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Credit & Debt: Bernanke And Greenspan Speak

Why is this man smiling?

Both the former Federal Reserve Chair and his successor have had occasions to opine in recent days, and if their output is any indication, the level of disconnect from reality is worse than we thought.

First we have Alan Greenspan saying that the worst is indeed over for housing, even as the NAR itself was forced to concede otherwise:

Greenspan said he expected inventory levels to come down at a "reasonably rapid pace" and that "it looks as though sales figures have stabilized." But he also said there would be actual price declines in housing. "That will have some impact on consumer expenditures," he said. "We haven't seen it yet." Separately, the National Association of Realtors reported Tuesday that the median price of a home dropped to $221,000 in October, a decline of 3.5 percent from a year ago. It was the biggest year-over-year price decline on record for an asset that many Americans use as a gauge of their financial well-being.

Then we have Ben Bernanke continuing to fight the last war through his remarks that the housing slide and economic doldrums are bellwethers for inflation, though most of the free world thinks otherwise:

One possible outcome is that increases in labor costs will largely be absorbed by a narrowing of firms' profit margins and not be passed on to consumers in the form of higher prices. The fact that the average markup of prices over unit labor costs is currently high by historical standards suggests some scope for this outcome to occur. If higher labor costs are mostly absorbed by firms and not passed on, then workers will see the gains in their nominal compensation per hour of work translated into greater real compensation per hour; in the process, workers would capture a greater share of the fruits of the high rate of productivity growth seen in recent years. The more worrisome possibility is that tight product markets might allow firms to pass all or part of their higher labor costs through to prices, adding to inflation pressures.

Even in the face of positive economic indicators such as increased home sales, wage gains, and employment increases, Bernanke still fears Inflation. Why? Because every dime that goes into your pocket is not going into Wall Street's coffers, and he has to keep the titans soothed. It's that simple.

For a different perspective on Bernanke's remarks, check out Calculated Risk's analysis. Am I right, and is Bernanke beating the inflation drum to scare the Fed into raising rates? Or is CR right, and is a downturn/recession on the horizon no matter what?

Time will tell.

Posted at 10:03 PM | TrackBack

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Buying & Selling: Surprise Rise In Home Sales

It seems elementally simple, doesn't it? Wages go up, home sellers cut prices, and people start buying again. Yet the pundits are mystified and bewildered by such a turn of events, when even Lereah himself admits that the price cuts are doing their job:

"As expected, existing-home sales appear to be stabilizing, fingers and toes crossed," said David Lereah, chief economist for the Realtors. Market fundamentals are improving, he said.

What's particularly interesting is this line:

Sales of condos dropped 4.8% to 778,000. Median sales prices are down 5.3% in the past year to $214,300. Condo sales are down 14.5% in the past year. The inventory of unsold condos rose to 9.1 months.

Condo glut, baby. Until that inventory gets moved or converted to rentals or office space, those things will sit like empty shells dotting the landscape. Or unless prices drop, of course. While Lereah and his shills will paint this as everything from "buyer psychology" to population changes, the truth is the truth: It's all about high wages and low prices.

Posted at 04:06 PM | TrackBack

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Mortgage & Loan: Full Reverse

There's been quite a bit of news lately about the expansion of reverse mortgages into a tool for extracting equity value from wealthy homeowners. I wonder if this increased media press is the last gasp of a dying cycle of the industry, struggling to keep things alive as traditional home lending and selling continues to slow.

I don't have an objection to reverse mortgages in principle, much as I don't necessarily disagree with the idea of I/O and ARM products. The problem is that these new instruments are inevitably going to be marketed to people who aren't ready for them or don't need them. And as this excellent Forbes article on the subject points out, there're a lot of pitfalls:

Longevity is an important factor here. Live 20 years with the mortgage and the fees aren't so bad. Die after a year and your heirs will be cursing. Move a short while later to a nursing home and it's you who will be cursing. George Middleton, a financial adviser in Vancouver, Wash., says that terms always compel you to pay off the reverse mortgage if you are gone for 12 months and don't have a spouse living there.

As always, investigate any new mortgage product and determine if it fits your financial situation before embracing it. Much like ARMs working best for people with irregular incomes, reverse mortgages work best for a specific clientele, and are not a "one size fits all" option in any sense of the phrase.

Posted at 03:35 PM | TrackBack

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Moving & Relocation: Homeless For The Holidays

I had a wonderful Thanksgiving this year, spent in the company of good friends and enough food to put you in a Terri Schiavo-level coma. I hope all of you did the same.

It's especially important to remember how many people don't have any of the things we take for granted, especially those who are still recovering from the wrath of Katrina:

More than 99,000 families in Louisiana and Mississippi are living in FEMA trailers, compared with about 34,000 last November, according to the Federal Emergency Management Agency.

This is not a problem that is just going to go away. In fact, thanks to ridiculous amounts of fraud and abuse, it's continuing to get worse. For every story with a moderately hopeful ending like Beverly Carter's, there are thousands who continue to suffer and endure undeserved ruination and hardship.

Remember those less fortunate this year, and give support where you can.

Network for Good's Katrina Page

KatrinaHelp.com's Charity Listings.

UPDATE: A commenter reminds me that there's nothing funny about using one tragedy in a humorous light while discussing another. I apologize for the Terri Schiavo crack.

Posted at 03:41 PM | TrackBack

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Mortgage & Loan: It's The Economy, Stupid

I've mused a few times over the last 18 months on why the Bush administration is so dead-set on privatizing and regulating Fannie & Freddie, given their extremist anti-regulation stance on almost every other issue.

It was a commenter at Economist's View discussing the role of the Fed that clinched it for me:

The Fed deliberately let Fannie and Freddie disturb the economy to the point that Greenspan went to Congress and asked for legislation to rein in those portfolios. This was deliberate, desperate and randomly disturbed by reckless hedging on Fannie's part that 2500 accountants are still too professional to disclose. This Fed interference prolonged the housing market (improved productivity and growth then) and paved the way for the major correction we are about to face now.

Makes a lot of sense. You can rant about conspiracy theories all you want, but this totally fits Bush's MO of running public assets into the ground and then saying, "This proves Big Gummint don't work," thus granting the excuse to privatize and leave them at the market's mercy. Yet another example of Greenspan's complicity in the failure of the housing market as well.

Quite an irony, then, that it's higher wages that is offsetting the losses the economy is suffering from the housing bust. After years of excessive living on credit, profligate spending, and the propagation of terrible "creative loans" and shady lenders, it turns out to be--gasp--better pay that saves us.

I mean, really? Wage gains enabling more purchasing in the economy? That's crazy talk. I can't imagine who might have thought that.

Posted at 02:50 PM | TrackBack

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Buying & Selling: 38 States See Home Sales Plummet

How long do you think that cord will hold, eh?

Courtesy of the AP's Martin Crutsinger:

WASHINGTON - Sales of existing homes fell in 38 states during the summer, led by steep declines in Nevada, Arizona, Florida and California, as the once-booming housing market showed further signs of a steep slowdown.
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The declines were the largest in once-booming areas of the country. Sales fell by 38 percent in Nevada, 36 percent in Arizona; 34.2 percent in Florida and 28.6 percent in California.

My question is this: How can the NAR have any credibility to push their "Buy or die" campaign? How can we believe that we've hit bottom yet? This is not to mean that people shouldn't buy, or that prices won't stabilize, but in the face of all evidence, it seems that we've got a ways to go yet before we hit the floor.

I don't know how many more times the bloggers and the experts have to lock horns before we achieve consensus on this issue--the market has got to tighten up, and that means removing all the excess inventory. For that to happen, prices have to drop further. Until the NAR returns from Bizarro World, the consensus will remain as idle a dream as buying a 2-bedroom home in D.C. that isn't in a "transitional" neighborhood. :)

Posted at 02:29 PM | TrackBack

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Buying And Selling: Home Construction Hits Six-Year-Low

That's the unfortunate news regarding new home construction for October, as the Commerce Department glumly reports the continuing effects of excess inventory and frightened buyers:

The report signaled that the months ahead could be equally bleak: The number of building permits that were issued fell for the ninth straight month, reaching its lowest level since 1997. Those figures, too, are seasonally adjusted....The report deepened concerns that the contraction in the housing market could brake economic growth more sharply than many economists have been forecasting. And it weighed against any hope for a quick rebound.

And yet, if you go with MSN Money's take on it, it's merely a sign that the market has hit rock bottom:

A private survey of U.S. homebuilders' sentiment ticked higher in November. The National Association of Homebuilders/Wells Fargo Housing Market Index on Thursday got a two-point bump to 33 points in November. The survey hit at 15-year low of 30 in September.And on Wednesday, the Mortgage Bankers Association reported that applications for U.S. home mortgages rose last week to their highest level since January as falling interest rates encouraged more loan refinancing.

Now, the question is what kind of loans are homeowners refinancing into? If the terror that is WAGE GAINS is for real, are people taking advantage of their increased buying power to go for traditional fixed loans? And will the relatively positive signs of economic strength be enough to buffet the continuing deceleration of the housing sector?

Kendra Todd provides some good advice for a buyer's market, and the Urban Trekker has found some great bargains for under $400,000 in the infamously bubbilicious D.C. housing market. Are these the signs of the end of the slowdown, or just the beginning? Hard to say. Those lower-end prices could be for total fixer-upper s?!tboxes, and there's no guarantee of being able to get into them without utilizing toxic mortgage products. But a year ago, would we have even broached the idea of a buyer's market?

I will answer this with a quote from the guru of all things housing bubble, Ben Jones:

The market is overbuilt, and the only cure for that is time, not rate cuts.

Word.

Posted at 01:50 PM | TrackBack

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Buying & Selling: Home Depot Gets Pwned

IM IN UR EARNINGZ REPORTZ, KILLIN UR STOCK PRICE

It isn't just Toll Brothers and KB Home that're feeling the effects of the slumping market. Home Depot just put the word out that their earnings forecasts are looking especially miserable:

"On the home improvement retail portion of this business, I don't think we've seen the bottom yet," Home Depot Chairman Robert Nardelli said during a conference call. "I don't see anything that suggests it's going to get significantly better in '07."

Given Bob Nardelli's extraordinarily bad leadership, you can't put all of this solely on the slump, but when a guy like that comes out and makes a statement virtually identical to that of Bruce Karatz (who is ironically also in trouble for stock backdating), there's clearly a sign of larger problems at work.

Of course, Housing Panic saw it coming as well, which leaves me to wonder how it is the entire world can know the bubble isn't through deflating yet...except the NAR?

Posted at 02:01 PM | TrackBack

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Mortgage & Loan: People Aren't Learning

As a bit of a personal rant, I'm becoming annoyed at the people I know--mostly young couples--who are talking about buying houses as if it's as easy as going down to the FYE for a DVD or two. These are folks who don't have a pot to piss in or a window to throw it out of, and yet they discuss home ownership as a sure thing.

Now, my problem isn't with the idea of people wanting to buy homes, per se--far from it! No, my worry is that if they're going to be so breezy about buying a house, they'll fall for the same "toxic mortgage" traps that have claimed thousands of homeowners in this slump, and are looking to claim more:

While homeowners with traditional, hybrid ARMs are beginning to feel the pinch of higher mortgage payments, those with relatively new variations, called interest-only and option ARMs, are hurting even more. Considered two of the riskiest loans, they allow borrowers to pay off only the monthly interest on their mortgage or pick from a series of payments each month.Products like these -- once used by sophisticated borrowers with plenty of discretionary income -- are now heavily marketed to middle- or low-income borrowers who need low monthly payments.

Once again, it comes down to shady lenders marketing ARMS to people who aren't ready for them, and ignorant borrowers who aren't paying attention to the serious fine print of these risky ventures.

It's going to take at least another year for the market to bottom out, maybe more. In that time, we as housing bloggers have to push harder to get the public to realize that the best and safest way to buy a home is still the old-fashioned way: Save, invest, and stick to the 30-year-fixed. Anything else is a risk that, quite literally, most buyers cannot afford.

Posted at 03:31 PM | TrackBack

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Buying & Selling: KB Home CEO Ousted

The news came out today that KB Home's longtime CEO, Bruce Karatz "resigned" after evidence surfaced that he was cooking the books for his stock options:

Karatz, a 34-year veteran of the company and CEO since 1986, has agreed to pay KB Home about $13 million to correct the pricing errors on the exercised and unexercised options, the builder said...KB Home in August confirmed it was reviewing options given to Karatz after The Wall Street Journal reported he received nearly $100 million from cashing out options dated when the stock hit unusual lows, citing regulatory filings.

KB Home, as longtime readers of this blog know, is no stranger to shady shenanigans, and it's poetic justice to see one of the biggest profiteers from the housing bubble get their just desserts.

It's of note, in fact, that Karatz is on record as saying that the current housing downturn is the "worst he'd ever seen." Given his prescience in foretelling the continuing descent of the market, one has to wonder how his smarts failed him when it came to keeping his own house in order.

Posted at 03:16 PM | TrackBack

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Mortgage & Loan: The Rate Rollercoaster

t's funny to do one of these entries at the end of the week and see who guessed what right, and who was off the mark. Case in point: mortgage rates. On Thursday, Bankrate reported that rates were back at 6.32 percent after flirting briefly with 6.31 percent. They said this with the confident authority of those who've watched the market for some time and can predict its ebbs and flows.

The very next day, Freddie Mac stated that the 30-year fixed was up to 6.33 percent. So much for certainty, eh?

Then again, given how both Freddie and Fannie have difficulty keeping their numbers in check, I'm not sure how solidly I'd trust their analysis of mortgage movements at the moment.

In other news, my inside realtor source sent me yet another Internet describing the tightening market in the Metro D.C. area, with surprising sales increases for what's typically a sluggish time of year for real estate. One has to wonder if that whole "BUY NOW OR BE PRICED OUT 4 EVAR" campaign is having an effect or not...

Posted at 04:47 PM | TrackBack

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Buying & Selling: Toll Brothers' Bell Gets Rung

It would seem there's no end to the housing bust for this particular luxury homebuilder, as they've cut earnings forecasts yet again:

Homebuilder Toll Brothers (TOL) continues to feel headwinds from the weaker housing market. On Nov. 7, the company said it expects to report a 10% decline in revenue on home building during the recent quarter, as it struggles to keep customers signing -- and not canceling -- contracts for new homes. The company now plans to deliver fewer homes than earlier forecasts.

The Horsham (Pa.)-based company builds luxury homes all over the country, including states with once superheated real estate markets like California and New York. But housing market activity slowed earlier this year, after record-low interest rates had boosted lending and home buying for many years.

Not only that, it seems that consumers also know something the NAR doesn't know, judging by the recent precipitous drop in consumer borrowing:

The overall economy has lost momentum due to the housing slump. The struggling auto industry slashed jobs last month, as did companies involved in home-building, furniture makers and real-estate firms — casualties of the souring housing market.

We're at a point where realtors are living in a parallel reality, essentially. Even bullish economists and the Fed acknowledge that the full playout of the bust is far from over. When's the industry going to get on point?

Posted at 05:44 PM | TrackBack

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Mortgage & Loan: Greenspan Off Message?

Apparently the National Association Of Realtors was engaging in a bit of irrational exuberance when they used Greenspan's words in their new marketing campaign.

Here's what the Great Obfuscator really thinks about the state of the housing market:

Regarding housing, "we still have a ways to go on the downside, [but] it looks as though the worst is behind us," Greenspan said.

Greenspan notes that a large part of the excess (or "froth" as he once called it) has been taken out of the residential housing market, and while there are still negatives, it's no longer subtracting from GDP growth. It's becoming a smaller negative, and that will take some negative pressure off of the economy.

While this is certainly a positive outlook, it's much more tempered than the all-out "BUY! BUY BUY!" maelstrom the Realtors are trying to hit you with. Perhaps in the twilight of his career and life, the Great Obfuscator's finally realized just how badly his words have been interpreted and abused over the years, and how much of a part he played in that.

We can but hope.

Posted at 05:31 PM | TrackBack

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Buying & Selling: Is Now A Good Time To Buy?

The National Association of Realtors is pulling out all the stops with a glossy campaign urging readers to buy NOW, because the worst of the bubble is behind us. Or something.

No less an authority than Kendra Todd agrees, particularly urging us to take advantage of people caught upside down by toxic loans and are in foreclosure. No, really read this advert:

Now's the time to jump back on board the wagon for pre-foreclosures, foreclosure properties and distressed home sales. When everyone thought home prices would rise forever (and it's amazing how short people's memories are, isn't it?), many buyers abused interest-only, adjustable-rate "creative financing." Now they're "underwater," owing more than their home is worth and unable to make rising payments. Take advantage. (Emphases added.)

So we have a self-proclaimed "highest producing REALTOR" telling buyers to deliberately target properties on the market because the previous owners got jerked by The Adjustable Rates Of Doom--the very same lending vehicle that powered the housing boom, bubble, and bust in the first place. What would The Donald say?

I am of the mind that any potential owner that has done their research, negotiated smartly, and--most importantly--has saved and invested enough to put down for a 30-year-fixed loan--can buy in this market. But the problem is the same problem that we've had for the last five years--buyers are being enticed to put money down for properties far beyond their market value, using lending instruments that will cost them far more money in the long run.

I'm not as bearish about the market's chances as some of my estimable fellow bloggers--it IS possible to buy into this market and survive IF you're smart. But I'm not drinking the Kool-Aid either. For there to be serious reinvestment in housing, prices need to come down and stay down, inventory has to be moved off the market, and our savings need to improve dramatically. That's still years off, if ever.

Posted at 06:08 PM | TrackBack

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Buying & Selling: Spin The Bubble

Victim of a media conspiracy?

I was theorizing today that some people are just looking to be offended and pick a fight, and won't let pesky things like reality get in their way (See "John Kerry," "George Bush," and "Iraq joke"), and sure enough, I stumbled across a statement today from the, shall I say, somewhat right-of-center Business & Media Institute regarding the housing bubble:

Had Mason turned to NAR for an analysis of the market, he’d have found a far more optimistic viewpoint than he presented to viewers...“The present level of home sales is relatively high in historic terms, and we can expect generally minor movements around this level,” NAR chief economist David Lereah said in a November 1 press release...That’s just one of numerous examples the Business & Media Institute has documented of the media’s five-year run of housing bubble bias.

If I were to quote or link to every housing-related article I've read where The Lereah is the ONLY analyst or expert quoted, without any sort of competing or opposing view, there'd be no more space on this blog. Or as Paper Money put it when he was quoted as the opposing force to the Lereah:

It’s certainly refreshing and even an important milestone to see the traditional media report the hyper-optimistic guidance of one of the real estate industry’s most notable bulls juxtaposed a healthy does of reasonable skepticism and alternative analysis.

Seriously. I've only been at this for a year, and I was astonished at how uncritically major media outlets reported housing news. In case you forgot, there's even a blog devoted to Lereah's depredations:

Mr. Lereah tells half truths and manipulates facts and figures. He cannot be trusted as he is a paid shill.

This goes to show that every side thinks they're the one not getting the press, but in this case, we're right and they aren't.

Posted at 05:41 PM | TrackBack

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Buying & Selling: Tough Times For Realtors

I know it's tough to conjure up sympathy for realtors after the years of cheerleading an overextended housing market, but one sure sign that the worm has turned is how drastically agents' and brokerage's fortunes have faded.

Last week we had the news that Countrywide Financial was dispensing with 5% of its workforce. Today I read that CB Richard Ellis, the country's largest commercial broker, is devouring a prominent competitor:

"It means we're joining two significant real estate firms and combining them into one better organization both locally and nationally," said John Germano, senior managing director in the Washington office of CB Richard Ellis. "You're going to get a company that has more service lines and an unprecedented level of talent," he said. "There will be very little cannibalization, very little overlap."

This may not seem like it affects the residential market, but as developers move further away from housing and into commercial properties, there's going to be a much smaller field of wiggle room for them to deal with. CB Richard Ellis is all over D.C., for instance, so investors are going to bet on the sure thing. And with housing falling down precipitously, the real estate money is going to be flowing towards offices for quite some time.

Posted at 01:30 PM | TrackBack

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Buying & Selling: Sex Sells--Except Not

The Washington Post has an expose of how New York is coping with its slowing housing market. The answer seems to be "Win by any means necessary":

The alliance of 255 Hudson and the car club, for instance, was celebrated at a cocktail party in the club's showroom/garage months ago, with a couple of women hired to mingle and grin wearing little more than pasties and body paint meant to evoke racing stripes. The words "Condo included. Girl Not Included" were painted on their backs.

I'd buy that for a dollar. :)

This reminds me of a new condo offering in Tenleytown, a neigborhood in northwest D.C. The name of the place is Maxim Condos. The development is being billed as "An exclusive collection of only 36 custom-crafted condominiums, finished with the finest materials and best-in-class features for high-performance living."

Ok, are we buying a condo or a NASCAR special? Because when I hear about something named "Maxim" offering me high-performance amenities, I better see this as an incentive for a sale:

I'll be interested to see if these crass tactics actually get anyone to put the John Hancock (heh heh) on the dotted line.

Posted at 12:54 PM | TrackBack

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