Today’s Housing Bubble Post – Marked Down From $725K To $495K, Still Not Selling

A for-sale house around the corner from us (SF Bay peninsula) has gone through all the stages, and now even the “price reduced” sign is gone. The house is empty. The flyers are still there, however. Walking the dog the other day I picked one up to see what they’re offering.
The house, a modest three-bedroom in a modest neighborhood, was originally listed at $725,000. Now that is crossed off by hand on every flyer and $495,000 is written in.
So, marked down from $725,000 to $495,000 it still isn’t selling. No one is looking at it. It is still priced higher than the average person can or will pay for a house like this to live in this neighborhood. House prices around here still have a long way to fall, but you can’t expect other houses around here to sell for a lot more than $495,000 now – not with that one sitting there. But most of them are still priced in the $600-700,000 range.
That leaves a long way left to fall.

Money Market Funds

I guess I’m just ahead of my time… I’ve been warning about money market funds, and now it’s really hitting the news:
Mounting concern about money-market funds,

Millions of U.S. investors with cash in these mainstream vehicles are asking that question as some leading banks, investment managers and mutual-fund companies take steps to shield money funds from potential losses on troubled debt in their portfolios.

Do you want your money in a place where managers are “taking steps”?
So what can you do?

… if you are concerned about your money fund, experts say there are some ways to investigate.
The first — calling the company to ask about the fund’s holdings — might seem daunting given the complexities of many of these portfolios. But in fact the request can test a company’s responsiveness to its customers, observes Bruce Bent, who created the money fund 37 years ago.
“A number of funds will say ‘we don’t give that out,'” said Bent, whose New York-based firm, The Reserve, has about $80 billion in money-fund assets, none of which, he adds, is exposed to subprime loans or SIVs.
If the fund company isn’t forthcoming, he says, “take your money out and say goodbye.”

No shit.
And there’s always what I have been recommending:

The ultimate safe move would be to put your cash in a bank money-market or savings account – they’re insured up to $100,000 and sport comparable yields to money funds, which recently averaged about 4.6% for taxable investors.

Meanwhile, Advisers aren’t ready to dump money-market funds yet – MarketWatch

,With money-market mutual funds scrambling to cover their costs as credit meltdowns spread, some advisers say they’re seeing more interest from high net-worth clients in short-term, bond exchange-traded funds.
One of those is Jerry Slusiewicz. But the president of Pacific Financial Planners in Newport Beach, Calif., doesn’t recommend investors pull out of their money-market funds just yet.

Not just yet?

Several major financial services firms have moved to protect money-market assets in recent months. The latest is Bank of America Corp., which on Tuesday said that it plans to use a $600 million reserve to shore up a group of its money-market funds. Another big financial-services firm, Legg Mason Inc. has made public plans to establish credit lines of roughly $238 million to keep intact credit ratings of two money-market funds.

Did I read that right? They’re putting hundreds of millions in to cover their money market funds so people don’t lose money? So if you have money in one of those funds the only reason you aren’t losing money is because the fund managers are pumping their own money in to shore it up? So what happens if the parent companies are in trouble – which they certainly will be if they’reputting in hundreds of millions to cover the money market funds!
Remember, the money you have in a money-market fund can drop – you can lose principal.
And Atrios has found a General Electric managed fund that is already in such trouble it is paying its depositors only 96 cents on the dollar.

Today’s Housing Bubble Post – Foreclosures Double

Ypu’ll be seeing this headline every month for a while, I expect: Foreclosures nearly double from year ago: report,

Cities in California, Florida and Ohio dominated the 25 U.S. metro areas with the highest home foreclosure rates, though rates jumped in most of the top regions during the third quarter, RealtyTrac said on Wednesday.
. . . A broad credit and liquidity crisis during the third quarter exacerbated U.S. housing industry troubles, pushing sales sharply lower and unsold inventory to record highs.
Overall, residential foreclosure filings nearly doubled in the third quarter from a year earlier, RealtyTrac reported earlier this month.

HOW many foreclosures?

Stockton’s rate of one foreclosure filing for every 31 households, the highest of the metro areas, was a surge of more than 30 percent from the prior quarter. A total of 7,116 filings on 4,409 properties were reported in the metro area during the quarter.
In Detroit, the foreclosure rate of one filing for every 33 households ranked second and was more than double the number of filings reported in the previous quarter, RealtyTrac said. A total of 25,708 filings on 16,079 properties were reported.

Again – Get Out Of Money Markets And Into Insured Bank Accounts

I’m not going to tell you again. (Maybe I will…) Get your money out of money market funds(and brokerages) and into federally insured accounts at banks.
Fast summary – as far as I can figure out what is going on: mortgages (and other debts) were grouped together and sold as investment “instruments.” These instruments were called “collateralized debt obligations” (CDOs) – or collections of obligations to pay back loans, backed by collateral. The grouping contained levels of good, medium and subprime mortgages and other debt. These levels of quality in each of the instruments are called “tranches.” So there is a good tranche, a medium tranche, etc. (Lots of tranches in a CDO)
The instruments were very complicated so buyers depended on rating agencies instead of looking into each loan (and the documentation backing up the loan) that was in them. The rating agencies rated them as high-grade. (Rating agencies made their money from the companies who were selling the instruments, and possibly rated them up for that reason.)
The investment value came from the idea that these CDOs would provide a regular cash income for a certain number of years as the debtors made their payments.
There were well over a trillion dollars worth of these sold. Maybe a few trillion. But they are very thinly “traded” so one knows what they are worth now. (Something that is traded can be “marked to market,” meaning you can find a mark or price by looking at what the last one sold for.) No one is sure what is in these, they are not sold after the initial sale, and as foreclosures rise they are looking worse and worse. But no one knows. And of course no one will buy one now. So no one knows, and no one is going to know until every single loan in each of these instruments is evaluated. (Does Tom Whitmore really make $90,000 a year? And was the appraiser accurate when he said the 2br 1ba was worth $860,000?)
So now the bigger problem is that with so many companies, etc. owning these CDOs, no one knows who will be able to pay their bills, and they certainly can’t use the CDOs as collateral now, so no one is willing to extend credit. Hence, the “credit crunch.” And hence all the uncertainty about who is solvent or not.
Finally, go read this entire post: The Agonist: The Wile E. Coyote Economy.

It all started coming apart with the subprime mortgage crisis. It should be emphasized that problems extend far, far beyond subprime, but it’s there that they first showed up, where they first became undeniable. It’s then that Wile, scanning the horizon, though to himself, “Gee, I don’t see any ground. Maybe I should look down.” As people realized there was no “there,” there; that many of these mortgage backed securities were worth cents on the dollar, they stopped being willing to buy them. The defaults started occurring and as people kept looking more and more they began to be forced to actually consider “How much is this worth?” And they didn’t stop at subprime mortgages.
Now the reason this mattered is that most Wall Street firms (and many banks) have a ton of this paper, and they are also heavily leveraged with loans. Those loans are loaned against the value of their portfolios. So when other firms and various banks started realizing the paper was worthless they stopped wanting to continue to extend loans. When the loans came due (and most loans these days are short term, from days to months) they didn’t just roll them over.
Without the loans firms began to face the possibility that to meet their obligations, to pay back the non-rolled-over loans, they might have to actually come up with cash. Which means they might actually have to sell some of this paper. And if they sold it, they’d know what it was worth. And if they knew what it was worth, they’d have to mark down all of it in their portfolio And if it’s really worth cents on the dollar, well that could wipe out billions. In fact, it could wipe out the entire capital of firms.

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.
gisele-3.jpg
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.

Continue reading

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…