COLLATERAL DAMAGE
The Inevitable Unwinding of Assets and the
Impending Governmental Intervention
by Bill Laggner with George Karahalios
Bearing Asset Management
October 18, 2007
CR, OT but I thought you might find this Caterpillar article interesting: The company said several key U.S. industries it serves, including trucking and nonmetal mining, are "in recession," and its machinery sales to nonresidential builders are declining as fast as sales to the residential building industry, which it said was in "severe recession."
That bolded comment threw some industry analysts into a tizzy. Also, Caterpillar's profits were derived 19% from currency fluctuations.
Within these States, cities like Los Angeles, Las Vegas, Miami and Phoenix are leading the market downwards.
Although this implies that these are the MSAs experiencing the worst declines, actually, if you click through the link, the worst performing MSAs are Cape Coral (FL), Las Vegas (NV), Washington (DC), and Cleveland (OH).
In the Triangle area of North Carolina, prices were still moving up last fall and still had some momentum in the spring. Summer started to stall, and my guess is that prices are now dropping.
There's no doubt that FL and CA are big important states. But the map shows where the heartland of the recession will be, which is in MI, OH, IN, IL, WI, MN, and PA and NJ.
This is where the manufacturing jobs have left, where there is no hope for the regional economy going forward. It's the land that policymakers forgot by giving away the store to China. These states (except maybe NJ) didn't have the huge price run-ups of CA and FL. They have stagnant or declining populations and jobs. Inevitable state/local tax increases will push more population out. CA and FL will recover. The heartland won't. It will just decay for decades.
"I doubt any states have really seen price increases over the last 12 months."
CR,
These are median prices through August, so after the subprime freeze-up but before the jumbo falloff. Now with jumbos more expensive and harder to qualify for, the fall could be accentuated.
It will be interesting to see how it plays out here, in western Mass. The median price in this area is probably about $250-300,000. But there are a fair number of high-end (even a few $1m+) sales to people mostly relocating from the Boston and NY areas. But now they won't be able to sell their 3-br ranch in the expensive suburbs for $650,000 because no new buyer can get that loan at an affordable rate.
Here, the low-end, especially in the more rural "hill towns", is already suffering, with the middle falling moderately. Now I think the high-end will fall the most, with the middle holding up pretty well because of a really stable job situation (4 colleges and UMass, plus a couple hospitals, etc.)
Of course, once people can no longer afford to send their kids to a school charging $35,000 in tuition because MEW isn't available, things could turn sour...
Of course, once people can no longer afford to send their kids to a school charging $35,000 in tuition because MEW isn't available, things could turn sour...
Higher education is one of the most vulnerable industries in the U.S. There is vast overcapacity of colleges relative to U.S. job growth that requires (and can justify) college education at current costs.
I have a senior in high school this year and everybody is worried about admissions. I say relax. Many colleges will take just about anybody who can afford to pay, going forward. Especially state schools relative to out-of-state students.
Many colleges will take just about anybody who can afford to pay, going forward.
Yeah, well, that's the rub. $35-50K a year? For each student? Ouch.
As to the map, I'm shocked that Maine is a green state. Last I heard, very little was selling there, and that was in June. Realtors were having a hard time finding comps because there were no comps. Anecdotal, anyway.
"ZIP codes that are down nearly 20 percent compared to last year"
Man, try telling that to some of the bank/reo agents here in the Inland Empire.
Much more then 20% declines out here. There are homes that were trading at 325-350k a year or two ago that are now on the MLS for 200k and not selling. Lots and lots of examples like that in the Inland Empire.
"The heartland won't. It will just decay for decades." Rich
I think you are quite correct about this. Michigan has been losing population and jobs for years. Housing prices held up remarkably well for the longest time, but now, according to Zillow, house prices in Detroit have dropped 50% yoy; several of the suburbs are similar. Even tony Grosse Pointe has seen a 30% trimming. It is difficult to imagine a realistic set of circumstances by which the state could recover economically. There is nothing but deterioration, decay, and destruction as far as the eye can see.
Misery awaits for those who pray to (or have faith in) false gods. Only a born-and-bred dupe can be made to believe that the Fed and the Treasury can save the economy from depressions. History has proven, time and again, that they can't! Only history ignoramuses believe that the Fed is better at managing the economy now. It is worse than ever before and we are guaranteed a worse depression than ever before. Bernanke is a bozo who is fighting the last war.
Anecdotal- I believe Utah did see a price increase, my mother-in-law and acquaintances moved within the last 12 months. However, I'm guessing the next six months will allow Utah to catch up with the rest of the US in declines.
The Twin Cities have been produced a loud, sucking sound in the housing market this year, Y-to-learn.
Where rich would be wrong is in looking at the tristate and non-UMW (your def) and thinking this is anything NEW, not something that has been going on through the past decade. Which is where you are correct to distinguish MN and WI from the rest. (I can't speak to IL, but do note that population increase in itself is not enough; see PA.)
The graphic indicates six states where we can safely say that HPI appreciation NE 0. It also notes that my state (NJ) shows a slight decline; since the last two sales in my neighborhood both broke records, it seems safe to assume that the exurbs are starting to feel the heat.
Decay for decades? Well, I suppose I'd rather decay for decades that be in San Diego and being fed into a chipper-shredder for the next six months.
YtL - I'm with you. MN is not doing so bad. When I hear 'losses' and 'Minnesota', I just assume that someone is talking about the Gophers.
In Milwaukee, there is less dependence on manufacturing today - a few pillars remain: Harley-Davidson, P&H, Kohler,etc. - but mfg. is no longer the dominant sector it used to be. I'm just wondering what will come of all these homebuilders.
Speaking of MI - I was in the Detroit area recently, and I have to admit I was more than a little surprised that despite Detroit proper being about one step away from a DMZ, the economy in the northern suburbs appears to still be remarkably strong. I guess Eminem was right; 8-mile Rd separates the haves and have-nots.
Decay for decades? Well, I suppose I'd rather decay for decades that be in San Diego and being fed into a chipper-shredder for the next six months.
YtL - I'm with you. MN is not doing so bad. When I hear 'losses' and 'Minnesota', I just assume that someone is talking about the Gophers.
In Milwaukee, there is less dependence on manufacturing today - a few pillars remain: Harley-Davidson, P&H, Kohler,etc. - but mfg. is no longer the dominant sector it used to be. I'm just wondering what will come of all these homebuilders.
Speaking of MI - I was in the Detroit area recently, and I have to admit I was more than a little surprised that despite Detroit proper being about one step away from a DMZ, the economy in the northern suburbs appears to still be remarkably strong. I guess Eminem was right; 8-mile Rd separates the haves and have-nots.
stdf:
RE: Utah. The bubble has burst here. The two big markets (Wasatch Front & St. George) have seen price declines in the 2-5% range, more for the big houses. Inventories are rising quickly, & an aquaintance that was developing a subdivision on the fringes of the N. Utah population center said that people stopped calling this July.
OTOH some people are buying - I just got back from getting approval for my first home loan. However, we are in a rural county where noone has been building houses on spec, and we will walk away & keep squirelling money away for a few more months if the seller does not accept our offer.
You don't need college for a Mcjob, the job of the future. Once we're all flipping burgers part time at minimum wage, college won't seem so needed...
I wonder when the decay will spread to other states that are still holding up. How long can this "new economy" of flipping houses and shuffling paper hold up before decay is everywhere?
"She gets $1,400 a month in pension and Social Security from her days in the garment industry. After paying $500 in rent on an apartment in Pennsauken, N.J.....she's broke by the end of the month"
The moral is:
Have a paid off mortgage by the time you retire.
Of course if you would to poll the baby doomers( eh...I'm mean boomers) you would find about 1/3 will still be paying mortgages after retirement.
Minnesota isn't doing too bad - not yet anyway. But Ken Houghton is correct that housing in the Twin Cities is a mess - my guess is 'outstate' will be hit even harder but not until next spring (when lake homes come on the market big time).
There is a lot of mfg still in MN & western WI... but it isn't automotive. However a lot of it is housing sensitive - window plants & building materials... plus MEW sensitive 'toys' like Polaris & Arctic Cat.
We'll take a hit.
The only really bright spot has been ag & commodities and that's been out in rural Minnesota. Even without ethanol I don't see that going away real soon with the dollar as weak as it is - the stuff will export if it doesn't go into ethanol.
Overall the Midwest will see troubles but in non-automotive areas it won't be as ugly as areas dependent on automotive (MI OH IN).
IAS360 House Price Index Provides First Monthly View of Housing Price Trends Based on Neighborhood Level Data.
Integrated Asset Services, (IAS), a leader in default management and residential collateral valuation, just launched its monthly-reported IAS360 House Price Index (The page cannot be found.
The new Index represents the industrys first clear representation of U.S. housing market trends at a county level. IAS360 House Price Index is a comprehensive housing index tracking monthly change in the median sales price of detached single-family residences in more than 15,000 neighborhoods across the U.S. This data is then rolled up to report on the changes in 360 counties, nine census divisions, four regions, and the nation overall. The timeliness of the data, which is based on all arms-length transactions occurring in underlying neighborhoods, makes the IAS360 the leading indicator for housing price trends in the U.S. April Index: IAS360 County House Price Index
OT, but excellent summary to this point:
FSU Editorial: "Collateral Damage" by Bill Laggner 10/18/2007
COLLATERAL DAMAGE
The Inevitable Unwinding of Assets and the
Impending Governmental Intervention
by Bill Laggner with George Karahalios
Bearing Asset Management
October 18, 2007
That's based on Aug data.
CR, OT but I thought you might find this Caterpillar article interesting:
The company said several key U.S. industries it serves, including trucking and nonmetal mining, are "in recession," and its machinery sales to nonresidential builders are declining as fast as sales to the residential building industry, which it said was in "severe recession."
That bolded comment threw some industry analysts into a tizzy. Also, Caterpillar's profits were derived 19% from currency fluctuations.
--
California Sinking! Thanks, CR.
Have you changed your view on the recession yet?
Jas
That does it. I'm moving to Hawaii.
I wonder how they get their house-price data in cities like mine - NYC-- where realtors don't share data with mls.
Within these States, cities like Los Angeles, Las Vegas, Miami and Phoenix are leading the market downwards.
Although this implies that these are the MSAs experiencing the worst declines, actually, if you click through the link, the worst performing MSAs are Cape Coral (FL), Las Vegas (NV), Washington (DC), and Cleveland (OH).
hey,,,
Protect the Dip buyer's
Gaudia Ray
i know you said you were taking action today, but geez
House prices in NY are down. Not so much in NYC, but in the Metro area, they are down.
In the Triangle area of North Carolina, prices were still moving up last fall and still had some momentum in the spring. Summer started to stall, and my guess is that prices are now dropping.
Shnaps Parlor: Better move there quick or get priced out for ever...
MaxedOutMama: Most interesting!
This map is interesting, CR.
There's no doubt that FL and CA are big important states. But the map shows where the heartland of the recession will be, which is in MI, OH, IN, IL, WI, MN, and PA and NJ.
This is where the manufacturing jobs have left, where there is no hope for the regional economy going forward. It's the land that policymakers forgot by giving away the store to China. These states (except maybe NJ) didn't have the huge price run-ups of CA and FL. They have stagnant or declining populations and jobs. Inevitable state/local tax increases will push more population out. CA and FL will recover. The heartland won't. It will just decay for decades.
"I doubt any states have really seen price increases over the last 12 months."
CR,
These are median prices through August, so after the subprime freeze-up but before the jumbo falloff. Now with jumbos more expensive and harder to qualify for, the fall could be accentuated.
It will be interesting to see how it plays out here, in western Mass. The median price in this area is probably about $250-300,000. But there are a fair number of high-end (even a few $1m+) sales to people mostly relocating from the Boston and NY areas. But now they won't be able to sell their 3-br ranch in the expensive suburbs for $650,000 because no new buyer can get that loan at an affordable rate.
Here, the low-end, especially in the more rural "hill towns", is already suffering, with the middle falling moderately. Now I think the high-end will fall the most, with the middle holding up pretty well because of a really stable job situation (4 colleges and UMass, plus a couple hospitals, etc.)
Of course, once people can no longer afford to send their kids to a school charging $35,000 in tuition because MEW isn't available, things could turn sour...
Paulson and Bernanke will save us!
Higher education is one of the most vulnerable industries in the U.S. There is vast overcapacity of colleges relative to U.S. job growth that requires (and can justify) college education at current costs.
I have a senior in high school this year and everybody is worried about admissions. I say relax. Many colleges will take just about anybody who can afford to pay, going forward. Especially state schools relative to out-of-state students.
From time to time it is fun to visit here (if ya wanna keep in touch w/ CFC that is):
Countrywide Foreclosures (REO) Blog
CFC reos a/o Oct 16th: $Total Asking Price: $2,732,925,903
No, no, no. Move out of state & country to like New Mexico.....
Many colleges will take just about anybody who can afford to pay, going forward.
Yeah, well, that's the rub. $35-50K a year? For each student? Ouch.
As to the map, I'm shocked that Maine is a green state. Last I heard, very little was selling there, and that was in June. Realtors were having a hard time finding comps because there were no comps. Anecdotal, anyway.
Shnaps Parlor..^^^
"That does it. I'm moving to Hawaii"
There's no graph that is consistently more bullish than Countrywide foreclosures. Don't you wish you could buy 100 shares?
"ZIP codes that are down nearly 20 percent compared to last year"
Man, try telling that to some of the bank/reo agents here in the Inland Empire.
Much more then 20% declines out here. There are homes that were trading at 325-350k a year or two ago that are now on the MLS for 200k and not selling. Lots and lots of examples like that in the Inland Empire.
You should see my (low income) zip code in Miami. On every block multiple houses for sale, for rent, some boarded up. A big change in one year.
". . with the number of available homes in Chicago now twice what it was a year ago (126,986 compared to 61,107), buyers can confidently walk away from any asking price they think is too high."
"The heartland won't. It will just decay for decades." Rich
I think you are quite correct about this. Michigan has been losing population and jobs for years. Housing prices held up remarkably well for the longest time, but now, according to Zillow, house prices in Detroit have dropped 50% yoy; several of the suburbs are similar. Even tony Grosse Pointe has seen a 30% trimming. It is difficult to imagine a realistic set of circumstances by which the state could recover economically. There is nothing but deterioration, decay, and destruction as far as the eye can see.
--
"Paulson and Bernanke will save us!"
Misery awaits for those who pray to (or have faith in) false gods. Only a born-and-bred dupe can be made to believe that the Fed and the Treasury can save the economy from depressions. History has proven, time and again, that they can't! Only history ignoramuses believe that the Fed is better at managing the economy now. It is worse than ever before and we are guaranteed a worse depression than ever before. Bernanke is a bozo who is fighting the last war.
Jas
Alabama is looking very good with 5-10 % YOY appreciation.
"The heartland won't. It will just decay for decades." Rich
I'm not sure I agree with this, at least lumping all the "heartland" together.
I live in MN. MN has little in common with Ohio and Michigan as example.
I hardly think of MN as being a "manufacturing" state, although I guess it's possible.
Perhaps linking the industrial belt (MI, PA, OH, NJ), and then separately the upper midwest (MN, WI, IL) would work better?
last I checked, the populations of MN and IL have been INCREASING these last few years...
MN has its troubles... with Wells Fargo not doing so well, with Boston Scientific/Medtronic struggling, Northwest Airlines as well...
but MN has hardly been "hollowed out" by the manufacturing job losses...
someone correct me if I'm wrong... dryfly?
Anecdotal- I believe Utah did see a price increase, my mother-in-law and acquaintances moved within the last 12 months. However, I'm guessing the next six months will allow Utah to catch up with the rest of the US in declines.
The Twin Cities have been produced a loud, sucking sound in the housing market this year, Y-to-learn.
Where rich would be wrong is in looking at the tristate and non-UMW (your def) and thinking this is anything NEW, not something that has been going on through the past decade. Which is where you are correct to distinguish MN and WI from the rest. (I can't speak to IL, but do note that population increase in itself is not enough; see PA.)
The graphic indicates six states where we can safely say that HPI appreciation NE 0. It also notes that my state (NJ) shows a slight decline; since the last two sales in my neighborhood both broke records, it seems safe to assume that the exurbs are starting to feel the heat.
Decay for decades? Well, I suppose I'd rather decay for decades that be in San Diego and being fed into a chipper-shredder for the next six months.
YtL - I'm with you. MN is not doing so bad. When I hear 'losses' and 'Minnesota', I just assume that someone is talking about the Gophers.
In Milwaukee, there is less dependence on manufacturing today - a few pillars remain: Harley-Davidson, P&H, Kohler,etc. - but mfg. is no longer the dominant sector it used to be. I'm just wondering what will come of all these homebuilders.
Speaking of MI - I was in the Detroit area recently, and I have to admit I was more than a little surprised that despite Detroit proper being about one step away from a DMZ, the economy in the northern suburbs appears to still be remarkably strong. I guess Eminem was right; 8-mile Rd separates the haves and have-nots.
Decay for decades? Well, I suppose I'd rather decay for decades that be in San Diego and being fed into a chipper-shredder for the next six months.
YtL - I'm with you. MN is not doing so bad. When I hear 'losses' and 'Minnesota', I just assume that someone is talking about the Gophers.
In Milwaukee, there is less dependence on manufacturing today - a few pillars remain: Harley-Davidson, P&H, Kohler,etc. - but mfg. is no longer the dominant sector it used to be. I'm just wondering what will come of all these homebuilders.
Speaking of MI - I was in the Detroit area recently, and I have to admit I was more than a little surprised that despite Detroit proper being about one step away from a DMZ, the economy in the northern suburbs appears to still be remarkably strong. I guess Eminem was right; 8-mile Rd separates the haves and have-nots.
that = then.
Sorry, I can't type today. I can't seem to remember to close off italics, either.
That = Than.
See?!!?!?! Arrrghghgh
stdf:
RE: Utah. The bubble has burst here. The two big markets (Wasatch Front & St. George) have seen price declines in the 2-5% range, more for the big houses. Inventories are rising quickly, & an aquaintance that was developing a subdivision on the fringes of the N. Utah population center said that people stopped calling this July.
OTOH some people are buying - I just got back from getting approval for my first home loan. However, we are in a rural county where noone has been building houses on spec, and we will walk away & keep squirelling money away for a few more months if the seller does not accept our offer.
You don't need college for a Mcjob, the job of the future. Once we're all flipping burgers part time at minimum wage, college won't seem so needed...
I wonder when the decay will spread to other states that are still holding up. How long can this "new economy" of flipping houses and shuffling paper hold up before decay is everywhere?
"She gets $1,400 a month in pension and Social Security from her days in the garment industry. After paying $500 in rent on an apartment in Pennsauken, N.J.....she's broke by the end of the month"
The moral is:
Have a paid off mortgage by the time you retire.
Of course if you would to poll the baby doomers( eh...I'm mean boomers) you would find about 1/3 will still be paying mortgages after retirement.
Dallas area's home sales are a mixed bag. On this map I live in close in #11 north Dallas where sales prices are up 21 percent this year, however my neighborhood (The Meadows)has mostly price declines in the past six months.
Dallas area's home sales are a mixed bag |
News for Dallas, Texas | Dallas Morning News
| Dallas Business News
Dallas-Fort Worth home foreclosurs up 10% for year.
Dallas-Fort Worth home foreclosures up 10% for year |
News for Dallas, Texas | Dallas Morning News
| Dallas Business News
There is vast overcapacity of colleges relative to U.S. job growth that requires (and can justify) college education at current costs.
Higher education in the US is one of 3 taxpayer funded institutions that keep young people out of the work force and the unemployment rate down:
middle class - college
poor whites - military
poor minorities - priso
someone correct me if I'm wrong... dryfly?
I agree pretty much.
Minnesota isn't doing too bad - not yet anyway. But Ken Houghton is correct that housing in the Twin Cities is a mess - my guess is 'outstate' will be hit even harder but not until next spring (when lake homes come on the market big time).
There is a lot of mfg still in MN & western WI... but it isn't automotive. However a lot of it is housing sensitive - window plants & building materials... plus MEW sensitive 'toys' like Polaris & Arctic Cat.
We'll take a hit.
The only really bright spot has been ag & commodities and that's been out in rural Minnesota. Even without ethanol I don't see that going away real soon with the dollar as weak as it is - the stuff will export if it doesn't go into ethanol.
Overall the Midwest will see troubles but in non-automotive areas it won't be as ugly as areas dependent on automotive (MI OH IN).
IAS360 House Price Index Provides First Monthly View of Housing Price Trends Based on Neighborhood Level Data.
Integrated Asset Services, (IAS), a leader in default management and residential collateral valuation, just launched its monthly-reported IAS360 House Price Index (The page cannot be found.
The new Index represents the industrys first clear representation of U.S. housing market trends at a county level. IAS360 House Price Index is a comprehensive housing index tracking monthly change in the median sales price of detached single-family residences in more than 15,000 neighborhoods across the U.S. This data is then rolled up to report on the changes in 360 counties, nine census divisions, four regions, and the nation overall. The timeliness of the data, which is based on all arms-length transactions occurring in underlying neighborhoods, makes the IAS360 the leading indicator for housing price trends in the U.S. April Index: IAS360 County House Price Index