Today’s Housing Bubble Post – Model Refuses Dollars

This is actually a very big story. The world’s richest model (earned $30 million in 6 months this year) is now refusing to take her pay in dollars. She is insisting on Euros. This is huge because it will penetrate past the financial pages and cause people to start understanding what is going on – possibly starting a stampede from the dollar.
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Supermodel ‘rejects dollar pay’:

The world’s richest model has reportedly reacted in her own way to the sliding value of the US dollar – by refusing to be paid in the currency.
Gisele Bündchen is said to be keen to avoid the US currency because of uncertainty over its strength.
The Brazilian, thought to have earned about $30m in the year to June, prefers to be paid in euros, her sister and manager told the Bloomberg news agency.

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Today’s Housing Bubble Post – Who Bails Out The Smart Ones Who Did The Right Thing?

Smrat people got 7% fixed-rate loans because ARMs were obviously trouble. Their defaulting neighbors had 1% “teaser” rates and now get 5% loans as a bailout. The smart ones lose out all the way around.
Homeowners who actually pay their mortgage on time are getting ticked of at talk about bail-outs – AMERICAblog:

Right, because in a free market, capitalist economy it would be wrong for home prices to drop and for me to have to spend less on the condo I’m looking to buy. Since when was it anybody’s job to artificially drive up the prices of homes in my or any other neighborhood? Since when is it wrong for someone else to have their home value decrease because of a market adjustment, but it’s right for me to have my future home cost increase because of an artificial intervention? They lose money, it’s wrong – I lose money, it’s right. Uh huh. I am just increasingly sick and tired of every bail out of the rich and the poor, from the right and the left, coming at the expense of those of us in the middle who never seem to get anything, except an increasingly large bill for helping everyone else at our own expense. I’m not opposed to helping others. I am opposed to never being on the receiving end of such help. The Republicans help one side, the Dems the other, and no one thinks of the middle.

People who did the RIGHT thing is losing out now. On Wall Street people who took depositor and stockholder money, gambled it away, and got rich in the process are getting sweet bailout deals. Fairness should become an issue in this.

Today’s Housing Bubble Post – Citigroup

In the continuing story of the bursting of the housing bubble, this weekend at an emergency Board meeting Citigroup President Charles Prince “resigned” and the company announced it will write down up to $11 billion more for mortgage losses. But guess what? Citigroup problems grow,

Citigroup Inc’s (C.N) problems deepened on Monday as it was unable to assure investors a potential $11 billion write-down for subprime mortgages won’t grow, and its nearly pristine credit rating was downgraded.
The largest U.S. bank also reduced previously reported third-quarter profit because of credit market problems that it said could reduce future cash flow.

Also, Citigroup is sitting on $134.8 billion in questionable assets. A lot of that could go, too.
In my opinion it is urgent that everyone understand how FDIC limits work. This is a time when you need to know that your own money is safe. The limit is $100,000 per bank, $200,000 per couple, and $250,000 for retirement accounts. If you are lucky enough to have more than that in one bank, split it up. Ad I did say bank – not brokerage. And tell your friends and relatives to do the same.

Today’s Housing Bubble Post -Foreclosures Double

UPDATE 1-US Q3 foreclosures almost doubled from ’06 -report,

U.S. residential foreclosure filings nearly doubled last quarter from a year earlier, and appear set to increase into 2008, a report said on Thursday.
Foreclosure filings for July-September rose to 635,159, representing one in every 196 households and a 30 percent jump from the second quarter, according to RealtyTrac, a marketer of foreclosure properties based in Irvine, California.

One results: soon there will be many more homes on the market. And remember, MOST of the “ARM resets” – loans with low “teaser” or “qualifying” initial rates that reset to high interest rates – happen into next year. So expect the foreclosures to continue to increase for at least a year. The housing market is nowhere near a “bottom.”

Today’s Housing Bubble Post – The Fuse Is Now Lit

This is really a housing bubble consequences post, but really they all are… With a 3.9% GDP report, the dollar at a record low, oil pushing $95 and various “regular people” costs rising at double-digit rates our Fed cut interest rates today. They are trying to put off the inevitable reckoning.
Mish’s Global Economic Trend Analysis: Which Comes First: The Cart or the Horse?

The fuse is now lit. The structural imbalances worldwide have never been greater and the fuel at the end of the fuse is enormous. In addition, amount at risk increases every day.
The interesting thing is that no one knows how long the fuse is. For some inexplicable reason everyone acts as if they can get out before the stick ignites. It’s simply not possible.

My wife is British, so we look at exchange rates. And we look at the price of oil. And food. We’re losing a percent or so of our buying power each week.

Today’s Housing Bubble Post – Home Prices Fall At Record Pace

Home prices falling at record pace in August: Case-Shiller – MarketWatch

The 13-month-long decline in home prices in 20 major U.S. cities accelerated in August, with prices dropping a record 0.7% in the month, according to the Case-Shiller price index released Tuesday by Standard & Poor’s Corp.
Prices were down 4.4% in the past year, the fastest decline in the seven-year history of the 20-city index. In the original 10-city index, prices have fallen 5% in the past year, the biggest decline since 1991.
“The fall in home prices is showing no real signs of a slowdown or turnaround,” said Robert Shiller, co-creator of the index and chief economist for MacroMarkets, in a release.
… Millions of homeowners who took out adjustable-rate loans in 2005 and 2006 face sharply higher mortgage payments this year and next, with foreclosures having already soared as the result of payment resets.
… Prices could fall much further. In a separate report, analysts at Goldman Sachs figured that prices in California are about 35% to 40% overvalued, compared with past relationships between home prices and income growth. The median sales price of a home in California was $589,000 in August, Goldman said, but should be around $375,000, they said.

Key line: “Prices could fall much further.”

Today’s Housing Bubble Post – New Home Sales Up – From Revision

New-home sales are report as up. But they are only up because last month’s sales were revised way down. Sales are down from the previously-reported figure.
New-home sales rise after big downward revisions,

Sales of new homes rebounded in September from summer sales levels that were much weaker than previously reported, the Commerce Department reported Thursday.
Sales increased 4.8% to a seasonally adjusted annual rate of 770,000 from a revised 735,000 in August. Previously, August’s sales had been reported at a 795,000 pace.
September’s sales were slightly higher than the 758,000 pace expected by economists surveyed by MarketWatch.
The three previous months were revised sharply lower, which means the housing market was much weaker in the middle of the year than previous believed, and no one believed it was strong.

Got that? The previous three months were actually much worse than reported.

Today’s Housing Bubble Post – Secure your retirement through real estate

I just saw an ad on TV encouraging people to “roll your IRA into California real estate”! They offer a free Saturday seminar.
See for yourself: Ace Capital Group – The Pioneers in Retirement through Real Estate
I wonder how successfully they’re reeling in the suckers…

Today’s Housing Bubble Post – Home Sales Crater

Existing-home sales crater in September on credit squeeze,

Sales of existing homes and condos fell 8% in September to the lowest level in at least eight years, further evidence that the credit squeeze in mortgage markets is hurting home sales, the National Association of Realtors reported Wednesday.
Sales of existing homes and condos fell to a seasonally adjusted annual rate of 5.04 million, the lowest since 1999, when the real estate group began tracking combined single-family and condo sales. The 8% drop was the largest monthly percentage decline in that period.
Nationwide, sales of existing homes were down 19.1% in September compared with September 2006.

Today’s Housing Bubble Post – Foreclosure Filings Double

It gets worse and worse. Foreclosure filings nearly double,

Foreclosure filings across the U.S. nearly doubled last month compared with September 2006, as financially strapped homeowners already behind on mortgage payments defaulted on their loans or came closer to losing their homes to foreclosure, a real estate information company said Thursday.

And remember, the real wave of ARM resets is yet to come. (ARM resets are adjustable rate mortgages resetting out of their initial, low “teaser” rates to the real interest rate. When this happens mortgage payments can as much as double.) Figure maybe five months after an ARM reset until the homeowner is in such trouble that a foreclosure occurs.
So this is just the beginning of the beginning. And as more and more foreclosed properties come up for auction, prices WILL fall, and fall… until houses are again selling for what they are worth.

Today’s Housing Bubble Post – From $630,000 to $285,000

San Jose Mercury News – ‘Betrayed by our builder’.
A homebuilder is marking homes down from $630,000 to $285,000. The front-page story includes a large graphic: “$630,000 – current residents — $285,000 prospective residents”
A San Francisco Bay Area homebuilder can’t sell all the houses it built in a development in Manteca. Current residents paid up to $630,000 for a 3-hour round-trip commute. But now they’re auctioning the remaining homes, starting at a more realistic price of $285,000.
This headline is going to have a huge impact because it means every homeowner in the SF Bay Area who thinks they have a $630,000 property now will begin to realize that in the end, if they want – or need – to sell that house, they are going to be competing with $285,000 prices.
Let that sink in a while…

Today’s Housing Bubble Post – Homebuilders Forced To Build MORE Inventory

This one takes some explaining. The big homebuilders borrowed money and bought up a lot of land. Now they are in trouble, running out of cash to run their businesses and pay down the debt – and the only way they can hope to surive is to build MORE houses to sell at a steep discount, because this brings in at least SOME cash.
Of course, the effect on the rest of the economy will be terrible: MORE houses dumped on an already-saturated market, at even lower prices. This will force prices to drop further, and more people to be in trouble.
Calculated Risk: Homebuilders Struggle to Survive,

We could make fun of the analysts that claimed the homebuilders would have strong cash flow during a downturn (due to less investment in land and improvements) and that the homebuilders were “land banks”. Those investment ideas were Dumb and Dumber!
But the more important point is that the homebuilders struggle to survive shows why the builders are still overbuilding. Building homes, and selling at a deep discount, is the only way they can liquidate land to raise cash and pay down their debts in the current environment. This is why housing starts are still too high and will likely fall further over the next few quarters.