Headlines...

NEW -> Contingent Buyer Assistance Program
<p>My stomach runneth over.</p>

<p>In Brevard County, supposedly we had the largest decrease on median housing price of the whole country, to wit: 12%. (on a percentage basis, of course. A worse drop than you guys in California. I think this is due to more sales in the lower echelons. Wonder if Lennar sold their 30 homes in 30 days. There were some real decreases there.</p>

<p> </p>
 
<p>The $516 trillion is mostly smoke. It's made up of promises, speculation, and hedges against default. A crude example is borrowing money to buy a Picasso on sale for 20% of it's estimated value, selling out shares for the remaining 80% of it's estimated value, insuring it for 100% it's estimated value, and showing and unrealized profit of 80% on your books as if it were for sale. As long as Picasso's remain valuable to someone, everything is fine. But now, Picasso's are no longer being purchased and their estimated value as a group are falling rapidly and the appraiser has just informed you that yours is a fake. Your investors will sue you, the insurance company won't pay your losses, the regulators are investigating your accounting practices, and your credit rating is in the tank. To add insult to injury, the guy that sold you the panting in the first place shorted your stock and put all his profit into gold, which is being held in a box by the same insurance company that told you to go screw.</p>

<p>Like I said...a crude example.</p>
 
<p>Ok, in this crude example, the losers are the people who bought shares in the Picasso. And their dependents and haberdashers. One could feel a little sorry for the Picasso purchasers, because the painting was fake, and who would have thought that P. would go to zero.</p>

<p>So who are the losers in the 500 trillion debacle? I have a funny feeling that it is everybody, but it's only a feeling.</p>

<p>I think they sell race horses this way, by the way.</p>
 
<p>awgee-</p>

<p>Then I think it's safe to assume the house of cards looks something like this:</p>

<p><a target="_blank" href="http://www.paxnidorf.com"><img alt="" src="http://www.paxnidorf.com/thumbnails/house-of-cards.jpg" /></a></p>
 
<p>Lending M--the hub says the next 2 orders of illion are quadrillon and quintillion, which makes sense from latin words meaning 4 and 5.</p>

<p>When you get that big scientists tend to use light years and power notation.</p>

<p>That is, 10 to the nth power.</p>
 
Now <a href="http://www.msnbc.msn.com/id/21921214/">Bill Gross is playing the "Great Depression" card</a>...





...


In the months ahead, millions of other adjustable-rate mortgages...will reset, giving them a higher interest rate as required by the loan agreements and leaving many homeowners unable to make their payments. Soaring mortgage default rates this year already have shaken major financial institutions and the fallout from more of them, some experts say, could spread from those already battered banks into the general economy.





The worst-case scenario is anyone’s guess, but some believe it could become very bad.





“We haven’t faced a downturn like this since the Depression,” said Bill Gross, chief investment officer of PIMCO, the world’s biggest bond fund. He’s not suggesting anything like those terrible times — but, as an expert on the global credit crisis, he speaks with authority.





“Its effect on consumption, its effect on future lending attitudes, could bring us close to the zero line in terms of economic growth,” he said. “It does keep me up at night.”





Some 2 million homeowners hold $600 billion of subprime adjustable-rate mortgage loans, known as ARMs, that are due to reset at higher amounts during the next eight months. Subprime loans are those made to people with poor credit. Not all these mortgages are in trouble, but homeowners who default or fall behind on payments could cause an economic shock of a type never seen before."
 
<em>"but, as an expert on the global credit crisis, he speaks with authority."</em>





LOL!





I like some of what he writes, but he is a bond salesman pushing for what is in his best interest. He is hardly a dispassionate observer.





<em>"Some of the nation’s leading economic minds lay out a scenario that is frightening. Not only would the next wave of the mortgage crisis force people out of their homes, it might also spiral throughout the economy.The already severe housing slump would be exacerbated by even more empty homes on the market, causing prices to plunge by up to 40 percent in once-hot real estate spots such as California, Nevada and Florida."</em>





At least the truth is getting out. Of course, his "bogeyman" tone is suggesting a course of action -- lower interest rates -- which will help his bond company sales.


<em>


"When home prices kept rising, these were lucrative assets to own. But the ongoing collapse in housing prices has set off a chain reaction: Lenders are tightening their standards, borrowers are having a harder time refinancing loans and the securities that underpin them are in jeopardy."</em>





The MSM is starting to get it.


<em>


"“I just assumed banks could stomach these kind of losses,” said Wendy Talbot, an advertising executive when asked about the subprime crisis outside of a Charles Schwab branch in New York. “I guess you don’t really pay attention to things until your forced to. ... You put out of your mind the worst things that can happen.”"</em>





Clueless denial: the world before blogs.
 
<p>Interesting that despite all the talk about the SIV superfund - it doesn't even exist yet, supposed to exist and be buying stuff in January - and they are still looking for people still willing to come to the party...</p>

<p>SIV-Plan Founders to Seek More Support for Superfund</p>

<p>http://online.wsj.com/article/SB119577885324101647.html?mod=hpp_us_whats_news</p>
 
The Upside to the Downturn

Contractors Return Calls, Materials Cost Less; Mr. Bowes's Half-Price Renovation



<p><a href="http://online.wsj.com/article/SB119578061831901674.html?mod=hpp_us_personal_journal">http://online.wsj.com/article/SB119578061831901674.html?mod=hpp_us_personal_journal</a></p>

<p class="times">Meantime, more homeowners will renovate their kitchens this year -- 7.57 million, up from 7.44 million in 2006 -- but they will spend a lot less, $96.2 billion compared with $127 billion, according to the National Kitchen & Bath Association. Bathroom renovations this year are expected to rise by 5.3% to 10.9 million from 2006, while spending on them will grow 3.8% to $70.2 billion from 2006, the trade group projects.</p>
 
Bank failures? No worry there. Banks are insured by the FDIC right?

<p><a href="http://abcnews.go.com/Business/IndustryInfo/story?id=3876981&page=1">


http://abcnews.go.com/Business/IndustryInfo/story?id=3876981&page=1</a></p>
 
<p>This is not a headline, but the dog that didn't bark.</p>

<p>Here on the space coast, Lennar had been advertising selling 30 houses in 30 days with reasonably deep discounts. Today would have been the 29th or 30 day, so I looked to see how many houses they'd claimed to sell, because they were proudly proclaiming so many sold each weekend, and there was no ad.</p>

<p>No ad at all for anything. Nada, zip, zilch. </p>

<p>Well, I guess they didn't sell their 30 houses in 30 days. But I wonder about no ad at all. A sign they are giving up? A resumption in advertising next week with some other dopy promotion, assuming nobody noticed they didn't reach their goal?</p>

<p>The real estate section just gets skinnier and skinnier. Seems like you need more mkting to sell now, but maybe the realtors don't have the money to advertise?</p>
 
<p>Nice chart, interesting quotes</p>

Rising Rates to Worsen Subprime Mess

Interest Payments Set To Grow on $362 Billion In Mortgages in 2008

<p><a href="http://online.wsj.com/article/SB119586137992302497.html">http://online.wsj.com/article/SB119586137992302497.html</a></p>

<p><img alt="" src="http://s.wsj.net/public/resources/images/P1-AJ666_RESETS_20071123193645.gif" /></p>

<p class="times">Treasury Secretary Henry Paulson and the chairman of the Federal Deposit Insurance Corp., Sheila Bair, have been pressing lenders to modify terms in a sweeping way, rather than going through a time-consuming case-by-case evaluation that could end up pushing many people into foreclosure. Officials at the Federal Reserve and in the Bush administration have estimated that 150,000 mortgages are resetting a month.</p>

<p class="times">Ms. Bair has proposed that mortgage companies freeze the interest rates on some two million mortgages at the rate before the reset to help borrowers avoid trouble. "Keep it at the starter rate," Ms. Bair said at conference last month. "Convert it into a fixed rate. Make it permanent. And get on with it."</p>

<p class="times">...</p>

<p class="times">The projected supply of foreclosed homes is equal to about 45% of existing home sales and could add four months to the supply of existing homes, says Dale Westhoff, a senior managing director at Bear Stearns. This is a "fundamental shift" in the housing supply, says Mr. Westhoff, who believes that home prices will drop further as lenders "mark to market" repossessed homes.</p>

<p class="times">Foreclosed homes typically sell at a discount of 20% to 25% compared to the sale of an owner-occupied home, analysts say. Lenders are eager to unload the properties, and the homes tend to be in poorer condition.</p>
 
<p>Insider Q&A told land buying up, prices tumble</p>

<p><a href="http://lansner.freedomblogging.com/2007/11/24/insider-qa-told-land-buying-up-prices-tumble/">http://lansner.freedomblogging.com/2007/11/24/insider-qa-told-land-buying-up-prices-tumble/</a></p>

<p>Tom: Land prices in Southern California have dropped dramatically, by as much as 30% to 50% in some markets. We’re seeing that the prices for finished lots pulled back to 2002 levels in many cases, and may go down even further by next year. The bulk of that decrease is in the residual value of the land itself. The actual cost of development – entitlement, grading, installing infrastructure – has not changed that much. So the remaining portion of the equation, the land, is what has lost value and has the most elasticity.


While Los Angeles, Riverside and San Bernardino counties are experiencing significant price cuts on land, Orange County is more difficult to read. That’s because there is very little land available for sale here, and all the large land holdings are controlled by either The Irvine Co. or Rancho Mission Viejo. Neither are under pressure to develop right away. </p>

<p><strong>Us: Who’s been buying? Vulture funds? Foreign investors taking advantage of a weak U.S. dollar to buy land here?</strong>


Tom: What has really caught the attention of our real estate brokers is who is buying. Most are individual investors using their own money, and some of the same people who were buying up land during the last down cycle of the housing market in the early 1990s.


We’ve been dealing with disciplined land buyers who have long histories in Southern California. They sat on the sidelines during the peak of the market 2003-2005, when they felt that land values had gotten artificially high and unsupportable, and now are back making sound land investments. They know prices could still drift down a bit, but the risk of waiting on the sidelines is even greater. If they wait too late to get into the game, they’ll be competing with the Wall Street money that could run values up if more than one group starts pursuing the same properties.</p>

<p>We receive calls every day from new opportunity or “vulture” funds, but have yet to see many of them purchase land in Southern California. We believe they currently have unrealistic expectations of the market and the types of deals available. We also have completed land sales for foreign investors, so I would say there has been a benefit to the weak dollar, at least in land sales.</p>

<p><strong>Us: What’s your outlook for land prices?


</strong>Tom: Our real estate team believes we are nearing the bottom today for land pricing, based on the types of deals and buyers we are involved with. The land deals out there today may not make sense for homebuilders, but they do for investors who are looking to buy and hold. That generally signals the bottom of the land market.</p>

<p>It may decline another 10% from the top of the market and these conditions may continue, but I think we will see the true bottom of the land market sometime in the next six to eight months. How long it will stay there — before prices start to come up again — depends on the activity and competition that is generated and what happens in the housing market.</p>

<p>Although depressed land values aren’t good for land owners, lower property prices may be good news for homebuyers. The biggest reason that home values were so inflated, and there was so little work force housing over the past few years, was the skyrocketing price of land in Southern California. The cost of a finished lot was so high in 2003-2005 that builders had to put up big houses — or raise their prices — to make it pencil out.</p>

<p>In the industry, the cost to complete a single-family home is roughly three times the value of a finished lot. For example, if you’re paying $200,000 a lot, you have to build a big home that will sell for at least $600,000. However, if that same lot now costs $150,000, you could afford to deliver a smaller house for $450,000. So the value or cost of land often determines home values, and we should be seeing more affordable homes being built over the next several years.</p>
 
Refinancing May Be Harder to Enjoy

While Rates are Down, Lenders Tighten Rules; Savings Prove Slender



<p>http://online.wsj.com/article/SB119586468016502637.html?mod=googlenews_wsj</p>
 
Any of you who read <strong><a title="Permanent Link to Land Value 101" rel="bookmark" linkindex="6" set="yes" href="http://www.irvinehousingblog.com/2007/07/16/land-value-101/">Land Value 101</a> </strong>should be able to recognize the errors in the analysis made in the land analysis above.





First, <em>"Land prices in Southern California have dropped dramatically, by as much as 30% to 50% in some markets." </em>Call me when the discounts are 80% to 95%. Then we are near the bottom.





Second, <em>"So the value or cost of land often determines home values,"</em> This is just wrong. It is totally backwards from reality.



 
<i>"Ms. Bair has proposed that mortgage companies freeze the interest rates on some two million mortgages at the rate before the reset to help borrowers avoid trouble. "Keep it at the starter rate," Ms. Bair said at conference last month. "Convert it into a fixed rate. Make it permanent. And get on with it."</i><p>


I am just wondering if Ms. Blair is a large investor in the mortgage paper that she is suggesting should take a loss? It seems so easy for some folks to tell others what to do with their money or profits. If freezing rates is in the best interest of the mortgage holders, won't they freeze rates on their own?
 
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