Wednesday, July 26, 2006

"I've never seen a soft-landing in 53 years"

From Reuters:

Mortgage lenders grapple with deflating housing bubble

Downward momentum in the U.S. housing market is leading some of America's biggest mortgage lenders to adapt business plans for even softer demand.

The lenders are launching new cost cuts and risk reduction strategies that suggest growing concern that the outlook is worsening for the $9.5 trillion home mortgage industry.

It marks another racheting down of expectations for the big players in a housing market where slowing sales have pushed inventories up 39 percent in the past year and set home prices on the path of decline, some analysts said. Builders of new homes, meantime, reported the lowest confidence about their prospects in June than anytime in the past 14 years.

Lenders are bracing for further declines.

"I've never seen a soft-landing in 53 years, so we have a ways to go before this levels out," Countrywide Chief Executive Officer Angelo Mozilo said on a Tuesday conference call. "I have to prepare the company for the worst that can happen."

At New Century, one of the nation's biggest subprime lenders, Chief Executive Officer Brad Morrice told Reuters the company has tightened some credit requirements as it puts "more thought into loans you want to make or don't want to make."
...
So far, house prices have not shown an overall decline. But as prices languish or begin to slide, homeowners relying on equity gains to make payments or subsidize other liabilities may begin to default on their loans.

"The housing correction has a long way still to run," Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York, wrote in a note to clients.
...
"We are very interested in what the Fed will do because we are testing the elasticity of borrower demand," said Morrice of New Century. "Not that there's a cliff, but with every rate increase you lose a few more borrowers."

Countrywide's Mozilo said. "The only thing that's really holding back the dam now is that we have good employment numbers."

39 Comments:

Blogger chicagofinance said...

OT: I was searching for my first post on the blog, when I came across an Anon that I believe must have been an early incarnation of Booya Bob.

I would liken it to watching Michael Richards playing Kramer on the first season of Seinfeld. The essence of "booya" was there, but it had not quite been refined to its familar form.

7/26/2006 04:00:00 PM  
Blogger RichInNorthNJ said...

But he needs to write in the third person more often!!

I get a kick out of that and would probably read his comments instead of scrolling past the all 3 successive postings.

Grim,

Ya gonna post the inventory numbers? I gots mine.

7/26/2006 04:25:00 PM  
Blogger Richie said...

It all comes down to how long people who have 2 mortgages can hold on, and how stubborn they are with their pricing.

The bottom won't fall out; it can't really happen as fast with homes as it could with stock prices. In order to close the deal, the deed has to be transferred and for the most part, that doesn't happen over night.

It's gonna be a long windy road downhill until this 'levels out'. You don't shoot straight up for 5 years, then slow down over 6 months and call it a plateau and expect to stay there.

-Richie

7/26/2006 04:45:00 PM  
Blogger Mr. Oliver said...

Bob aside,

Don't you think it is time to get rid of the anonymous trolls that have been popping up with more and more frequency? Aside from Mr. Booyah, they don't add much and throw around incindiary statements (easy to do when noone knows who you are).

Grim, I propose that we get rid of anonymous posting!

7/26/2006 04:47:00 PM  
Anonymous Anonymous said...

And don't you think Bob throws around similiar comments. According to him all sellers are grubbing,money hungry mouchers that shouldn't even attempt to get market value for their property.
Of course he claims to have sold at last year's peak. Think he reduced his price to give his buyers a prepeak dealor is he like everyone else that has or is selling?
An Annoymous John

7/26/2006 04:58:00 PM  
Blogger Metroplexual said...

This comment has been removed by a blog administrator.

7/26/2006 05:02:00 PM  
Blogger Metroplexual said...

CF,

I would even go back to the days of UHF where Richards starred as a kiddie show host with Wierd Al Yankovic which was proto- (paleo-?) Kramer.

7/26/2006 05:04:00 PM  
Blogger X-Underwriter said...

It absolutely blows me away how soon Mozila is announcing the death of the mortage industry. Just a month ago nobody in the industry had anything bad to say at all

7/26/2006 05:13:00 PM  
Anonymous Anonymous said...

Actually Mozila started getting into CYA mode faster than most. I seem to recall him making more cautious comments towards the end of last year. Or was that just layoffs and downsizing CWC's operations?

7/26/2006 07:15:00 PM  
Anonymous Anonymous said...

Poor Mr. oliver:

Put more pics of your cat up.

Cat pics: Whats next?

7/26/2006 07:19:00 PM  
Anonymous Anonymous said...

If you read the NY Times & NY Magazine and walk around Manhattan you would think that we are in an unprecedented time of hedonistic prosperity.

Condos are going up everywhere in Manhattan, Jersey City, Brooklyn & Northern / Western Queens and targeting the same customer - the under 30 single white corporate professional.

Everyone seems to have a ton of cash that they can pay for the trendiest of neighborhoods and for another $50,000 - $70,000 you can have your new condo apartment furnished when you move in.

7/26/2006 07:59:00 PM  
Anonymous UnRealtor said...

God I love that quote: "I've never seen a soft-landing in 53 years"


Booooya!

7/26/2006 08:05:00 PM  
Anonymous Anonymous said...

Wouldn't it stink if all of you wait for a 5 or 10% decline in prices and it really does happen in a couple years... but interest rates rise to 8-9% and you end up offsetting the housing bubble advantage with high interest rates?

DOH! You guys will be renting forever..........

7/26/2006 08:39:00 PM  
Anonymous Anonymous said...

"Wouldn't it stink if all of you wait for a 5 or 10% decline in prices and it really does happen in a couple years..."

Prices have already declined more than that since last Summer.


"but interest rates rise to 8-9% and you end up offsetting the housing bubble advantage with high interest rates?"

A mortgage can be refinanced, the purchase price is forever.

And my mortgage will be very small (50% down).


"DOH! You guys will be renting forever..."

Not the end of the world, as the interest income from money NOT spent on a bubble-priced house offsets almost 100% of my rent. My car was bought with cash. Zero debt.

Why embrace being a debt slave?

7/26/2006 08:56:00 PM  
Anonymous Anonymous said...

Anonymous said...
Wouldn't it stink if all of you wait for a 5 or 10% decline in prices and it really does happen in a couple years... but interest rates rise to 8-9% and you end up offsetting the housing bubble advantage with high interest rates?

DOH! You guys will be renting forever..........

7/26/2006 09:39:25 PM

Who's waiting for a 5-10% decline??? How about 30-40% in the next 3 years!!!!!!! What occurs if you have cash and don't give a s... if rates are 8% or 15%??? Do you think everybody requires 120% financing and then rack up the cc's to come up with closing??? PATIENCE,PATIENCE.PATIENCE!!!!!!!!!

BC Bob

7/26/2006 08:59:00 PM  
Anonymous Anonymous said...

Bob. ditto on the cash issue.

When your chunking down on the downpayment, interest rate is moot.

I remember when an 8% loan was free money...

We are old, buddy.

7/26/2006 09:05:00 PM  
Anonymous Anonymous said...

Pat

7/26/2006 09:05:00 PM  
Blogger grim said...

What's wrong with renting?

I don't understand why it has acquired such a negative connotation.

grim

7/26/2006 09:15:00 PM  
Blogger chicagofinance said...

Metroplexual said...
CF,
I would even go back to the days of UHF where Richards starred as a kiddie show host with Wierd Al Yankovic which was proto- (paleo-?) Kramer.
7/26/2006 06:04:15 PM

Excellent.

How about Fridays on ABC with Richards and Larry David?

Do we drink it?

No, no, no...no.

7/26/2006 09:15:00 PM  
Blogger grim said...

"A purchase price is forever"

I like that, reminds me of a DeBeers commercial..

grim

7/26/2006 09:16:00 PM  
Blogger RentinginNJ said...

DOH! You guys will be renting forever..........

Really? I have no debt, a good job and a sizable down payment saved. If I’m “priced out forever”, just who is supposed to keep the housing market going? Oh, I forgot, there is an endless supply of Wall Street moguls just dying to buy 2 bedroom Capes in Paterson.

If I’m wrong? Sayonara. I’m off to North Carolina with a nice down payment in my pocket.

7/26/2006 09:37:00 PM  
Anonymous Anonymous said...

what do folks think of hillsborough, nj in somerset county? pros. cons.

7/26/2006 10:43:00 PM  
Anonymous Anonymous said...

Thanks for the great blog Grim. I discovered this blog a week ago and it's been a huge help. We have a baby on the way and just started looking in Northern NJ (primarily Essex County) after giving up on Brooklyn and Queens. Housing options and prices aren't great and then I found out about the taxes! I knew there was a real estate bubble for years, and the irony is that my situation seems to be pushing me to make a home purchase at a bad time. Would love to wait a few years to see prices come down, but requirements of housing a family may not allow me to wait it out. Any suggestions? Keep up the great work!

7/26/2006 10:54:00 PM  
Anonymous Anonymous said...

The lenders have already dumped a fair amount of balast to stay afloat, but their still taking on water.

I actually think they're in the most trouble of any of the players in the sector. For years they pressured appraisers to "hit the number" and they wrote loans that are going to come back and bite them on the ass.

All of that securitization comes with buy-back provisions on early defaults. Investors are going to lose, but more than a few lenders are going under.

The question is, will the feds bail the biggest failures out?

My first inclination would be to say "screw 'em," but the government may not have much choice if the system collapses.

Lindsey

7/26/2006 10:54:00 PM  
Anonymous Anonymous said...

Pulte Homes Profit, Orders Drop ~~~~~~~

Pulte Profit, Orders Drop

By Nicholas Yulico
TheStreet.com Staff Reporter
7/26/2006 5:42 PM EDT

Pulte Homes (PHM - commentary - Cramer's Take), continuing to be hurt by a slowing U.S. housing market, reported a drop in second-quarter earnings and a 30% decline in new orders Wednesday. The homebuilder also cut its guidance once again for the year.

Pulte's earnings from continuing operations fell to $243.9 million, or 94 cents a share, from $305.2 million, or $1.16 a share, a year earlier. Analysts expected earnings from continuing operations of 90 cents a share, according to Thomson First Call.

Net income, which includes losses from discontinued operations, fell to $243 million, or 94 cents a share, from $303.7 million, or $1.16 a share.

Revenue rose 3% from last year to $3.36 billion, beating analyst estimates of $3.30 billion.

However, new orders -- a key predictor of a homebuilder's future growth prospects -- fell to 9,455 homes from 13,581 a year earlier. Pulte's backlog was valued at $6.9 billion at the quarter's end, compared with a value of $7.8 billion a year earlier.

Pulte slashed its 2006 earnings projection to $4 to $4.30 a share, down from the guidance it gave in early June of $4.70 to $5 per share. Analysts, on average, had forecast a profit of $4.44 a share.

"Our second quarter results reflect the changing dynamics being experienced in the homebuilding industry," Richard J. Dugas Jr., Pulte's CEO, said in a statement. "After several years of limited house inventory and robust demand, the supply of homes for sale continues to increase, while greater buyer uncertainty about purchasing a home at this time is being further impacted by their inability to sell existing homes and the effect higher prices and interest rates are having on overall affordability."

The company experienced a 270-basis-point decline its gross margin to 21.1% in the quarter, partially dragged down by a $62 million write-off resulting from adjustments to land inventory and land held for sale. This charge includes the write-off of depositions and pre-acquisition costs association with land transactions the company no longer plans to pursue.

7/26/2006 10:59:00 PM  
Anonymous Anonymous said...

Homebuilders failed to control inventory in 2005. Bad and greedy and with full knowledge. Pay the piper time.

Bet on black, better be able to take the red, or double down.

Sounds like they are out before they even double down.

7/26/2006 11:21:00 PM  
Anonymous Anonymous said...

Hillsborough:

Pros: location; centrally-located for drives both into PA and Princeton area. Schools vary but generally good. Soccer Moms: get ready to rumble.
Cons: traffic on 206 stinks; check your health plan for doctor availability; culture and arts fiends: be willing to travel.

7/26/2006 11:34:00 PM  
Anonymous Anonymous said...

mr. oliver - I may come up with and id - but since I am working with 3 realtors who read this post - they may dump my butt if they figure out what I am learning and reporting to this blog - thus anan needed. :)

7/26/2006 11:54:00 PM  
Anonymous Anonymous said...

Can someone provide some info on Bridgewater in Sommerset county. I am looking (waiting patiently) to buy late in 2007 or in 08. The inventory levels have almost increased signifcantly in the last year.....Prices haven't moved much. A lot of the houses here are new...5-10 yrs

Grim, great blog. Thanks for all the effort and info. I am a regular.

7/27/2006 12:06:00 AM  
Anonymous Anonymous said...

Home prices could start falling
Updated 7/25/2006 11:30 PM ET

By Noelle Knox, USA TODAY
For the first time in more than a decade, home prices could start to fall around the country in coming months, the National Association of Realtors said Tuesday after a report showed that sales of existing homes fell in June and the number of homes for sale soared to their highest point since 1997.
Condo prices are already being hit: They fell 2.1% from June last year to a median $226,900 (median means half cost less and half cost more). Prices of single-family homes edged up 1.1% in June to $231,500. With a 6.8-month supply of single-family homes on the market and an eight-month supply of condos, sellers are under more pressure to cut prices, and buyers can be choosy.

David Lereah, NAR's chief economist, said he expects "price numbers to start deteriorating," though he still projects home prices will be up 5.3% for the year.

ON DEADLINE: Numbers differ by region

The new figures provide deeper evidence that the nation's housing market is undergoing a jarring transition from a seller's to a buyer's market. The five-year boom, which peaked in August, was driven partly by investors, who snapped up 28% of homes sold last year. Many of them now want to sell. But rising interest rates and lofty home prices have squeezed out many buyers.

"Prices got too high in some local markets," Lereah said. "So you're seeing two things occur: Investors are leaving quickly, and regular home buyers are staying on the sidelines."

The last time single-family home prices fell was in April 1995, when they slipped 0.1%. The NAR said June existing-home sales slipped 1.3% from May, to a seasonally adjusted annual rate of 6.62 million and were down 8.9% from June 2005. On Thursday, the Commerce Department will report new-home sales for June, and economists such as Phillip Neuhart of Wachovia expect those figures, too, to show continuing weakness.

"The numbers are not fully counting cancellations, which builders are reporting at a very high level," Neuhart notes.

Many developers received approval for their projects when demand was sizzling. Now, some have to offer vacations, pools and car leases to entice buyers.

For existing-home sales, the weakest region was the West, where sales plunged 17.1% from June 2005. Sales fell 9.8% in the Northeast, 6.2% in the Midwest and 5.5% in the South.

"Markets which have been the hottest are quite likely to see home price declines," says John Ryding, an economist at Bear Stearns. "In those markets, you could see declines for the year."

The California Association of Realtors said Tuesday that home sales skidded 26% from June last year and are off 20% for the year. Though the median-priced home statewide hit a record $575,800, prices fell in five areas, including Santa Cruz, Palm Springs and Santa Barbara.

"Affordability has probably hit a record low," says Robert Kleinhenz, deputy chief economist for CAR.

Ron Peltier, CEO of HomeServices of America, adds, "There is a delayed reaction on the part of sellers to accept the new reality."

Find this article at:
http://www.usatoday.com/money/economy/housing/2006-07-25-existing-home-confidence_x.htm

7/27/2006 12:53:00 AM  
Anonymous Anonymous said...

There is a lot of useful info obtained from Anon posters. As long as it is relevant, I don't care who posts it. Besides, who are you Mr Oliver with a cat picture? You think that means something to the rest of us?

7/27/2006 06:57:00 AM  
Blogger RichInNorthNJ said...

There is a lot of useful info obtained from Anon posters.

Sometimes yes, sometimes no.
Even if it's just Anon2006 (or Anan2006) or Joe, once you've posted a few times you establish some credibility.
In this way, when others see your "name" they know that you contribute useful information worth reading (or not) instead of just being another opinion with information that either needs more data or is just meant to be inflammatory.

7/27/2006 07:36:00 AM  
Anonymous Anonymous said...

what's wrong with renting?

I guess it depends. Beyond the logistical issues (such as landlords selling out from under you, periodic rent increases, modifications/renovations, pets) it used to be that renting wasn't much of a bargain compared to owning and being able to write lots of interest off your taxes.

When all that plus the deduction costs way more than renting though, it's not worth it to buy.. As it is my own rental comes down to less than 25% of my net salary for a 3br, 2ba townhouse. The rest goes towards paying off go-go-nineties debt and savings (paid cash for car and motorcycle). And the occasional bit of high-end electronic or computer gear.

7/27/2006 09:15:00 AM  
Blogger chicagofinance said...

Anonymous said...
All of that securitization comes with buy-back provisions on early defaults.
Lindsey
7/26/2006 11:54:35 PM

L:

I had really paid attention to this provision. Do you have a place where can review some term sheets and prospectuses [prospecti?]?

Thanks in advance.

chicago

7/27/2006 09:47:00 AM  
Blogger Mr. Oliver said...

Chi,

Since we're talking about "Friday's," Michael Richards had one of the funniest bits on that show.

The details escape me at this point, but it was about a Jewish karate called "Matzoi!" or something like that.

Funny stuff.

7/27/2006 10:26:00 AM  
Blogger chicagofinance said...

best available on short notice

http://tinyurl.com/hgg9r

7/27/2006 10:40:00 AM  
Anonymous Anonymous said...

After he sold a ton of stock and protect himself from future litigation.

7/27/2006 11:10:00 AM  
Blogger Mr. Oliver said...

Awesome, Chi.

7/27/2006 01:05:00 PM  
Anonymous Anonymous said...

Reply to chicagofinance,

It was actually Darrow Igus who did the Rastafarian bit:

Do we drink it?
No, no, no... no.
We smoke it!!!
Ya, ya, ya...Yah!

7/27/2006 02:30:00 PM  

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