Speaking of hurt...

http://i75.photobucket.com/albums/i303/blonderengel/christflorida.jpg

“This is a capital intensive business in which lending capacity has diminished because of the absence of securitisation, while the fundamentals are driven by the overall economy so both occupancy and rents are declining.”

Did securitization lead to overbuilding?

Where is the glimmer of hope? Was it the reflection on the water as it circles the commode and goes down the drain?

Did you buy it from Geithner?

//Third place, I must have a conterfeit monkey.//

Lucifer (profile) wrote on Wed, 4/29/2009 - 1:38 am

"Did you buy it from Geithner?"

He told me it was FDIC-insured.

Perhaps "green shoots" refers to CRE developments that have been reclaimed by nature?

If anyone knows who is buying SPG @ $48/share please give me their names. My $40 May puts demand blood.

--
Ah, another subject where CR refuses to admit that he was wrong when he claimed that CRE (CR’s Error!) was not as overbuilt as RRE. What CR failed to understand, or think, was that the demand for CRE can easily go down 10-15% in a bad economy while it is very hard for RRE demand to go down by 10-15%.

Degree of overbuilding is a matter of future demand and those who have proven themselves to be very bad at figuring out demand will never know how much overbuilding is taking place at any given time.

Jas

....and I guess the pork industry raised Hell about it being called the Swine flu (pork sales went in the toilet) - so now it's called the Mexican Flu?? Good thing we don't eat Mexicans, I guess........

What the CRE community needs is those 100 year bonds Fisher wants the Treasury to issue.

Great interview with a very matter of fact researcher in Pittsburgh, PA
RAW: Dr. Henry Niman Talks Swine Flu - Video - WPXI Pittsburgh

Google map you see in the background of the interview
H1N1 Swine Flu - Google Maps

RE market still going strong here in Bethesda Maryland.

House down the street (1950's tract home, 4/3, no garage, about 2000 sf), listed last week for $840k, had open house on Sat & Sun, word is they have 4 offers already

There is no such thing as set demand. Demand is a curve dependent on price, which is dependent on supply. Let prices fall and eventually supply will be used, unless people are so rich that they conspicuously consume, refusing to rent or lend out their surplus houses despite potential income.

There is set supply, at a point frozen in time.

.....I said yesterday that they just don't think things out before pulling these dumbass stunts.......I'd be pissed too if I was Obama......

"FAA Memo: Feds Knew NYC Flyover Would Cause Panic"

FAA Memo: Feds Knew NYC Flyover Would Cause Panic - wcbstv.com 

RE market still going strong here in Bethesda Maryland. House down the street (1950's tract home, 4/3, no garage, about 2000 sf), listed last week for $840k, had open house on Sat & Sun, word is they have 4 offers already

BBAD is inadequate to describe such foolishness. Any suggestions?

I have a question of someone knowledgeable about CRE. I understand some of the CRE developers have taken out 6 year loans that are in fact amoritized over 30 years so they must be renewed every 6 years for I suppose 30 years. I also understand that these renewals are causing some difficulty today. Who offered these loans in the first place? Were they the commercial banks or were there more complicated intermediaries involved?

--
CR: "In fact I was the VERY FIRST person to raise the warning flag on CRE."

Were you not the one to claim, in early 2008, that CRE was not as overbuilt as RRE?

Can you support your claim now that lot more data is available?

Q1: How much (%) overbuilt was CRE at the end of 2007?

Q2: How much overbuilt was RRE at the peak?

CR's silence would speak volume. Dopes don’t answer when they would be proven wrong by an honest answer.

Jas

Black Star Ranch (profile) wrote on Wed, 4/29/2009 - 1:56 am
reply Ignore user

.....I said yesterday that they just don't think things out before pulling these dumbass stunts.......I'd be pissed too if I was Obama......

"FAA Memo: Feds Knew NYC Flyover Would Cause Panic"

FAA Memo: Feds Knew NYC Flyover Would Cause Panic - wcbstv.com

Didn't you know that the primary mission of the US military is to enhance Obama's celebrity?

Equilibrium is the classical myth, of course. But second homes, doubling up, extra bedroom, home-office decisions are somewhat price-elastic.

Extreme Home Makeover Depression Edition

Inquiring minds are watching a pair of videos from Southern California. Allegedly, banks acquired brand new homes in foreclosure processes, the homes were not quite finished and the banks razed these homes rather than fix code violations.

There you have it. Brand new nearly completed homes have a negative value because of regulations and are therefore destroyed.

Mish's Global Economic Trend Analysis: Extreme Home Makeover Depression Edition 

RRE with negative value!

There you have it. Brand new nearly completed homes have a negative value because of regulations and are therefore destroyed.

Those evil regulations again! Regulations are the cause of all of our problems!

I swear there are buildings along the 101 in Silly Valley that have yet to be occupied since the dot-com bust.

--
I posted during 2007Q4:

"Combine this with the overbuilding and you have the makings of the Bust Of The Century in RE [CRE plus RRE]. BTW, the shopping sqft increased by 30%+ during 2003-07 [locally] and That is lot more than the population increase. Therefore, we will have a CRE bust at the same time leading to big employment bust."

Jas

"the world still doesn't understand that the problem is overcapacity."

Of course they understand overcapacity.

The problem is that each participant believes that they are the better survivor.

Tragedy of the Commons.

"Hey Jas (or anyone else),
I'm trying to figure out how you can have a deflationary depression at the same time that Bernake/Geithner are flooding the market with treasuries, qualitative easing, and dumping hundreds of billions of dollars onto the balance sheets of banks."

I, for one, don't think we can have a deflationary depression. I think Jas is wrong. Jas should see what is happening in my market, the MBS market. The Fed is the ONLY buyer, as I have said many times. Spreads of MBS over Treasuries (the "mortgage basis") were are ridiculously low levels today, far below what a rational buyer would pay even in a bubble market. I expect there will be 1.75T of new money printed just to support that market alone.

I believe BB will stop at nothing, he is already buying Treasuries, MBS, Commercial Paper, toxic loans from Bear and AIG, possibly equity indexes, student loans, etc. He will buy any and all debt in the US eventually, at any price he sees fit to stimulate the economy.

I have a feeling we are soon going to get used to the term "misery index" again.

One explanation I've seen (though am not competent to evaluate) about why "REITs are on fire" is that the market had priced them for bankruptcy when credit became tight since they are very capital-intensive.

Recently Bernanke informally told a group of REIT owners that the Fed will start purchasing CMBS.

Financial firms, such as MER (now BAC) have been orchestrating equity and debt offerings for the REITs so as to have their own loans repaid. To this end their analysts have been issuing upgrades (ostensibly due to improved credit conditions) to facilitate said offerings.

Between the access to capital from the Fed, from the private sector, and the upgrades, REITs have been given ample reason to rally.

Of course, if you have a longer term view, this is an invitation to short them or buy SRS etc.

The destruction of those newly built "model homes" is a net waste of resources, and someone will pay a heavy price (probably taxpayers) even though semantically we are always at equilibrium in perfectly efficient markets.

Avl Dao,

With all due respect.. the PTB have no real powers or ability.. they never had. Luck and a little showmanship is not ability. Think of the "professor" in wizard of oz.

Humans are insignificant.. the universe is far more stranger and has more possibilities than you can imagine.

--
Hymns for the Lord,

There is a detailed break down of Vacant Units in the census report that I posted link for:

Housing Vacancies and Homeownership - First Quarter 2009: Table 4

Jas

CalculatedRisk,

I was just trying to play Jas-lite, given that he is logged in..

I have friends and relatives in commercial architecture, entitlements, development, etc. Almost nothing in the way of new projects, and many are finishing up because otherwise the developers are sure they have blown the money to date.

This brings up a different subject: I'm frequently asked about blogging, and I tell people to write about something they are passionate about - and that they had better have thick skin! I've been told i'm wrong on most of my predictions - and this is my fifth year - and I'm still enjoying blogging and enjoying almost everyone.

CR you sir are a rare breed because as Broward said above "The problem is that each participant believes that they are the better survivor" and because more and more people on 'the Internets' think what they have to say is prescient or profound and with Twitter microblogging the signal to noise ratio is off the charts.

CR - since you are checking in - can you please react to my earlier question from 10:07pm

the Fed said that in the more adverse stress scenario CRE loss rates will be 6% per year.
In the CRE world, what level of loss rate would correspond to 4% delinquency rate?

CR,

Don't feel bad. I'm still predicting LA home prices will drop to half of their current levels. People who heard my earlier predictions still gasp. They know I was right before, but they still have trouble wrapping their minds around a 65-70% drop from peak.

--
Leamer commnets that I posted in December, 2008:

“In recent quarterly forecasts they had suggested the state might dodge the recession. But forecast Director Edward Leamer said the financial crisis that erupted in September and October had ‘unleashed a tidal wave of fear’ that caused spending and investment to collapse, confounding all the forecast’s expectations.”

“‘When you do forecasting you look at historical trends and try to project how they might play out,’ Leamer said. ‘But nothing such as this has ever happened. Everybody is relying on hunches.’”

Bleak forecast for California's economy

You decide.

Jas

--
"Lucifer, Oh. Jas ... I just ignore him. best wishes."

Classic, CR.

BBAD are bred to ignore valid criticism and facts that prove them wrong. They always try to discredit those who challenge their worldviews.

This blog is a good study of how BBAD behave and remain dopes-for-life that they arre supposed to.

Jas

--
Gavshire Hathaway,

People have been saying that I am wrong about deflation for a very long time. This is one area where I have received the most hate mail, including more than 100 personal e-mails over the past 3 years. I have been attacked by dopes for my holdings of USTs, including on this blog.

Deflation would result from the continued depressed "aggregate demand" for goods and services as well as gross built up of supply in many areas during the boom. CRE is just one example of the gross overbuilding that CR totally missed. All of Ben's magic is not filtering thru to the consumers. Only to the bankers and financiers.

CR is a good reporter but a lousy economic prognosticator because he does not understand the demand side of the equation very well.

best to all.

Jas

Thanks Jas & Ghost -- comments much appreciated!

@ Jas "All of Ben's magic is not filtering thru to the consumers. Only to the bankers and financiers"
I agree i.e. The Triumph of the Banking Oligarchs continues at huge taxpayer expense and Obama ain't correcting

"Silence on a forum like this could mean someone has something better to do than respond to a dopey dope, especially one who repeats everything ad nauseum."

Yep Jas has exceeded my tolerance for annoying repetition. Fortunately Ken has provided a solution.

Hey, did you see what T-Bills did today? I think mp's clock was a tad fast, but we are getting close.

--
"I wish somebody did a nice Japan vs US timeline comparison on the action taken by the central bank"

Sepoy,

Nomura: US-Japan Balance Sheet Recessions . . .‏

http://www.csis.org/media/csis/events/090326_koo_presentation.pdf

I have a copy of an earier report (very good) but don't have the link.

best to all.

Jas

I think mp's clock was a tad fast, but we are getting close.

Has mp been seen recently?

"Has mp been seen recently?"

I have seen posts on occasion. Pretty sure I've seen one in the past 3 days.

You guys can't get consumed entirely with the idea that price deflation and/or hyperinflation are exclusive and all-encompassing. There's no reason some things won't skyrocket while others continue to plummet. It happened with Weimar, and I expect it will happen again.

Sure, the Fed's printing money, but once it's injected they have very little control over where it goes (if anywhere). Regardless, the Fed still isn't creating nearly enough to offset what's still being destroyed. If (and when) they do, watch out... there's no middle ground.

JP... nice post... thanks. My 20 year old econ degree needs a refresher from time to time. I've seen a number of charts posted here (I think from the fed) that would suggest velocity is dropping rapidly, which I guess intuitively we all understand.

Where is the tipping point for the fed? At what point does the expansion of their balance sheet cause some monumental event?

Who thinks more people will die as a direct result of the collapse of the fraudulent R/CRE/credit/debt market than the Swine Flu ?

The answer is clear.

"At what point does the expansion of their balance sheet cause some monumental event?"

When China/Japan stop attending bond auctions would be my guess. They may even only need to publicly threaten to do so, to kick off an event.

--
"CR is no dope."

Crab,

With all due respect you are not the best judge of a BBAD (I have been studying them for eleven years). CR is a dope all right because he has problem with admitting his mistakes when they are pointed out, at first, and then proven by subsequent facts/data. Then he does something worse that only dopes do--ignore the facts and criticism and try to discredit those who point out the problem.

Sorry, if some are offended by the truth.

Jas

JP, you make sense. You are consistent with my article.

p.s. Just saw a forecast by Toyota on their profits for FY. It's about -4bl. It's time we call our carmakers the Government Motors, cause they are screwed. (name first used by zerohedge).

Syvanen-

CRE owner/investors have traditionally put debt on their properties that makes sense for their investment timelines. Historical CRE debt terms ranged from 5-10 years, with 25 to 30 year amortization schedules and possibly several years of interest only prior to amortization. In the past several years (up until mid-2007), a significant portion of these were underwritten by large banks and sold into the CMBS market.

At the end of that term, the owner needs to refinance with whatever debt is currently available.

Today, debt for CRE is scarce - expirations are rarely further out than 3 years, and LTVs are far lower than in the recent past. Almost no debt is being securitized (I say almost because there has been a tiny amount done), so most loans are being held by banks or purchased by the agencies (primarily on multi-family properties).

CRE owners that need to refinance in the coming 6 to ? months are in a dire situation. Banks are generally not fond of taking properties in default, so they are sometimes extending terms for a year or so to weather the current storm.

The REITS who have had successful follow-on equity offerings recently have essentially saved themselves from ruin by raising equity capital to pay off expiring debt.

Recession meme, just for the fun of it.
I'm surprised that "recession" is still a rising keyword.
I can't prove it but I'd say the odds favor an ominous interpretation.

http://www.realmeme.com/roller/page/realmeme?entry=recession_2009

--
In CRE it is the third owner that makes money (I forget the person who made this comment on Bloomberg).

Jas

crabs, it's useless. It's like replying "no thank you" to an email for cheap meds.

10% would be way high in the recent context of commercial real estate. But finding debt at all these days is challenging.

I think general prices will be falling as long as BANKS are ridden with bad loans on their books. Banks usually take a part in creating money thus sustaining normal inflation. If they have bad loans, they can't loan money. If they can't loan money, available money supply is reduced.
So the longer we keep Zombies afloat, the longer there is an extra deflationary pressure. That's what happened in Japan during 90's.

Jas, if you were going to play the CRE implosion, what would you do?

Taken to the extreme, why can't the Fed just print however many trillions of dollars it takes to recapitalize banks?

My accounting identity MV=PT is just arithmetic, but behind the equation is something profound: What induces somebody to go out and make a transaction? Consider the following 2 scenarios:

1. Bernanke prints enormous amounts of money and injects it into the banks. (Specifically: BB prints money to buy brand new treasuries, and then Geithner uses the money to buy preferred shares in the banks.) The banks are replenishing their regulatory capital, so they hoard it. The general populace knows that they lack regulatory capital, so they expect the banks to hoard the money.
2. Bernanke inserts $10,000 into every man, woman and child's bank account. (Specifically: BB prints money to buy brand new treasuries, and then Congress gives everyone a big-ass tax credit.) He promises more in the future.

Now in scenario 1, everyone expects the banks to hoard so they do the logical thing and hoard money as well. In scenario 2, everyone expects money to buy less in the future (ie, inflation will rise), so they convert their new-found cash into goods.

So the answer to your question is really: How does Ben set expectations for the populace that there will be more money coming to them, but not so much that they should convert every last cent into goods?

It's a real problem, because BB has monetary interfaces only to the banks and the Treasury. (His monetary interface to the populace via interest rates is closed now that interest rates = 0% on savings.) Congress/Obama is the monetary interface to the populace, but the populace (rightly) assumes that their hands are full taking care of the banks and special interests.

Until somebody convinces the population that more money is coming their way, they will continue to spend less and hoard money.

As an addendum: There is an additional constraint that injecting money into the banks is labeled "socialist" in the present FoxNews driven environment. So direct recapitalization by buying shares is politically untenable.

OT: Italians Raid Zimbabwe-Style Banks & Take Pirate Loot
FT.com / UK - Milan police in raid on bank assets

An investigation into an Italian derivatives scandal that has ensnared four investment banks was dramatically escalated yesterday after police said they had seized assets of more than €450m ($590m, £400m) belonging to the banks.

The assets include stakes in Italian companies, real estate and bank accounts owned by UBS, JPMorgan, Deutsche Bank, and Depfa, a German bank specialising in public finance. They were seized on the orders of a judge after a request from the public prosecutor in Milan, who is investigating the circumstances surrounding a €1.6bn bond issue by the city in 2005.

The city of Milan is suing the four banks in relation to losses it claims to have incurred on derivatives contracts linked to the bond issue that swapped a fixed rate of interest for a floating one. The city accuses the banks of misleading officials about the details of the interest rate swaps, which it says were not in the best interests of Milan.

The aggressive step by the prosecutor, Alfredo Robledo, is unusual and might have been undertaken to underline the seriousness with which the prosecutors intend to pursue the charges, according to several people familiar with the case. They said it did not signal any judgment or suggest that the banks were on the point of losing the legal battle, which began late last year and was "nowhere near being concluded," one person said.

>
****** Grazie a Dio per questo miracolo!

Jas @ 7:23 pm,

Please read my post at 7:02 pm.

I asked you why you exclude certain categories from your definition of demand.

Those categories are from the table you pointed me to in your reply!

(Naturally I had already seen that table since that is where those categories came from.)

I would still like to hear your explanation.

Thanks.

Much thanks JP. My fear is that BB has decided that deflation can't be stopped, but that option 1 is better than option 2. I'm also skeptical of the "transparency" we're being promised, and I'm not sure that BB/Geithner feel compelled to explain their actions to Congress &/or Fox News. I'm beginning to think that we could have a deflationary depression, with the money center banks coming through just fine by the government's various injections. The long term implications would be that resources will continue to be mis allocated, the real economy would grow at a depressed rate (if/when it ever recovers), and we'll continue to go through boom/bust cycles indefinitely.

Following up from previous thread, now that family is in bed:

@Jas and Lucifer - I agree, it's not a person's academic credentials (or lack thereof) that makes what they say here credible (or not). But it's a gross logical error (stereotyping) to assume that anyone with XXX credentials is automatically going to have properties YYY. For that matter, no one here in quasi-anonymous blog-land should expect anyone to agree with what anyone else says just because of who said it. But the objective data is now out there and many of us have pointed to it, so it's up for you to decide for yourself. I still believe the full-blown flu pandemic scenario cannot yet be ruled out by any data I've seen.

@Avl Dao: Glad to see you dropped in! I'm very sorry for not hat-tip referencing you by name. (I didn't consider my commenting that important!) I note that few people in blog-land give proper "hat-tip" name citations to the authors of news articles, either. The blogging world today is much like the early world of scientific journals and pamphleteering, and I think we'd all be better off to give each other more credit. I will strive to do better.

@energyecon and a few others: I see we're thinking alike. The mortality rate will continue to evolve with the virus. I wonder if it's possible that there's been a slight shift in the Mexican virus which doesn't show up on the lab checks, but which has dramatically boosted the lethality for a subset of the cases?

Looking at the rate of spreading / exponential growth - if we assume a single index case back in late February and a minimum of 10,000 cases in Mexico alone now, then that's at least 13 doubling periods in 60-70 days, or about 4 days per doubling. (I think 10,000 is way low, but one can adjust for whatever it takes to yield 2000 "officially counted" hospitalizations in a nation whose response has clearly been less than optimal. I am noting anecdotal evidence that ambulances and hospitals are refusing care now, which suggests a more dire scenario...)

A doubling time of 4 days gives a 2^10 increase (1024) in 40 days... That would mean adding three zeros every 40 days or so... if that were to continue worldwide, we'll be done before the end of June... 10,000 cases now, 10,000,000 by end of May. I worry that the 18 month scenario (e.g. from 1918-1919) may play out in less time, this time around, because people move much faster by airplane and auto than they used to by ship and train.

The other wildcard I see is that with early summer weather (in the Northern Hemisphere at least) perhaps the virus will find it tougher to survive. On the other hand, Mexico is further along with spring than nearly all the rest of the Northern Hemisphere (weighted by population), so this doesn't seem like a functional argument.

look, for all you folks who think REITs are on fire lately, do some simple graphs. They are on fire in the same way that almost everything was on fire since early March. It's a massive pump and dump folks. (see the insider selling pickup of late.) It really isnt anything special about REITs. The only thing surprising here is when you look at which stocks DIDNT follow the same trend as the overall market from early march, to early April. The last couple of weeks have been iffy, but the interesting thing about REITs is that they managed to track the overall uptrend despite increasingly awful news. My feeling about that is that counterbalancing the bad news was news that government "assistance" would end up spreading to CRE.