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Housing: 2007 Thread.
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OS
Lifer
http://www.chron.com/disp/story.mpl/business/4575715.html
lowe's profit down 11%, citing housing slump
lowe's profit down 11%, citing housing slump
dullard
Elite Member
Important note: Realtor.org on Feb 2007 released all new numbers from Jan 2006 to now. It appears that they added one more significant figure in the data. Most data is basically the same, but Jan 2006 data was significantly altered.
Existing home sales rise 3%, Jan 2007 - 6.43M annual rate preliminary data. However, prices fell 3%. Prices are now over 8% below their peak just last summer. It appears like the number of houses sold has found it's bottom. It found its bottom by having the prices finally fall. People who needed to sell their home have finally given in and sold it at a lower price.
A little anecdotal evidence (I know it is meaningless, but it supports the pattern above). My girlfriend bought a house in Jan 2007 after a ~9 month lag (her offer was made and accepted in spring of 2006). The seller's banks refused to let the deal go through and wanted to foreclose on the property (two mortgages, total owed was less than the offer). Eventually the banks gave up. The sellers sold their home to her after their banks finally approved selling the home at a loss. The house was on the market for over 18 months.
Existing home sales rise 3%, Jan 2007 - 6.43M annual rate preliminary data. However, prices fell 3%. Prices are now over 8% below their peak just last summer. It appears like the number of houses sold has found it's bottom. It found its bottom by having the prices finally fall. People who needed to sell their home have finally given in and sold it at a lower price.
A little anecdotal evidence (I know it is meaningless, but it supports the pattern above). My girlfriend bought a house in Jan 2007 after a ~9 month lag (her offer was made and accepted in spring of 2006). The seller's banks refused to let the deal go through and wanted to foreclose on the property (two mortgages, total owed was less than the offer). Eventually the banks gave up. The sellers sold their home to her after their banks finally approved selling the home at a loss. The house was on the market for over 18 months.
HomeAppraiser
Platinum Member
Prices are stable here in rural Oregon because we are one of the last areas of affordable housing. Although cocksvcking mortgage brokers are still pushing 1% per month California style 2005 appreciation in a flat market. No offense to any non-cocksvcking mortgage brokers.
dullard
Elite Member
New home sales fell nearly 17% from this time last month. However, the total homes sold (new + existing) rose due to the large increase in existing homes sold. This statistic has risen slightly for 4 months straight.
iversonyin
Diamond Member
Dullard, I believe that we are closing in the bottom of this housing market. People in speculative market got BURN badly. Homebuilders are working their inventory off. If you look at their stock price, they have rebounded quite well. (I believe stock prices are leading indicator- not always correct of course).
I live in residential area in NYC. Although we see a lot of existing homes getting put up for sales. The price depreciation is MILD at best.
Housing market is really more of a regional problem than a national problem.
dullard
Elite Member
Define "rebounded". Most homebuilder stocks look almost exactly like Toll Brothers. TOL is down dramatically in that 2-year chart from its highs. Sure, they are up a bit in the last 6 months, but half of those gains were eliminated in the last few weeks. So if rebounded means (1) plummet, (2) rise a bit, then (3) fall back again, then yes they rebounded. Same goes for HOV, DHI, or the other large homebuilder stocks. In my view, stocks are both leading and trailing indicators. They are people's future perceptions (leading) but the perceptions are based on old data (trailing). I don't know which to believe here, the last 6 months rise or the last 1 month fall.
Inventory itself isn't showing a rosy picture either. The cut in new home starts has helped. New home inventory is off 8% from it's levels last summer. However, inventory is rising recently (up 2.9% in the last month alone). Heck, just last month there was a true record in the total number of new homes built. And with fewer buyers, the length of time new homes are on the market is steadily increasing (up nearly 1 month since December, to 7.7 months inventory). Rising inventory times are a very bad sign for homebuilders. They have to slash building even further to eliminate that problem. The slump therefore isn't yet over.
Market slumps in general have three repeating points of interest. (1) The slumps occur much later than people predict. People had predicted for years that housing would fall and it well outlasted their predictions. The internet stock boom lasted years after the first calls for it to return to Earth. (2) The slumps occur much more suddenly than people predict. Flippers got stuck holding houses that they can't sell, homebuilders got stuck with 7+ months of inventory (bad when it takes less time than that to build a home), and internet stock shareholders lost thier life savings virtually overnight. (3) The slumps are almost always more severe than predicted. People come in and say the bottom feeders will prop it up, but they aren't sufficient. Look at the Nasdaq in the middle of the year 2000. The Nasdaq fell 40%. Then the bottom feeders came in and propped it up for another few months. Heck, we got a good rally there, from 3000 to almost 4400 with the Nasdaq bottom feeders. What happened? The bottom feeders were all used up and the slump continued. The Nasdaq to this date hasn't even yet caught up to where the support was supposed to be. The slump is worse than people predict.
With housing we've met two of those three slump characteristics. The housing boom lasted far longer than many people predicted. The housing boom came suddenly and caught many people by surprize (home buyers, home builders, and home improvement stores for example). Now we have the 3rd characteristic to look for: will it be more severe than most people predict? Take the NAR as an example. After 6 straight months of year-over-year price declines, look at what they published yesterday in that NAR link:
With reality facing them directly, they still can't admit that there is a problem. The problem WILL be far worse than they predict. Look at my graphs in the original post, only now has the home slump pressure shown up in prices. It'll be several more months (with the occasional bounce up) of low prices before this housing glut can work its way through. Soon we get the government's report on new home prices. Lets see how that looks.
No, the sky isn't falling. Houses won't go to $0. I don't agree with the people who make it seem like the housing market is in a free fall. It won't be that bad. But we aren't through it yet. The night will get darker before the sun rises.
Yes, housing is regional. Heck, it is a neighborhood by neighborhood situation. But the local regions tend to go together. Don't try to hide lots of regional problems by stating that your local region is ok.
HomeAppraiser
Platinum Member
HomeAppraiser
Platinum Member
Odd, I haven't seen the usual glut of CountryWide/Full Spectrum Lending Pre-foreclosure exterior only appraisal orders.
'Panic' takes hold as subprime lenders slump
By Alistair Barr, MarketWatch
Last Update: 4:46 PM ET Mar 5, 2007
SAN FRANCISCO (MarketWatch) -- Shares of subprime lenders including NovaStar Financial, Accredited Home Lenders and Fremont General dropped more than 25% on Monday as investors dumped holdings in an industry rocked by tighter regulation and bad debts.
NovaStar slumped 41% to $4.28, Fremont lost 32% to $5.89 and Accredited declined 26% to $16.06.
'When bad news is affecting one or two there seems to be collateral damage.'
? Rich Eckert, Roth Capital Partners
"There's a lot of panic selling today," Rich Eckert, senior research analyst at Roth Capital Partners, said. "People are deciding they don't want to be exposed to this sector at all."
Subprime mortgages are offered to homebuyers who don't meet the strictest lending standards. Companies that specialize in these loans have suffered as housing prices stopped rising and interest rates climbed from record lows. See full story.
In the most acute example on Monday, shares of New Century lost more than two-thirds of their value to close at $4.56. The second-largest subprime lender in the U.S. said late Friday that it's facing a federal criminal probe and has breached a covenant with some major lenders that provide important financial backing. See full story.
Chart of NEW
Fremont said that it's getting out of the business after the Federal Deposit Insurance Corp., which helps regulate lenders, ordered it to stop selling some subprime mortgages. See full story.
As interest rates rose in 2005 and 2006, subprime lenders relaxed their underwriting standards to keep sales volumes up. Now more borrowers are beginning to fall behind on payments. More than 12% of subprime mortgage loans were delinquent during the third quarter of 2006, according to Morgan Stanley research. That's up from less than 8% at the end of 2003.
"These stocks tend to trade as a group. When bad news is affecting one or two there seems to be collateral damage," Eckert said.
Accredited Home Lenders has been among the most conservative subprime lenders and will likely survive the crisis, but investors are ignoring that right now, the analyst added.
"Accredited and others face some of the same issues that are negatively impacting New Century, but they're not in jeopardy of having their warehouse lines pulled, that I know of," Eckert said.
He said Accredited Home Lenders's shares are worth $30, but are trading well below that and probably won't recover for a long time.
"It might be better for investors to get out now and then get back in later, when the industry is exhibiting some signs of recovery," Eckert concluded.
NovaStar securitization
Most subprime lenders sell the loans they originate to investment banks, which then package them up and sell them on again to other investors as mortgage-backed securities.
But as more problems have emerged in the subprime sector, it's becoming harder for originators to sell their loans into secondary markets.
NovaStar sold a package of its loans in a $1.9 billion securitization in late February. However, the company retained the lowest-rated portion of the deal.
"They were able to sell about 95% of the deal, which means that they kept about 5%," Roth Capital's Eckert said. "They stand directly exposed to loss right now, but if they'd managed to sell the whole deal, the investors would be the ones exposed."
In the end, it cost NovaStar more to originate the loans than the company received from its securitization, the analyst noted.
"It was pretty good that they did the deal, but they can't go on doing this," he added.
At some point, capital markets will have to become more accepting of subprime mortgage securitizations again, he said.
Regulatory pressure
There's also pressure on subprime mortgage lenders from regulators.
In the proposed new federal guidelines issued on Friday, bank regulators demanded tougher standards for subprime loans, saying they're worried that borrowers who select adjustable-rate mortgages may not understand the risks.
Lenders should approve loans only when they know borrowers can repay them, the regulators said. Borrowers' ability to repay should be based on the full cost of the loan in future, not lower "teaser" rates that last for the first two to three years of the loan, they said.
"The effect of this will be to reduce demand for subprime mortgages," said Zack Gast, a financial sector analyst at the Center for Financial Research and Analysis, a research firm. "Fewer people would be able to buy these mortgages."
The guidance only applies directly to banks and not to real estate investment trusts such as New Century and NovaStar. However, the capital markets will likely adjust to the new standards, meaning those firms will also be affected, Roth Capital's Eckert said.
"If you have one set of businesses operating under one set of guidelines and another operating under a stricter set, companies, rating agencies and the bond market will usually migrate toward those stricter standards," he explained.
If investors have to decide between one pool of loans originated under the new stricter guidelines and another under the old, looser ones, they will be more likely to buy the stricter ones, he said.
The end result will mean lower origination volume for most subprime lenders, Eckert said.
Even before these guidelines, he said, New Century had forecast a 20% decline in originations this year. End of Story [/quote]
Now it kicks in full gear...
imported_eppenoire
Member
All you had to do was calculate the average income vs. the average home price to see that this market was unrealistic. I just negotiated a 350k price on a condo in Emeryville, the orginal price on it was 800k+. The idiots who bought it thought they would rent it out, but they didn't do a basic analysis of the local rental market, which would have shown them that could never rent if for as much as their cost would be. Its a good market for forclosures right now, but I am expecting it to get a lot better, because there are thousands of idiots who either bought homes with interest only loans or bought homes as an "investment".
dmcowen674
No Lifer
Now it kicks in full gear...[/quote]
This can't be according to the resident Republicans.
Oh that's right, it's all the Democrats fault.
iversonyin
Diamond Member
Dullard,
I'm not trying to hide any regional problem. The speculative markets already experienced the pain. From your post I sensed from you that this will be a prolong problem. But when I look at those charts and graph you posted (including TOL charts and I also look at HGX which is PHLX Homebuilders index), we are not exactly at the top, we are near the bottom (financial markets usually fall like rocks from the top,not the bottom). TOL and rest of the homebuilder rebounded 20-30% from their bottom- granted they fell again along with the market this pass month. On top of that you have sub prime blowing up, everything seem to be in their "worst" case scenario. I'm not saying that housing slump is over as of TODAY, nor did I say that we will rebound BACK to pre 2005 condition where you can flip a condo every month and make a living out of it. What I'm saying is that things are already BAD, how much worse can they really get?
I think 2007 will be the year that housing will stabilize. Housing is not like stock, its not liquidly traded and not everyone care much about the value of their homes when it depreciate. If you bought a house couple years earlier and you have rent it out or lived in it for couple years, are you going to put it up for sale because national housing price had came down? Unlikely. But if you have stock and you are losing money, you are more likely to sell. Stock market is easily accessible to WIDE range of speculators vs housing. I think once the homebuilders and speculators work off their glut, things will be better. We know new home sales going to suck for a year or 2, we know homebuilders has to work off some land and write off some impairment- these expectation is build into the stock price. As long as everyone has their jobs (economy growth steady at ~2%), they would keep paying their mortgage and keep spending. Corporate profit still expect to grow at high single digit this year, so companies are unlikely to lay off massive amount of workers. Sure, sub prime blew up, but sub prime is 12-15% of the whole mortgage market and not ALL 12-15% of sub prime became delinquent over night. I think a home owner is more happy to see a lower apprasial so he can pay lower property tax. By home owner I mean people who has a job and actually BUY the house with a fixed rate mortgage- not those speculators/investors.
Sorry if I went all over the place, but I think the housing market is putting a bottom the next year or two. Its not too long until prices become attractive again. After 2008, I think housing will settle and prices are like to move in a sideline.
On a side note. D R Horton CEO said "2007 is going to SUCK, all 12 calender months". On contrary, Bob Toll expect to see some light at the end of the tunnel. Obviously Toll sell to the high end market vs D R Horton. So We are seeing SOME light.
If I have to invest, I would buy TOL near their previous low- when their stock price trade at 1.2 book value.
I'm not trying to hide any regional problem. The speculative markets already experienced the pain. From your post I sensed from you that this will be a prolong problem. But when I look at those charts and graph you posted (including TOL charts and I also look at HGX which is PHLX Homebuilders index), we are not exactly at the top, we are near the bottom (financial markets usually fall like rocks from the top,not the bottom). TOL and rest of the homebuilder rebounded 20-30% from their bottom- granted they fell again along with the market this pass month. On top of that you have sub prime blowing up, everything seem to be in their "worst" case scenario. I'm not saying that housing slump is over as of TODAY, nor did I say that we will rebound BACK to pre 2005 condition where you can flip a condo every month and make a living out of it. What I'm saying is that things are already BAD, how much worse can they really get?
I think 2007 will be the year that housing will stabilize. Housing is not like stock, its not liquidly traded and not everyone care much about the value of their homes when it depreciate. If you bought a house couple years earlier and you have rent it out or lived in it for couple years, are you going to put it up for sale because national housing price had came down? Unlikely. But if you have stock and you are losing money, you are more likely to sell. Stock market is easily accessible to WIDE range of speculators vs housing. I think once the homebuilders and speculators work off their glut, things will be better. We know new home sales going to suck for a year or 2, we know homebuilders has to work off some land and write off some impairment- these expectation is build into the stock price. As long as everyone has their jobs (economy growth steady at ~2%), they would keep paying their mortgage and keep spending. Corporate profit still expect to grow at high single digit this year, so companies are unlikely to lay off massive amount of workers. Sure, sub prime blew up, but sub prime is 12-15% of the whole mortgage market and not ALL 12-15% of sub prime became delinquent over night. I think a home owner is more happy to see a lower apprasial so he can pay lower property tax. By home owner I mean people who has a job and actually BUY the house with a fixed rate mortgage- not those speculators/investors.
Sorry if I went all over the place, but I think the housing market is putting a bottom the next year or two. Its not too long until prices become attractive again. After 2008, I think housing will settle and prices are like to move in a sideline.
On a side note. D R Horton CEO said "2007 is going to SUCK, all 12 calender months". On contrary, Bob Toll expect to see some light at the end of the tunnel. Obviously Toll sell to the high end market vs D R Horton. So We are seeing SOME light.
If I have to invest, I would buy TOL near their previous low- when their stock price trade at 1.2 book value.
Slew Foot
Lifer
My question to you is, who is left to buy houses? The vast majority of people already own, the people who arent supposed to buy homes (subprimes) cant get loans anymore (which will cut demand 10-40% depending on locale), and buying to rent out as an investment doesnt make sense due to negative cash flow. The vast amount of housing supply that was created in the past few years wasnt accompanied by a vast increase in the wealthy population that could afford the homes. With 2 TRILLION $$ of ARMs resetting in the next couple years, you'll start to see the foreclosure market ramp up. Prices wont pickup until all of the funny money that was speculated in the market is weeded out. I think we're a long way off from that point.
LegendKiller
Lifer
No, what is more obvious is that they expected the good times go keep rolling. The short-sighted approach and the drive to keep earnings up lead them to go further down credit to extend their paychecks. Sadly this is the "normal" way a boom/bust cycle ends, in order to raise that marginal dollar they begin to remove inhibitions. Too bad its going to cause a massive drop in the economy.
I can see where you refuse to have your industry take any blame, I don't agree with it, but I see it.
dmcowen674
No Lifer
Most of us know that when these lenders close none of the execs lose a penny.
imported_Shivetya
Platinum Member
and why should they? they already lose their paychecks, so why should they lose money if the business goes under?
dullard
Elite Member
(1) No it wasn't a conspiracy and (2) note that you Vic are the only one stating a conspiracy. Sarcasm to divert an attack only works if there was someone making that attack to begin with (and even then, that type of sarcasm isn't a useful form of debate).
I don't see it as a conspiracy. I see it as a three-fold problem. (1) Some lenders just didn't fully analyze the situation and didn't realize the full effect of the irrational housing boom. (2) Some lenders just wanted a quick short-term buck at the sacrifice of long term bucks. (3) I believe this applies to the vast majority of lenders, those who weren't in #1 or #2 knew that they had to keep along with the silly game otherwise all their competitors would take much of their business. Lenders in #3 had the choice: lose now by ignoring the irrational exuberance or lose later when the exuberance ends. From what I can tell, if you were in any of those groups, Vic, you certainly weren't in #1 or #2 (I don't know if you had to do #3 to stay in business). I'm not blaming you. I just feel your whole field wasn't doing all that could be done to avoid this pain. In the end, Lenders could do better.
Vic
Elite Member
Of course that's not true. For starters, they lose their jobs. And as most mortgage companies/brokerages are small businesses, most of them lose just about everything else as well. What would happen to you, Dave, if your bar went under? Are you saying you wouldn't lose a penny?
Vic
Elite Member
When I read sh!t like "corrupt, predatory and exploitative practices" blah blah blah, it sure sounds like that person is claiming some nebulous conspiracy to me.
Of course it was stupidity. Of course the idiots killed the goose that laid the golden eggs. And yeah, I did do #3 for moral reasons and I regret now that I didn't make more hay while the sun was shining. I am not, however, out of business. It has remained quite steady with a nice uptick recently in refinances.
dmcowen674
No Lifer
You haven't been paying attention.
The bar did go under.
The real numbers were untenable (Vs the phoney numbers they gaves us) but we gave it a shot and we are paying dearly.
The true costs were not revealed until we took it over and then we found out they were in arears for over a year on nearly every bill.
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