was reached Nov. 23. Oil is up 57% this year on rising demand and geopolitical concerns, and the brief pullback that had traders considering a reduction in low prices has been run over by another climb higher. Interestingly, open interest has declined, and commercial traders have reduced their short positions, which means the activity today doesnt represent a squeeze, writes Adam Michael in Minyanville.com. I dont think there is a catalyst besides general demand, he writes.
When I moved from Chicago 2 1/2 years ago there were still plans for a third airport out near plainfield. (the green grass site) Anyone know if that is still happening? Lennar probably overpaid for the land since land speculators had grabbed most of the open green space in anticipation years ago.
HE price of gold is set to remain high in 2008, putting it on track to break $US1,000 an ounce for the first time, as the yellow metal continues to offer investors a safe haven from volatile financial markets and supply remains tight.
During 2007, the price of gold has traded in a $US243.50 range, from a low of $US601.90 in January and a high of $845.40 in November, as investors sought a hedge against rising global inflation and equity, debt and foreign exchange markets wobbled.
In 2008, gold is tipped to rise to a 28-year high of $US850 in the first quarter as financial markets jitters prevail, and could reach as high as $US1,100 by December, market watchers say.
The chief executive of the world's third largest gold producer, AngloGold Ashanti, Mark Cutifani, is very confident about ongoing strength of the gold price.
"You can take gold anywhere in the world and there will be a buyer, which can't be said for many other commodities,'' he told AAP in an interview.
Mr Cutifani predicts gold to remain above $US800 in 2008 on the back of heightened demand, "not taking into account factors such as the high oil price and instabilities in currencies''.
O.T.,
How much would a person have to pay property taxes on 1.7 mil home?
My neighbor bought his house at the top of the top, about 8 months ago, for 1.7 in socal.
I don't like the guy, he's loud and obnoxious, and I heard him say that "This house is sucking me dry." and then he said, "$8,000" and that was all I heard.
I figure the 8k was his monthly mortgage, but I don't know if that would include his property taxes as well.
I must say that if he has to sell his house for some reason, I'd be very happy.
That's a hoot! Government agencies have no business giving out awards such as "business of the year". Serves them right, clowns.
JD | 12.26.07 - 9:45 pm | #
JD - did you even read the article?
The major Valley real estate brokerage that closed its offices days before Christmas had been named Business of the Year last year by the Chandler Chamber of Commerce.
Even right wing ideologs have to know the CofCs are NOT gov't.
Business - Amex sees peso at 40 to $1 in 12 months - INQUIRER.net
In its global outlook for 2008, the London-based global economics unit of Amex said the US dollar was already very weak against the euro and most currencies other than the Japanese yen and the Chinese renminbi.
If the United States were to avoid an economic recession, Amex said an increase in the Federal Reserve overnight rates could be expected, thereby allowing the US dollar to recover.
The US economic outlook is highly uncertain at present with recession risk probably at 40-50 percent. We still expect that Fed rate cuts and an easing of the financial crisis will help to avoid a full-blown recession but growth will be slow, Amex said. But in a US recession scenario, Amex said the euro would likely surge to new highs and the yen would likewise rise against the dollar, with carry trades drying up.
In urban CA, property tax on a residence is in the 1-1.2% range. The house should be assessed at the selling price, but it might take 6-9 months to make it to the tax bill. The tax would be ~20k$/yr for the example given by Root Canals
Lawmakers are hot to reform property taxes in the Legislature early next year.
That has not been the case in pockets of other counties. Angry property owners in Bountiful (Davis County) and Ogden Valley (Weber County) are spearheading a tax protest movement.
Utah's system is designed to keep government revenues stable. As real estate values go up, the certified tax rate goes down. The two exceptions that cause higher tax receipts are additions to the tax base caused by growth, such as new housing or property improvements, or tax rate increases approved by local governments and school districts.
This is what comes to mind when I think of that part of Illinois - heavy industry meeting industrial agriculture.
Creekslime Crossing?
I doubt walking away from this mess is as easy for Lennar as some think. They've built finished homes there and have others under construction, according to press releases.
You can't just let little kids play in a slimy, toxic-filled creek. You can get in trouble for that.
My partner & I make above average wages for our area. Bought a small house on acreage within good commute to "destination jobs". 30yr fixed at 6%, with 8% down, over 2 years ago.
Our incomes have gone up, house value has gone up (reasonably, not bubble-y, we have a nice chunk of equity, and we want to build a garage, as all previous outbuildings were demolished due to extreme old age.
Now we go to our credit union and get told 9% for $25K!!
At that rate, we'll build the damn garage ourselves, stick by stick.
It's sad - I can borrow money at a little over half that interest rate to gamble in the stock market. Basically somebody will loan money at a cut-throat rate to subsidize a giant poker game. But financing an endeavor that produces something real costs an arm and a leg.
In June 2004, RBC Centura agreed to lend $26 million to a Lennar-led venture to finance the project.
I think we missed the "led" in the article. Sounds like a REIT or off balance sheet Enron like special purpose vehicle that protects (maybe) LEN from liability. Hopefully more info to come.
NC Jim - You're absolutely correct. Big homebuilders set up tons of VIE's (variable interest entities) and gamed the FIN 46 rules to keep the VIE's off the books. The only place they show up is in the footnotes of the financial statements. Expect to hear lots more about these arrangements in 2008.
US President George W. Bush said Thursday he was "fine" with foreign investors snapping up hefty shareholdings in top US banks and financial firms.
Speaking at a White House press conference, Bush said America welcomed overseas investors and warned against protectionist sentiments.
"I'm fine with capital coming in from overseas," Bush said, adding "I don't think it's a problem."
Bush, a former oil executive and businessman, spoke a day after Morgan Stanley, one of America's biggest and most prestigious investment banks, said the state-controlled China Investment Corporation (CIC) had obtained a five-billion-dollar stake in the bank.
Morgan Stanley, like other big US financial firms, is reeling from multibillion dollar losses tied to the US housing slump and tighter global credit markets.
The deal enables CIC to gain up to a 9.9 percent shareholding in Morgan Stanley. It followed a similar deal last month which saw a United Arab Emirates investment fund become one of Citigroup's biggest shareholders through a 7.5 billion dollar investment.
Citigroup is America's second-largest financial group by market worth.
CIC grabbed a three-billion-dollar stake in the Blackstone Group, a large US private equity firm, earlier this year and China's CITIC Securities Co. Ltd. bought a six percent shareholding in Bear Stearns, another troubled US investment house, for one billion dollars in October.
Bush said he was not concerned by the flurry of deals mounted by funds controlled by foreign governments. The deals have so far not given the funds control over management at Morgan Stanley and the other firms.
"I think the world that is open for investment and trade is a world that'll lead to overall prosperity," Bush said.
I think we missed the "led" in the article. Sounds like a REIT or off balance sheet Enron like special purpose vehicle that protects (maybe) LEN from liability. Hopefully more info to come.
There's no "led" in the original press release announcing the grand opening of Creekside Crossing last January. These are "everything included" (EI) duplexes. They are described as one of 25 new Lennar communities throughout Chicago.
Get this: "Features at Creekside Crossing duplexes will include a fireplace, nine-foot ceilings, and a deluxe master bath with a separate shower and soaking tub. Homes will also include a fully equipped kitchen; air conditioning; and 12-by-12-inch ceramic tile in the foyer, powder room and kitchen."
You know, the funny thing is, VIE's (formerly known as SPE's or Special Purpose Entities) were originally established and approved to make the financial statements more relevant.
That is, if a company were to have a stream of transactions unrelated to its core business, and those transactions were to be limited in duration, it might be better to keep any resulting windfalls or losses off the books as reporting them might confuse readers of the financials as they compare last year to the current and try to make sense of the continuing business.
Of course, the ink wasn't dry before people found a way to manipulate the highly codified rules.
BTW, this is why SFAS 157 and 159 were nixed. There were rumors that some entities were going to use the strictness of the rules to attempt to book gains based on a revaluation of liabilities. That is, a company in unstable condition could devalue their own liabilities based on the market value of those liabilities.
In the article AllenM posted re: HELOC disintegration, I was really amused by the last two paragraphs:
"SunTrust's mortgage loans lost $161 million in value during the third quarter, with the most pronounced decay in home-equity loans and loans that borrowers did not have to document their income to obtain.
The sensitive areas of the portfolio include home-equity loans to people with bad credit and loans that are not secured by enough collateral, Freeman said."
Who would have ever thought the no-doc, bad credit, under-collateralized loans would have been a problem??? Time to reap the whirlwind, folks.
The MBA's application index fell to 603.8 from 653.8 the previous week.
Refinance volume fell 8.5 percent during the week, while purchase volume dropped 6.6 percent. Refinance applications accounted for 53 percent of total mortgage applications during the week ending Dec. 21.
The index peaked at 1,856.7 during the week ending May 30, 2003, at the height of the housing boom.
An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked application volume. A reading of 603.8 means mortgage application activity is 6.038 times higher than it was when the MBA began tracking the data.
on my way home from work there are a few billboards for re/max and other realitors with "for lease" banners for the owners of the billboard on top of them.
I nominate 'Calculatedrisk' the blog of the year 2007.
The largest one in LV recently closed (two months ago) with no notice...
How can these companies go from record profits to zero in such a short time? Wasteful spending? Excessive belief in the turnaround coming any day? Stupidity?
From the Las Vegas Sun:
Jimmy Dague, who has sold real estate in Las Vegas since 1978 and whose business was the No. 1 worldwide in sales for Century 21 from 2002 to 2006, filed last week for Chapter 11 bankruptcy protection from creditors while he reorganizes to pay off his debts.
The 54-year-old said that even when his business was Century 21's top seller in 2006, he still lost money. Dague said that's because his sales fell 60 percent from 2005 to 2006, but he kept the same number of staff - and the same overhead - in his nine offices.
"This is the result of an exuberant market and us growing and, honestly, I had signed leases for nine offices. Now I have five," he said. "As you can imagine, the four landlords are not happy."
Rather than fighting it out in civil court - "I can't afford to fight the market and pay attorneys, too" - he went the route of bankruptcy. In court filings, Dague lists assets of between $10,000 and $100,000 and debts totaling between $100,000 and $1 million.
Stories published September 8, 2007Las Vegas Sun
Crispy,
I have not met many salesmen with more than a week's pay in the bank. Something about the MO...earn, spend, earn more, spend more.
Technical sales are a different breed and tend to be savers.
F 'em, they undoubtedly all a-holz.
Sorry for the somewhat off-topic comment, but an issue has been bothering me for some time. This bust is often compared with Japan. I was wondering about population mobility in Japan. In the "dynamic" US economy we (especially the professional trades) are expected to move when necessary for the job. Wouldn't this require lower prices overall? Taking these transaction fees each time we move is brutal. My wife and I currently rent and are still interested in eventually buying a house. But, who knows where we will end up. Buying a house for only a few years would be slitting our financial throat. We are not buying any time soon because of this uncertainty.
I think prices will decline faster because of our culture of mobility or our economy will really grind to a halt. We really have created an economy very hostile to the family.
Anyone from SoCal should remember the "Glickman" realtors saga. History rhymes!!!
Its all just perception, these boobs should have hung in there and waited for NAR to adjust sales news; they should have made plenty of dough over the last 5 years, so why bail when things get a little slow? They need to hype and pump and make it look like business is growing! Boobs!
Lesson here: WEDNESDAY, DECEMBER 26, 2007
The Best Ever Press Release, 2007 Edition
Its the day after Christmas, and, unless something has gone dreadfully wrong
Jeff Matthews Is Not Making This Up
Retail investors dont focus as much on total sales as they do on existing store sales, which is a far better measure of true underlying strengthhence the calcuation of same-store sales for the benefit of investors and management alike.
pitiful...
Ummm...I don't want to pile on here but I'm going to have to.
n September 2006, after being named Business of the Year, he said, "Each and every day there's an opportunity, and if you're not prepared to change with the times or change with the way the market is, especially in Arizona, you probably won't survive in the market."
Before going into real estate, Kline spent 23 years in banking
So, this guy honed his business skilz as a banker. Is it any wonder he didn't see the problem with his business model?
If the guy is really sharp he might make 'Business of the Year' TWICE!
In the farm crisis in the 1980s I read about a farmer who was 'Young Farmer of the Year' twice in some state (Iowa or Minnesota, So Dak - can't remember). It was something like 1989 when I read it...
Any way earlier (say 1983) he was farmer of the year the first time... using traditional 'methods'... huge farm, highly leveraged, lotsa chemicals, newest equipment, corn & beans only (no diversification).
He was making money hand over fist in the early 80s. Added to his land holdings almost every year (nearly 100% leveraged). Part of his 'income' was paper income from land appreciation - not even real cash money.
Then ag commodity prices collapsed and he went broke (along with S&Ls that borrowed he and others like him the money). That was circa 1985.
But all this guy knew how to do was farm so he went back at it - this time he bootstrapped... he rented land, used minimum chemicals and no-till, bought or borrowed used equipment and diversified (fed animals some of his low priced grains including free range chickens, pigs & turkeys he direct marketed to urban food co-ops).
He never made as much revenue as during the boom but did turn a profit and was net cash positive in a few years (I read about the guy a couple years after his second young farmer of the year prize - I think that was 1987?).
BTW you have to be under 40 I believe to be a 'young farmer'... not exactly like the idea of 'young' in finance or IT.
Anyway - my guess is some of these smarter realtors are going to do real well AFTER they pitch the denial and embrace the reality. There is money to be made out of chaos.
OT: Following is a transcript of an interview with Bill Gross conducted by the FT. It is one of the clearest and most concise discussions I have read, between an informed host and outspoken guest. My takeaway is that Gross really fears a major collapse if housing cannot be supported and is willing to accept inflation pain (an unusual stance for a bond manager) to avoid the greater risk.
Short but sweet.
Sorry if a repost.
FT.com / Companies / US & Canada - Transcript: Pimco’s Bill Gross on recession
Jim
"I think prices will decline faster because of our culture of mobility or our economy will really grind to a halt. We really have created an economy very hostile to the family."
That is exactly the issue here (besides real wages not keeping pace with inflation or housing prices etc). Jobs move like capital now...but our housing system is designed for the industrial age. The pain will continue for people who have to move at the drop of a hat in order to stay middle class...I say this assuming lending in the future is going to revert back to what it was 30 years ago.
I have not met many salesmen with more than a week's pay in the bank. Something about the MO...earn, spend, earn more, spend more.
lama - if you ever run your own company where you hire salesman to sell for you... the LAST thing you want to see them be is frugal & financially responsible. At least with their own money. Its about the only career path where a bad credit rating on a background check is a positive.
The hungriest salesman is the hardest working salesman - almost always. Want the salesmen to sell more? Then get them to spend more. Obviously this only applies to commissioned sales - but most salesmen are commissioned or heavily 'incentivized' somehow.
Allen C posted some info on WM changing their HELOC rules, yahoo message boards are also discussing this (yes I know):
Yahoo! Message Boards -
Maybe we need an UberNerd on this???
12th, I don't think the fact that that is as much of a conundrum as you think. That old-school form of banking, where people analyze the cash flow and balance sheet to see if they have a long term viable business, went out of style in the go-go 80's and 90's. It was replaced with the "growth" model, where you ignored the balance sheet and took on as much debt and investment as you could and tried to grow/expand the business into profitability before the debt caught up with you. The conventional wisdom in the Beemer driving set was that you were an overly conservative fool if you didn't do so. In the dotcom times I heard this approach referred to as the "Big Bang" theory of business creation -- "Go big, or go home." As a tech foot soldier in this period I always wondered why then it was that most of the big tech companies (Apple, HP, Google, etc.) were literally started out of the apocryphal garage and they pinched pennies until the cash flow came in.
It's not that they don't teach such methods in MBA school and banks. They are just considered old fashioned and not in vogue (as ranted upon often by our own Tanta). This is probably going to change with a vengeance.
Here is the original source for this WM story:
Blogger: Page not found
A large Re/Max office in my SF East Bay neighborhood closed recently. To be replaced by a health club.
Ugh.. So much for my proof reading.
Let's try that again -
12th, I don't think the fact that that is as much of a conundrum as you think.
Should read something like: 12th, I don't think the fact that Kline was a banker is as much of a conundrum as you think when it comes to business models.
I was ranting about Zillowed AWAY a while ago, and was ignored- here it comes America!!!
The only error is the bank can call the loan- not quite true, but they can lower the amount available to 0!!!
The housign ATM is now closed. Hope you had fun with that MEW America!!!
Someday this war's gonna end...
That is the way I thought - reduce any future draws on the HELOC. However, this thing has spread with "immediate paydowns", which I think is unture...
How can these companies go from record profits to zero in such a short time? Wasteful spending? Excessive belief in the turnaround coming any day? Stupidity?
I don't know much about the theory of evolution, but I seem to recall that you either adapt or die out. The story of real estate and many other businesses today is adaptation. When the market slows, you have to act quickly - close some offices, lay off some staff. There isn't much time for hesitancy. It's not always easy.
My grandfather who admitted defeat as a homesteader in the Dustbowl left the farm in S.D. with a wife and 4 kids and moved to a place he'd never been - N.J. - to dairy farm for the first time. And he was 47. I don't know if I could do that. Adaptation can be rough.
I'm an asshole, because I know a lot of people loose their jobs and stuff, but I can't help thinking about the mean kid in The Simpsons: "Ha-Haa"
How can these companies go from record profits to zero in such a short time? Wasteful spending? Excessive belief in the turnaround coming any day? Stupidity?
This is exactly the behavior you'd expect from a "ponzi finance" scheme. The earnings look great so long as the companies (or in this case their customers) can keep borrowing more and more money relative to their actual incomes.
Once the credit dries up you get a sudden implosion of earnings, because the borrowed money was the earnings just "laundered" to look like legitimate income.
Remember Enron?
"The hungriest salesman is the hardest working salesman - almost always. Want the salesmen to sell more? Then get them to spend more. Obviously this only applies to commissioned sales - but most salesmen are commissioned or heavily 'incentivized' somehow."
See Glen Gary, Glen Ross to get a more visceral view of this.
Glengarry Glen Ross (1992)
BTW watch for the same phenomenon to occur in the hedge fund industry. Many (not all) of these funds will look great with strong incomes until one day the bulk of them go up in a plume of dust and ash.
About 345 real estate agents found out over the weekend that Gilbert-based RE/MAX 2000 has shut down and they will have to find other brokers to work with.
As agents, we are independent contractors, said Baker, who has been with RE/MAX 2000 for five years. Ive probably had 10 e-mails from other brokers ... and probably three or four phone calls and one text message. There are many brokerages out there that would like to have real estate agents as part of their brokerages.
I don't know if I could do that. Adaptation can be rough.
Outsider | 12.26.07 - 4:08 pm | #
Ya its rough but you can do it - doesn't mean it will work out (automatically) but no reason it won't either if you think it all through carefully and bust ass.
My father started over at 54 - worked out real well for him. That was in the middle of the stagflation 70s. Sometimes the shittier the economy the easier it is to remake yourself. Less stigma - everyone's doin' it.
but since a lender can often charge any rate of interest they want surely they have final say on you keeping that loan or not?
See Glen Gary, Glen Ross to get a more visceral view of this.
One of the best ever... ABC always be closing. I'm in commissioned sales and do not practice what I preach... but then I know I'd be a 'better salesman' but poorer person if I did.
Another link to the FT/Gross interview for those without a FT
http://72.14.205.104/search?q=cache:Cnz3jYzuKc0J:www.msnbc.msn.com/id/22363291/+Transcript:+Pimcos+Bill+Gross+on+recession&hl=en&ct=clnk&cd=2&gl=us
Subprime Crisis Solution includes dumping realtor fees!!
A Critical Assessment of the Traditional Residential
Real Estate Broker Commission Rate Structure
http://aei-brookings.org/admin/authorpdfs/redirect-safely.php?fname=../pdffiles/phpXf.pdf
While real estate brokers have long set their fee as a straight percentage of a home's sale
price, this formula is an anomaly and a primary reason why such fees may be inflated by more
than $30 billion annually
The NAR claims that the elimination of interbroker compensation would destroy the
MLS,400 but that prediction is simply not true, as explained in detail by one lawyer who
has long represented many MLSs.401 The NARs real fear about this approach, however,
is understandable. The elimination of interbroker compensation would diminish the
ability of traditional brokers to frustrate vigorous price competition, and thus likely lead
to a dramatic fall in broker revenues
The ten year note is above the Fed Funds rate, I havent noticed that in awhile.
Flight to safety easing? People abandoning the dollar? Year end repositioning?
"How can these companies go from record profits to zero in such a short time? Wasteful spending? Excessive belief in the turnaround coming any day? Stupidity?"
It's easy. They're real estate brokers. They make money when houses sell. Greatly reduced sales = greatly reduced income. No sales = no income. Although it's not a particularly capital intensive industry - it makes sense to go Chapter 11 to get out of contracts (like leases on offices you no longer need) - organize a debt payment schedule - etc.
Anon,
That would be a tremendous benefit to the RE market by going after realtor fees. It would provide a 3-4% cushion in prices and considering where we are and what the government is considering doing to bail out people it is really a low cost option with a huge benefit to the marketplace.
The government should have an open database of all RE transactions and open it up to allow people to show their house is for sale and allow websites cheap access to the data. It would revoltionize things.
Hey a real estate broker in Phoenix with whom I have exchanged some emails tells me he made more money in 2007 than ever before. Should I believe him? LOL.
MR. GROSS: Well, I think they have no choice. You know, the question that you pose really centres around the Austrian thesis, in which it's necessary for recessions to occur for asset prices to be liquidated in order to start anew. And I think there's a semblance of logic and common sense to that.
It's just that we've gotten to the point and backed ourselves into a corner so many times that the pain may be too much to bear for, not only the American economy, but the global economy, because of the interconnection.
So, you know, it's not that that's not an appropriate policy of eventually forcing the US economy to endure some pain. It's simply my opinion that, perhaps policymakers won't be willing to go that far.
Well, that's encouraging that more and more people seem to understand the situation.
We need a good painful recession "to purge the rotteness out of the system".
That's part of the reason the US began to see tremendous economic growth as soon as mid 1933 while Japan continues to languish 17 years on.
Are we willing to trade short-term comfort for long-term progress?
Sadly, I think so.
I meant to add this question: are realtors ever known to lie?
The ten year note is above the Fed Funds rate, I havent noticed that in awhile.
Flight to safety easing? People abandoning the dollar? Year end repositioning?
Stock bubble fears (appropriate IMO). Overlay graphs of the S&P 500 and the 10-year. The correlation is striking.
What about FSBOs and using real estate lawyers in place of realtors? Seems like realtors serve little purpose and they were obviously in the loop to pump up prices in the bubble. I say start with them and make it more difficult to bump up valuations, for the next bubble (in 2012).
Dollars for donuts Kline used to work for Lincoln Savings & Loa
"...for the next bubble (in 2012)."
Sadly, it really appears that it would take longer than that to hit the bottom. Japan had it better than US, and yet they haven't experienced any bubble for a very long time. Try 2025 or onwards. Babies born on 2007+ would be graduating HS by then.
--
Whoever owned and sold the Re/Max offices is a smart guy/gal. He/she can see that there would be no money to be made in the business for at least the next three years. It is smart to keep the profits of the bubble years.
Jas
James - Maybe he was my brother's broker (my brother sold his old house and bought a new one in 2007)! If you're a broker working for 6-7% - particularly at the higher end of the market - you don't need a huge number of sales to have a good year.
Anonymous - I know FSBO's are popular in general - but they don't seem to work very well where I live unless the seller agrees to co-op with real estate brokers. As for real estate lawyers - hardly anyone uses them where I live. And I wish more people would. We're a title insurance state - so why pay the fee to a title agent who's not a lawyer when you can pay the fee to a title agent who is a lawyer and get some routine legal help thrown in for nothing (or a nominal cost)?
The hungriest salesman is the hardest working salesman - almost always. Want the salesmen to sell more? Then get them to spend more.
I had an uncle who was a salesmen. He hated his job. Wife and 3 kids. Went to his boss and said, "i hate my job". His boss told him, "buy a bigger house and a nicer car, then it won't matter if you hate your job because you will have no choice but to need it".
This was back in the early 70s, i think.
My mom told me that when i was in highschool. I didn't go into sales. I also made sure to not have a boss as soon as was possible.
12th, I don't think the fact that that is as much of a conundrum as you think.
Perhaps I wasn't clear. I don't think bankers have a clue about anything. It does not surprise me that a banker would end up a bankrupt real estate broker.
Maybe he should've found a way to charge fees to homeowners after they bought their homes. Bankers are really good at finding ways to charge fees for doing nothing.
Realtors are a good symbol for small small companies all over the U.S. in a variety of industries. They expanded too fast, borrowed too much, leveraged up growth into artificial profits, ran up ridiculous cost structures, and waited until too late to see the writing on the wall.
There's thousands of small Internet 2.0 companies that have big burn rates and everything based on getting shares of an ever-expanding online ad base. Guess what? Ad budgets always get deeply cut in recessions, and this will be no exception.
The Russell 2000 has a TTM P/E of 41. The E side of that equation will drop over the next four quarters by at least 20-30%, maybe more. It's really an unusual kind of bubble in disguise. The P/E ratio of small companies in the U.S. today should be about 20 or below, at this stage in the E cycle.
The real estate business needs to be regulated more, NAR dissolved and mortgage brokers need state licenses which can be linked to 4 year degrees and then link all loan applications to IRS records (which is about to happen), then dump FICO scores and go by IRS incomes and current verified bank hard cash assets; no more fun and games, just facts and hardcore reality!
OT - NC Jim - What Bill Gross fears is that some of the huge stacks of paper he owns on behalf of his (un)lucky clients are actually worthless after all...ooops!
I used to have some respect for the guy, now IMHO he is just another shameless shill talking the 'book value' of his portfolio up.
OT: what does this mean T?
Chile's Superintendency of Banks (SBIF) said on Wednesday it authorized the merger between the Chilean operations of Citigroup with Banco de Chile, the country's second-largest bank.
The transaction between Banco de Chile CHI.SN, with a market share of 18 percent, and Citigroup (C.N: Quote, Profile, Research), with a share of 2 percent, will consolidate the new entity's position as the nation's No. 2 bank after Santander Chile STG.SN, a unit of Spain's Santander (SAN.MC: Quote, Profile, Research).
Gross is a pig. The only thing he wants to do is cover his own flabby white butt. You think he gives a crap about anyone but himself? Ha! Typical maggot.
OT: what does this mean T?
I presume it means Citi in Chile can't make it alone and needs more weight. So it is merging with a local bank. Shit*y ain't what it used to be, ain't what it used to be, ain't.......etc.
Citi will have a bit under 11% of the new merged bank. Banco de Chile about 89%.
This is exactly the behavior you'd expect from a "ponzi finance" scheme. The earnings look great so long as the companies (or in this case their customers) can keep borrowing more and more money relative to their actual incomes.
ac, you've just described the entire U.S. economy.
One thing to remember about the indexes that compare the price on the same house - Case Shiller and OFHEO, vs median prices that just measure averages, is that a same house index also includes the depreciation of the structure on top of the normally appreicating asset - land, plus the indexes also seem to lag "real world experience" out there.
plus the indexes also seem to lag "real world experience" out there.
Natural bias in the marketplace... price discovery is incredibly fast in a boom and almost non-existent in a bust. That's why it's far worse than any published numbers can indicate. Nonetheless, good trend indicators.
Hey Guys I have one here in Laguna Niguel, called Century 21 Superstars, the superstars was highlighted on the buidling of course, touting add to work for them, etc.
The office has been there for some years now, and while the bubble expanded so did they. They took over the whole building, but early last year they started having office space for lease, in one window, and as the months went by more windows had the more signs until this morning I went past and where there big yellow name was is now a banner saying your name here, and the whole buidling is now up for lease. Went from superstars to superduds. Also Tarbell aorund corner gave their building up too, 3 months agao.
I keep hearing how the financial stocks are a screaming buy at these levels. What happens when the coming commercial real estate loan debacle really gets going in regard to banks? I think you can guess. 2008, we cannot wait!
"Allen C posted some info on WM changing their HELOC rules"
Not changing the rules, but reducing credit lines and effectively increasing rates (due to reducing credit limits below outstanding)
MOM posted the official terms -
Guys - a HELOC is a term for a consumer purpose open-end credit line secured by a consumer's residence.
HELOCs are very different than commercial lines. What you can do with a HELOC is bound by TILA, and found in Reg Z at 226.5b(f)
(2-3).
You can call for fraud, misrepresentation, default or if "Any action or inaction by the consumer adversely affects the creditor's security for the plan, or any right of the creditor in such security". However that last means what it says and can not be abused. If, for example, your roof was knocked in during a storm and you failed to fix it, a creditor could call.
You can halt advances or lower the credit limit for the following reasons:
(A) The value of the dwelling that secures the plan declines significantly below the dwelling's appraised value for purposes of the plan;
(B) The creditor reasonably believes that the consumer will be unable to fulfill the repayment obligations under the plan because of a material change in the consumer's financial circumstances;
(C) The consumer is in default of any material obligation under the agreement;
(D) The creditor is precluded by government action from imposing the annual percentage rate provided for in the agreement;
(E) The priority of the creditor's security interest is adversely affected by government action to the extent that the value of the security interest is less than 120 percent of the credit line; or
(F) The creditor is notified by its regulatory agency that continued advances constitute an unsafe and unsound practice.
MaxedOutMama | Homepage | 12.26.07 - 4:34 pm | #
Shty ain't what
I banked with Citibank when living in Tokyo. . . the Japanese use the "shi" phoneme for the "see" sound of Citibank.
but actually Citibank was the most aggressive bank in Tokyo at that time. Apparently Shinsei, inheritor of the wonderfully corrupted Super-SIV predecessor Long Term Bank and also foreign-controlled, is outcompeting Citi now in the innovation department.
I nominate 'Calculatedrisk' the blog of the year 2007.
Robert Kline | 12.26.07 - 2:39 pm | #
I agree. I just discovered the blog a few weeks ago. It's the first blog I check in the morning and the last one before bed.
Allen C-
I vote for A-
hence my term Zillowed Away ©
Want to be the drops are going to occur in bubble places with that 10% plus Case Shiller drop??
2008 is going to be fantastic!
Someday this war's gonna end....
Case Shiller and OFHEO, vs median prices that just measure averages, is that a same house index also includes the depreciation of the structure on top of the normally appreicating asset - land, plus the indexes also seem to lag "real world experience" out there.
No. C-S does same unit resales. Nothing more. Case-Shiller does a careful dance around 'typical' when they use in fact 'same.' The 'same' 1890s home has by 2007 been updated somewhat. Silly, unimportant things like plumbing and electricity and size and asbestos and heating and insulation and garages and telephones and cable and... you get the idea.
Building a 900sf slat and beam and an outhouse on 1/4th acre and trying to say it has appreciated 1-2% per year because that it what a Levitt house cost in 1950 and a 1800 sf 3br/2ba 250 amp service and r-18 walls and dual pane windows home on sewer with cable and telco cost in 1980 is just silly.
ac, you've just described the entire U.S. economy.
I remember reading about Enron in 2003 and thinking "This isn't over yet. This is such a good idea people are going to try to do this with the whole economy."
I didn't catch on to the housing bubble until about 2005 probably because that's when I moved to the coast, but if I realized what was going on in 2003 I probably would have bought a couple of houses in CA for a quick flip.
If you can't beat em, join em. =/
run offs starting in HELOC land:
Expired
serious bottom line damage will be here shortly.
Ever see the "smartest guys in the room" Enron Doc?
if you haven't, check it out.
It should've been called the "Smartest Guy in the Room". there was one guy who got out when it was still going strong but the writing was on the wall. He now owns a shitload of hawaii and colorado if I recall. to the tune of something like a half billion, the other smart kids are in jail or dead. Sure he was a criminal, but he was smarter than the other dumbasses running that joint.
Homebuilder default:
Homebuilder blues | Crain's Chicago Business
Chicago? Lennar is in real trouble if this stuff is starting.
Not meeting sales goals...ulp.
Someday this war's gonna end...
AllenM,
Concern the Lennar article:
The loan, which was modified four times, doesn't mature until February. But the venture defaulted by failing to sell lots according to an agreed-upon schedule and failing to maintain letters of credit, according to the complaint filed in Will County Circuit Court.
This seems to be a meme. Stretching out developments, tapping all available credit, failing to meet sales.
My greatest regret is that internet gambling isn't legal else I'd set up a dead pool for HBs.
Interesting article AllenM, thanks. I was struck by their statement that in delinquent Home Equity Credit it's severity instead of frequency that's the defining characteristic. In other words, not many folks get into trouble with HELOCs, but when they do they are in the deep stuff up to their necks and the bank is likely to lose most of their investment.
I would be curious if this is true for mortgages and real estate in general. If so, it could mean that there could be what us tech geeks call a "hysteresis" to bad real estate loans where things snap back and forth between states. Or in CR-speak, the delinquency rate of real estate loans are generally low and tend to stick/stay in that low state until "the fit really hits the shan" and then things start to get nasty in a big way and the bank losses mount fast.
"...
Home-equity credit is distinct from regular mortgage credit in part because of what bankers call "severity" rather than "frequency."
In mortgage lending, one of the most important reflections of credit quality is usually the delinquency rate. In home-equity credit, though, the defining factor is that while fewer borrowers default, a bank loses more when they do.
"We are actually seeing most of our charge-offs and problems in that portfolio coming through a relatively small portion of the portfolio," said Tom Freeman, SunTrust's chief credit risk officer, on a recent conference call.
..."
Maybe. But beyond doubt, the bank that made the $14 million construction loan to Lennar is in big trouble.
What does this article suggest?
Lennar, one of the biggest HBs, is defaulting on a relatively small construction loan. It tells you that the security behind this loan may be limited to the property, not other assets of the HB.
What is a bank gonna do with half-built crop land?
What about the muni bonds that went into all the infrastructure to build more than 600 planned homes in the middle of cropland?
Why are we doing this crap to crop land?
12th. Was that Enron guy Lou Pai?
Lou Pai - Wikipedia, the free encyclopedia
Nice Lennar story...seems odd that they would default on such a "small" loan. The PR alone is bad enough, must be more to this story...
LEN... "must be more to this story"
Probably right, and the reason LEN spokesman refused to comment could be legal consequences. I would have referred them to their attorneys. 2008 should be a growth year, for lawyers...
Um, I guess that LEN could be planning a trip to Ch. 11, or that they could figure default is cheaper than carrying dead assets.
Either way:
Writeoff time!
Fear and Loathing time for homebuilders!
Someday this war's gonna end...
Just stopped by my local Lyon's window - houses in my neighborhood selling for $309. Same house last year: $425 - $450.
30 percent decline, and we aren't anywhere near the bottom.
Thanks, Mr. Greenspan!
..
HELOC update
well i just got my december HELOC bill. I've got an $85K HELOC that i usually use in the $1-$10K range on any given month for operating expenses. Well I've come to find that since i don't have at least 20% of my available credit borrowed that I will be charged a usage fee of $100.
I get charged $100 for not borrowing.
Allen is right. Some day this war is gonna end.
12th how much equity do you have above your limits according to Zillow?
Just curious, but would you pull your line "just in case" it was going to be reduced to your balance or a significant fraction of the original 85k?
I am trying to get a better read on how folks would handle that rumored WAMU drop in credit lines.
Thanks,
someday this war's gonna end...
I get charged $100 for not borrowing
I hope this is an annual fee (too high even then). If monthly, that is equivalent to 12% interest on your $10K upper range which is hard to believe. If true, tell the bank to take a long run on a short pier.
I have a $10K unsecured LOC that I seldom use and have never been charged a penny and I am not a special customer.
Jim
12th percentile,
Go check your TILA documents and make sure that $100 fee was disclosed in writing at the time you HELOCed.
If not, you may have grounds to rescind the loan.
They can't put in a fee like that arbitrarily or retroactively.
What happens when the coming commercial real estate loan debacle really gets going in regard to banks?
Um, the stock goes up 20% and everyone gets $50M bonuses?
Um, I guess that LEN could be planning a trip to Ch. 11, or that they could figure default is cheaper than carrying dead assets.
Either way: Writeoff time!
On Plainfield - if you're not from Chicago or do business in Chicago let me tell'ya Plainfield is out there and 'aptly named'. Plain and a not much more than a big field.
The only thing it has going for it is it is just off the I 55 strip (industrial as hell - not far from Mobil oil refinery & the Joliet Arsenal) and halfway between the city of Joliet (yuck) and Naperville (bedrooms and big boxes). Think inland empire with ice storms in winter and tornadoes in summer.
My guess is Lennar is going to walk away - they never should have gone there.
Sorry if I offended anyone from Plainfield - there are a lot of nice people there I'm sure. Nice people frequently come from awful places.
Wow. The housing market in this country has changed. I just got off the phone with Wells Fargo. We needed a pre-approval letter. I am hoping we can buy a decent sized house that is not a 2 hour commute.
Background: Married. Same house for 20 years with Wells Fargo. Never missed a payment. FICO bumping 800. 20 years on the job for me. Low six figure income with decent amount in various places. Planned on 20% down. Also a vet. Sounds like an easy approval?
The Details: 7.1 on a Jumbo. At borderline for income v. house. Asked for the highest figure just in case. They will only do it with 30% down! Who is going to be buying a house with 30% down? Nobody is going to qualify for houses in this area. (DC).
12th how much equity do you have above your limits according to Zillow?
I've got 2-3 times more equity than i'm borrowing.
I've been an appraiser (I was right out of school and it was that or sell drugs) and an investor and thus I don't put much faith in Zillow.
I use it to cover operating expenses. I also have used equity in the past to buy other income properties. If they decided to turn it off that would be a pain in the ass but to me it would signal the end of credit. I"m a good credit risk. if they won't loan to me, the rest are doomed. but I still don't want to pay them a c-note for my decision to not borrow.
Was there a time where people who had a couple hundred grand of your money treated you well?
Bought the house in '85 for 250G, paid it off in 15yrs. Never did the equity withdraw even though house once worth 1.5M. Have two lots on the side that can be built on. Salty huh? I await your flames....
The term 'z-llowed away' sucks (sorry I can't even bring myself to type it fully). Why on earth would you want to provide a gormless dotcom with more name recognition? Even used in a negative way the owners of that nearly useless site would thank you for promoting it.
My partner & I make above average wages for our area. Bought a small house on acreage within good commute to "destination jobs". 30yr fixed at 6%, with 8% down, over 2 years ago.
Our incomes have gone up, house value has gone up (reasonably, not bubble-y, we have a nice chunk of equity, and we want to build a garage, as all previous outbuildings were demolished due to extreme old age.
Now we go to our credit union and get told 9% for $25K!!
At that rate, we'll build the damn garage ourselves, stick by stick.
Nobody is going to qualify for houses in this area. (DC)
Maybe you should think about switching jobs and moving elsewhere?
12th percentile:
Who is your lender?
Nobody is going to qualify for houses in this area. (DC).
Nova | 12.26.07 - 7:36 pm | #
Nova - that is 'bankerese' for... "Not now." Kinda like 'parentese' for same... "We'll see."
At that rate, we'll build the damn garage ourselves, stick by stick.
Joanna | 12.26.07 - 7:56 pm | #
That is so 80's-ish (in the midwest anyway) it warms my heart. A buddy up the street just built a new garage himself - the place is so nice I swear I might move in.
Citizens Bank. Been buying up banks in the Northeast for a while now. Used to be Charter One. Back when it was Charter One i got treated right (IMHO where someone who's equity was 2-3 times their loan amount should be treated). I also have income from my main residence so my tenants pay my mortgage, taxes and insurance.
" stick by stick. "
Actually, I know someone who did exactly that in building their retirement house in NC. It took them 5 years starting with the base floor plan, then added out back for a kitchen and patio, then added a garage, then the front porch. Its a very nice place now (they included a picture of it on their Christmas card) and its also paid for.
Retail stores cant even sell candy bars in this recession and Christmas sales were as bad if not worse than trying to sell houses:
Target Corp., Macy's Inc. and Lowe's Cos. fell in New York trading after a weekend shopping surge failed to salvage the slowest-growing holiday sales season in five years.
Sales at stores open more than 12 months rose 2.8 percent last week from a year earlier, the International Council of Shopping Centers and UBS Securities LLC said in a joint statement today. The results prompted the group to lower its forecast for November and December sales growth to ``a tad below'' the 2.5 percent it was predicting.
Shoppers making last-minute purchases pushed sales up almost 20 percent over the weekend, according to Chicago-based ShopperTrak RCT Corp. Consumers burdened by higher gasoline and food prices and a deepening housing slump held off on buying gifts for much of December as they awaited steeper discounts, sending sales lower for four straight weeks, ShopperTrak said.
This consumer is spent out,'' Howard Davidowitz, chairman of Davidowitz & Associates, said in a Bloomberg Television interview.When they say sales are up three-and-a-half percent, that's an absurd number. You've got 5 percent more stores. That's why retail earnings are in the tank.''
Target, the second-biggest U.S. discounter, said Dec. 24 that sales at stores open more than a year may decline in December after customer visits slowed in the weeks after Thanksgiving. It fell $1.31 cents, or 2.5 percent, to $51.16 at 4:01 p.m. in New York Stock Exchange composite trading.
It's perfectly appropriate - looks like "closing down" from bankruptcies or foreclosures is itself America's top "business" for the year 2007.
Now we go to our credit union and get told 9% for $25K!!
Welcome to the new reality, cash is king. Nowhere in the Bill of Rights are you guaranteed the right to cheap credit. Having to pay for other morons profligacy kinda sux, don't it?
You might want to try the Internet, I heard on NPR that there are "micro-credit" folks who will loan you money at rates lower than the banks.
Nova, Sell the 1st house and then go looking (begging) for a loan. Much better to bargain from a position of strength...
Thanks for posting this. Now, I understand what's wrong with this Lennar community. The marketing strategy is all wrong.
Creekside Crossing...that's way too yuppy for the market.
They should of called it Windswept Cornfield.
re: Lennar
Presumably, Lennar had a non-recourse loan on that Plainfield parcel, so the only downside to them walking away from the loan is reputational (i.e. will the next lender on the next loan look at them less favorably b/c of the default?).
Lennar is still a huge company, so realistically, assuming the "next deal" makes sense (and it will someday), they'll be able to get a loan at market terms anyway. The default will be swept under the rug. Makes more sense than paying off a loan when the loan is probably more than the land is worth.
The real question is, will Lennar default on a just a couple of these smaller loans, or is this just the first in a long line of defaults to come? If its the latter, I imagine it would have more dire consequences on their ability to borrow in the future.
Wow, I live in the ReMax world well what was their world.
jo6pac
Houses will continue falling, but what about travel and currency issues off shore??
Singapore's inflation accelerated in November to the highest in 25 years as consumers paid more for food and transportation.
The consumer price index jumped 4.2 percent from a year earlier, after gaining 3.6 percent in October, the Department of Statistics said today. The figure, the highest since May 1982, exceeded the median estimate of 15 economists surveyed by Bloomberg News for a 3.8 percent gain. Prices rose 0.6 percent from October.
The Monetary Authority of Singapore expects consumer prices to rise next year at more than double the 2007 pace, suggesting it will allow the currency to strengthen further to curb consumer price gains. The central bank in October said it would allow a ``slightly'' faster appreciation in the Singapore dollar to damp decade-high inflation by making imports cheaper.
I am sorry. It just boggles my brain. Two years ago it would have been 0 down and no problem.
Now, its 20% down with the great FICA, blah blah. What that tells me is not many people are qualifying. That means more 6% drops are coming.
Myself, All I want is enough room for a real library. :]
will that inflation there make computer stuff more expensive in America, as the dollar falls with home prices; is that a recession, or does higher oil imply stagflation or hyper inflation?
Creekside Crossing...that's way too yuppy for the market.
LOL. When I read that I thought... gee what's the 'creek' - the SAG Canal*?
*This is what comes to mind when I think of that part of Illinois - heavy industry meeting industrial agriculture. The Sag doesn't actually run through Plainfield but close by - about 5-10 miles and you can smell the industry if the wind is blowing from the SE.
Now in all fairness - Plainfield does have a nice 'old small town feel' in the older central 'farm town' part... but that's like three blocks.
The guy at Lennar who dreamed this one up should wear a sign.
GDP not adjusted for inflation.
Updated Summary of NIPA Methodologies
http://www.bea.gov/scb/pdf/2007/11%20November/1107_nipamethod.pdf
The Bureau of Economic Analysis (BEA) has recently improved its estimates of current-dollar gross domestic product (GDP), current-dollar gross domestic income (GDI), and real GDP as part of the 2007 annual revision of the national income and product accounts (NIPAs)
Real estimates of GDP
BEA uses three methods to estimate real GDP: The deflation method, the quantity extrapolation method, and the direct valuation method.
That's a hoot! Government agencies have no business giving out awards such as "business of the year". Serves them right, clowns.
Re: Inflation: The dollar traded near a two-week low versus the euro on speculation reports will show falling consumer confidence and home sales, spurring the Federal Reserve to cut interest rates further.
The U.S. dollar has weakened against 14 of the 16 most- active currencies this year, as the Fed lowered its benchmark borrowing cost three times to 4.25 percent to support economic growth. The currency fell 8.8 percent against the euro, compared with last year's 10.2 percent loss and dropped 4 percent against the yen, after rising 1.1 percent in 2006.
The deteriorating housing market will slow the U.S. economy,'' said Yuji Saito, head of the foreign-exchange sales department in Tokyo at Societe Generale SA, France's second- largest bank by market value.This will force the Fed to cut rates. The dollar's decline will really get going next year.''
The dollar traded at $1.4477 per euro at 9:57 a.m. in Tokyo, from $1.4489 yesterday, when it reached $1.4505, the lowest since Dec. 14. The U.S. currency was at 114.36 yen from 114.34 yen. The euro traded at 165.57 yen, from 165.68. The U.S. currency may move between $1.40 and $1.55 a euro and 100 yen and 118 yen next year, Saito forecast.
Re: dollar and inflation adding pressure to housing decreases and both related to oil
Do not cast aside the possibility of $100 oil just yet. Perhaps boosted by thin trading conditions, the February crude-oil contract ended the day at its highest close in more than a month, closing at $95.97, or just 2.3% below its exchange record close of $98.18, which was reached Nov. 23. Oil is up 57% this year on rising demand and geopolitical concerns, and the brief pullback that had traders considering a reduction in low prices has been run over by another climb higher. Interestingly, open interest has declined, and commercial traders have reduced their short positions, which means the activity today doesnt represent a squeeze, writes Adam Michael in Minyanville.com. I dont think there is a catalyst besides general demand, he writes.
When I moved from Chicago 2 1/2 years ago there were still plans for a third airport out near plainfield. (the green grass site) Anyone know if that is still happening? Lennar probably overpaid for the land since land speculators had grabbed most of the open green space in anticipation years ago.
inflation and housing glut
HE price of gold is set to remain high in 2008, putting it on track to break $US1,000 an ounce for the first time, as the yellow metal continues to offer investors a safe haven from volatile financial markets and supply remains tight.
During 2007, the price of gold has traded in a $US243.50 range, from a low of $US601.90 in January and a high of $845.40 in November, as investors sought a hedge against rising global inflation and equity, debt and foreign exchange markets wobbled.
In 2008, gold is tipped to rise to a 28-year high of $US850 in the first quarter as financial markets jitters prevail, and could reach as high as $US1,100 by December, market watchers say.
The chief executive of the world's third largest gold producer, AngloGold Ashanti, Mark Cutifani, is very confident about ongoing strength of the gold price.
"You can take gold anywhere in the world and there will be a buyer, which can't be said for many other commodities,'' he told AAP in an interview.
Mr Cutifani predicts gold to remain above $US800 in 2008 on the back of heightened demand, "not taking into account factors such as the high oil price and instabilities in currencies''.
O.T.,
How much would a person have to pay property taxes on 1.7 mil home?
My neighbor bought his house at the top of the top, about 8 months ago, for 1.7 in socal.
I don't like the guy, he's loud and obnoxious, and I heard him say that "This house is sucking me dry." and then he said, "$8,000" and that was all I heard.
I figure the 8k was his monthly mortgage, but I don't know if that would include his property taxes as well.
I must say that if he has to sell his house for some reason, I'd be very happy.
That's a hoot! Government agencies have no business giving out awards such as "business of the year". Serves them right, clowns.
JD | 12.26.07 - 9:45 pm | #
JD - did you even read the article?
The major Valley real estate brokerage that closed its offices days before Christmas had been named Business of the Year last year by the Chandler Chamber of Commerce.
Even right wing ideologs have to know the CofCs are NOT gov't.
O.T.,
How much would a person have to pay property taxes on 1.7 mil home?
I think that one depends on where you live.
Business - Amex sees peso at 40 to $1 in 12 months - INQUIRER.net
In its global outlook for 2008, the London-based global economics unit of Amex said the US dollar was already very weak against the euro and most currencies other than the Japanese yen and the Chinese renminbi.
If the United States were to avoid an economic recession, Amex said an increase in the Federal Reserve overnight rates could be expected, thereby allowing the US dollar to recover.
The US economic outlook is highly uncertain at present with recession risk probably at 40-50 percent. We still expect that Fed rate cuts and an easing of the financial crisis will help to avoid a full-blown recession but growth will be slow, Amex said. But in a US recession scenario, Amex said the euro would likely surge to new highs and the yen would likewise rise against the dollar, with carry trades drying up.
In urban CA, property tax on a residence is in the 1-1.2% range. The house should be assessed at the selling price, but it might take 6-9 months to make it to the tax bill. The tax would be ~20k$/yr for the example given by Root Canals
Property tax fix: Use computers to keep values in step with market - Salt Lake Tribune
Lawmakers are hot to reform property taxes in the Legislature early next year.
That has not been the case in pockets of other counties. Angry property owners in Bountiful (Davis County) and Ogden Valley (Weber County) are spearheading a tax protest movement.
Utah's system is designed to keep government revenues stable. As real estate values go up, the certified tax rate goes down. The two exceptions that cause higher tax receipts are additions to the tax base caused by growth, such as new housing or property improvements, or tax rate increases approved by local governments and school districts.
Creekslime Crossing?
I doubt walking away from this mess is as easy for Lennar as some think. They've built finished homes there and have others under construction, according to press releases.
You can't just let little kids play in a slimy, toxic-filled creek. You can get in trouble for that.
My partner & I make above average wages for our area. Bought a small house on acreage within good commute to "destination jobs". 30yr fixed at 6%, with 8% down, over 2 years ago.
Our incomes have gone up, house value has gone up (reasonably, not bubble-y, we have a nice chunk of equity, and we want to build a garage, as all previous outbuildings were demolished due to extreme old age.
Now we go to our credit union and get told 9% for $25K!!
At that rate, we'll build the damn garage ourselves, stick by stick.
It's sad - I can borrow money at a little over half that interest rate to gamble in the stock market. Basically somebody will loan money at a cut-throat rate to subsidize a giant poker game. But financing an endeavor that produces something real costs an arm and a leg.
I guess that's why we're in the mess we're in.
In June 2004, RBC Centura agreed to lend $26 million to a Lennar-led venture to finance the project.
I think we missed the "led" in the article. Sounds like a REIT or off balance sheet Enron like special purpose vehicle that protects (maybe) LEN from liability. Hopefully more info to come.
Jim
Is that doc holliday posting under anonymous??? Geez, enough with the pastes already.
BTW, property taxes in CA run 1.25% of purchase price, so a $1.7M place would be over $20K annually.
NC Jim - You're absolutely correct. Big homebuilders set up tons of VIE's (variable interest entities) and gamed the FIN 46 rules to keep the VIE's off the books. The only place they show up is in the footnotes of the financial statements. Expect to hear lots more about these arrangements in 2008.
Ah Nova, 30% down, that is music to my ears.
Thanks for reporting.
The Bureau of Labor Statistics has the Nov. '07 Consumer Price Index here:
ftp://ftp.bls.gov/pub/news.release/cpi.txt
Up more than 4% from Nov. '06
US President George W. Bush said Thursday he was "fine" with foreign investors snapping up hefty shareholdings in top US banks and financial firms.
Speaking at a White House press conference, Bush said America welcomed overseas investors and warned against protectionist sentiments.
"I'm fine with capital coming in from overseas," Bush said, adding "I don't think it's a problem."
Bush, a former oil executive and businessman, spoke a day after Morgan Stanley, one of America's biggest and most prestigious investment banks, said the state-controlled China Investment Corporation (CIC) had obtained a five-billion-dollar stake in the bank.
Morgan Stanley, like other big US financial firms, is reeling from multibillion dollar losses tied to the US housing slump and tighter global credit markets.
The deal enables CIC to gain up to a 9.9 percent shareholding in Morgan Stanley. It followed a similar deal last month which saw a United Arab Emirates investment fund become one of Citigroup's biggest shareholders through a 7.5 billion dollar investment.
Citigroup is America's second-largest financial group by market worth.
CIC grabbed a three-billion-dollar stake in the Blackstone Group, a large US private equity firm, earlier this year and China's CITIC Securities Co. Ltd. bought a six percent shareholding in Bear Stearns, another troubled US investment house, for one billion dollars in October.
Bush said he was not concerned by the flurry of deals mounted by funds controlled by foreign governments. The deals have so far not given the funds control over management at Morgan Stanley and the other firms.
"I think the world that is open for investment and trade is a world that'll lead to overall prosperity," Bush said.
Jim,
There's no "led" in the original press release announcing the grand opening of Creekside Crossing last January. These are "everything included" (EI) duplexes. They are described as one of 25 new Lennar communities throughout Chicago.
Creekside Crossing duplexes: Everything's included :: :: Homes
Get this: "Features at Creekside Crossing duplexes will include a fireplace, nine-foot ceilings, and a deluxe master bath with a separate shower and soaking tub. Homes will also include a fully equipped kitchen; air conditioning; and 12-by-12-inch ceramic tile in the foyer, powder room and kitchen."
I'm jealous. My ceramic tile is small.
You know, the funny thing is, VIE's (formerly known as SPE's or Special Purpose Entities) were originally established and approved to make the financial statements more relevant.
That is, if a company were to have a stream of transactions unrelated to its core business, and those transactions were to be limited in duration, it might be better to keep any resulting windfalls or losses off the books as reporting them might confuse readers of the financials as they compare last year to the current and try to make sense of the continuing business.
Of course, the ink wasn't dry before people found a way to manipulate the highly codified rules.
BTW, this is why SFAS 157 and 159 were nixed. There were rumors that some entities were going to use the strictness of the rules to attempt to book gains based on a revaluation of liabilities. That is, a company in unstable condition could devalue their own liabilities based on the market value of those liabilities.
In the article AllenM posted re: HELOC disintegration, I was really amused by the last two paragraphs:
"SunTrust's mortgage loans lost $161 million in value during the third quarter, with the most pronounced decay in home-equity loans and loans that borrowers did not have to document their income to obtain.
The sensitive areas of the portfolio include home-equity loans to people with bad credit and loans that are not secured by enough collateral, Freeman said."
Who would have ever thought the no-doc, bad credit, under-collateralized loans would have been a problem??? Time to reap the whirlwind, folks.
The MBA's application index fell to 603.8 from 653.8 the previous week.
Refinance volume fell 8.5 percent during the week, while purchase volume dropped 6.6 percent. Refinance applications accounted for 53 percent of total mortgage applications during the week ending Dec. 21.
The index peaked at 1,856.7 during the week ending May 30, 2003, at the height of the housing boom.
An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked application volume. A reading of 603.8 means mortgage application activity is 6.038 times higher than it was when the MBA began tracking the data.
Wrongway Bush strikes again!
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