Thursday, July 31, 2008

Greenspan Covers His A$$; Mortgage Applications Down. Shocker.

Former Federal Reserve Chairman Alan Greenspan said falling U.S. home prices are ``nowhere near the bottom" and the resulting turmoil shows no signs of abating. Ya think?

Bloomberg reports that the Mortgage Bankers Association index of applications fell 14% last week. This is the lowest level since the year 2000. And refi applications fell by 23%, also the lowest level since 2000. Tighter lending standards and falling property values are keeping prospective buyers out of the market and may extend the three-year housing slump. The decline in house prices, in turn, is making it difficult for homeowners to refinance their mortgages. Vicious circle.

Wednesday, July 30, 2008

Tuesday, July 29, 2008

Home Prices Fall, Covered Bond Market, Merrill's CDOs

This time, it's 16% year over year, from last May. Meanwhile, regulators, bankers and traders, led by Treas Sec Hank I'm-Sorry-I-Ever-Left-Goldman Paulson came together on Monday to figure out how banks can come up with cash for mortgages. They're hoping to develop a “covered bond market." Not sure what the hell that is? Read this.

Merrill has decided to sell $30.6 BILLION of their securities at .22 cents on the dollar. These are Collateralized Debt Obligations--CDOs--that is, finance instruments comprised of mortgages, many of which are crap: subprime mortgages. As these mortgages go underwater or default and turn worthless, the securities plummet. Instead of waiting for this to definitively happen, Merrill has gone ahead and "valued" (or "devalued" them). This may set a precedent for other banks. In response, shares at other banks are falling.

Monday, July 28, 2008

Suspects Arrested

MLS #451219
606 Monticello Avenue

Suspects arrested in what appears to be gang shooting, according to the Daily Progress:

The suspects are known to associate with Charlottesville-area gangs, police said.

“There appears to have been a conflict between two groups,” Charlottesville Police Chief Timothy J. Longo said. “Suffice it to say, a conflict arose. Gunfire resulted.”

Magruder — also known as Spanky — may also have been a gang member. A memorial near the crime scene included bottles of Grey Goose vodka, stuffed animals, Newport cigarettes, a pinwheel and graffiti by the 6-N-O gang, which has long been associated with the area around the Friendship Court housing complex near the Downtown Mall.

“You can draw your own reasonable conclusions based on that tagging,” Longo said, adding that none of the individuals is a confirmed gang member. “The fact that there’s that sort of tagging on a memorial for someone who lost his life, that’s pretty remarkable.”

Memorial at the corner of 6th Street SE and Monticello Avenue:

R.I.P. Joshua Anthony "Spanky" Magruder

Ah, Belmont....

....Where a Half-Million Dollars can get you a stucco masterpiece or a Frank Bergland Flip, and you can also be within earshot of gunfire and death.

To be accurate, both of these properties have had "price drops." Er, enough to move them out of the Bubble? With "reductions" at or below 5%? Aren't these just "psychological" drops, trying to convince a buyer s/he's not paying a Half Million Dollars before interest is even calculated?

And do the price reductions have anything to do with the nearby gang activity, or is it merely the collapsing mortgage market, the troubled economy--or just a whiff of reality?

Sunday, July 27, 2008

Is Your Kitchen Dangerous?

Thinking of buying or selling a home?

Make sure your granite kitchen counter isn't toxic.

Little Help?

Need help selling your house? Try Saint Joseph. With purchase of statue, you also get to post your listing on statue retailer's website. Apparently, St. Joe works best for those of faith. (And, we might add, he'll work for those who have the faith to price their house according to this market, not the market in their own private fantasy....) Be sure to check out the listings for Virginia.

Friday, July 25, 2008

Two More Banks Fail

From WSJ: Federal regulators shut down two national banks late Friday in the latest chapter of the credit crisis. The Federal Deposit Insurance Corp. protected all depositors by selling the accounts to Mutual of Omaha Bank.

The Office of the Comptroller of the Currency, a division of the Treasury Department, revoked the charters of First National Bank of Nevada, based in Reno, Nev., and First Heritage Bank of Newport Beach, Calif. The FDIC was appointed receiver of both banks.

Concerned about your own bank and deposits? Read this.

Existing Sales Down 15.5% from a Year Ago; Realtor vs. Realtwhore

Nobody is surprised. Right?

The National Association of Realtors reported that sales dropped by 2.6% in June to a seasonally adjusted annual rate of 4.86 million units, a 10-year low. Median house prices are also down 6.1%.

This is more than double the decline that had been expected and left sales 15.5 percent below where they were a year ago.

Meanwhile, has a new ratings system in place. It is expecting home prices to decline by an average of 25% in real terms at the national level over the next five years, starting from the second quarter of 2008. And that’s the base case scenario.

So why would anybody buy in this market? Check out Realtor vs. "Realtwhore" - Courtesy of Bloodhound Blog.

Thursday, July 24, 2008

"Privatize the Profits, Socialize the Losses"

1. Thursday, and we're waiting for the National report on existing home sales for June, due today.

2. The House has passed the Housing Bill after "W" says he will sign it.
  • Mr. Bush was opposed due to the $4B earmarked for local governments to buy and refurbish foreclosed properties--because he considers it a bailout. This kind of plan is already in place near us--and even closer to Mr. Bush himself--in Fairfax County, VA.
  • The legislation leaves many unanswered questions, perhaps the biggest being whether it will be sufficient to slow the downward spiral of home prices.
3. Of course, mortgage rates are up due to "the troubles" at Fan and Fred.
  • Average rate for 30-year fixed rose to 6.71 from 6.44 percent last Friday. Average rate f jumbo loans, which cannot be sold to Fannie Mae and Freddie Mac, was 7.8%, the highest since Dec. 2000.
  • This is of greatest concern for interest-only mortgages for the first few years of their loans. If these borrowers can't refi into lower-cost loans, many of them will face the prospect of having to pay both interest and principal at higher, adjustable rates.
4. Wall Street: Drunk, Evil, or Stupid? Here.

5. Now that we need him again, he wants to go to Washington.

Wednesday, July 23, 2008

"Rebound"--? No. Billions Lost? Yes. Again.

In the news: Large second-quarter losses at Wachovia and Washington Mutual revive concerns that the financial sector still has a long way to go before it recovers from the year-old credit crisis.

Huh? Did anybody really think we were in recovery?

According to the AP, "Investors who were growing optimistic after a string of upbeat bank results in recent days were jolted Tuesday when Wachovia, the nation's fourth-largest bank, racked up an $8.86 billion loss because of charges and reserves for bad mortgage loans. The Charlotte-based bank also cut its dividend for the second time this year and eliminated 10,750 positions. Washington Mutual, the nation's largest savings and loan, delivered a further blow, with a $3.33 billion loss." Investors Questioning "Rebound."

Honestly? Any investor who is "optimistic" at this point in history is suffering from innumeracy. We're not economists nor bankers nor mathameticians over here at Bubble Central, nor can we reliably see into the future with our psychic powers. We're just your ROTM investors, and daily news readers, and even we know that the bottom of the housing market, and the actual depths to which the economy will sink are a long way off.

NYU Economist Nouriel Roubini, who unlike we Bubblers is an actual professional, has calculations for the breadth of the mortgage crisis--about a TRILLION DOLLARS, which he shares in a video. He discusses the phenomenon of Jingle Mail--homeowners with Negative Equity who send their keys back to the bank--and what he sees as the Bottom of this Market, sometime in 2010, after prices have adjusted themselves and fallen 30%. Must-See TV.

If you prefer reading to gather more specific answers to where our economy is going, read the great article in the past weekend's NY Times. Here's a sample, addressing housing:

"With mortgages now hard to obtain and speculation no longer attractive, arithmetic has replaced momentum as the guiding force for housing prices. The fundamental equation points down: Even as construction grinds down, there are still many more houses on the market than there are people to buy them, and more on the way as more homeowners slip into foreclosure.

By the reckoning of, enough houses are on the market to satisfy demand for the next two-and-a-half years without building a single new one."

Uncomfortable Answers to Questions on the Economy.

Tuesday, July 22, 2008

903 Rougemont: New MLS #, New Price

A veritable firestorm ensued in the comments section back on July 2 when we reported that 1705 Rugby Circle had a new MLS #.

Lately our heads have been bobbling over here in Bubble Central with the onslaught of shocking financial news, so we haven't had a chance to get this post up: the MLS "New Listing" as of Friday, July 11.

It's the Belmont "starter home" at 903 Rougemont now dropped in price $5K, a "bargain" at $174.9K. Its DOM has been "washed" by being re-listed. The new MLS: #455282. While the Asking at 1705 Rugby Circle is just shy of $700K, what the houses have in common is that their addresses have changed to Bubbleville, Virginia, 2290-oops.

You've seen 903 Rougemont reposted every six days on Craigslist. The current post has a Youtube link, so the prospective buyer may take a video tour. Thoughtful.

This "new listing" popped up while Fannie and Freddie flailed and the same day that IndyMac actually failed. These larger events have nothing to do with this property's price drop. If they did, the 750 sq. ft. vinyl siding "cottage" in a neighborhood that is the most over-hyped and over-priced in the City would actually have a "realistic price" by now.

Instead, it remains unsold, confuses buyers with its mind-boggling price, drives up CAAR/MLS stats, and perpetuates the Bubble, in our humble opinion.

Check out the seller's other offering in Bubbleville.


The cost of the Fannie Freddie Bailout?


Amex Superprime Problem; Wachovia Exits Wholesale Mortgage

Calculated Risk reports on AmEx's Conference Call:

“Over the past month or so, we have seen clear signs that the US economy is weakening. Unemployment rates, as we know, took the largest jump in over 20 years. Home prices declined at the fastest rate in decades, and consumer confidence is at one of its all-time low points. Card member spending particularly among consumers slowed sharply during the latter part of the quarter....[b]y almost any measure the US economy and business environment are much weaker....Now this fallout was evident across all consumer segments, even our longer-term super prime card members.

"...more and more consumers who are falling behind in their payments are remaining delinquent. This causes us to assume that a greater percentage of past-due loans will not be repaid. In light of the magnitude of the negative economic trends and our experience, we now believe the economic weakness in the US will likely worsen throughout the remainder of the year and negatively impact credit and business trend ...we now expect that our lending write-off rate in the third and fourth quarter will be higher than June levels.”

Calculated Risk concludes, "We're all Subprime now!"

And in more regional news, Wachovia will no longer offer mortgages through brokers. The change takes effect Friday, July 25.

In a prepared statement late Monday afternoon, a Wachovia spokesman said: “Wachovia Mortgage has evaluated our business model in the context of the current market and recognized some opportunities to reposition our business. We believe it is important to focus on serving the needs of customers who have relationships with the bank, and who are located in geographies where Wachovia franchises are located.

Of course, when a bank has a "relationship" with a customer, it makes it easier to verify information on a mortgage application. Right? And when a house is located in a "geography" where Wachovia has franchises, in the event of a foreclosure it's that much easier, and less costly, to repo the house. Back to the Good 'Ole Days when bankers were bankers. Read the entire story here.

Monday, July 21, 2008

FDIC/Fed Gov Engaging in Predatory Lending

"Federal officials heap much of the blame for the subprime mortgage mess on lenders, claiming they recklessly made too many high-cost home loans to borrowers who couldn't afford them.

It turns out that the U.S. government itself was one of the lenders giving out high-interest, subprime mortgages, some of them predatory, according to government documents filed in federal court."

Whee! There'd only be better material for Real C'ville - The Bubble Blog if we began writing fiction.

Read about FDIC Faces Mortgage Mess After Running Failed Bank.

Sunday, July 20, 2008

One of Our Bubbles Floats Into the New York Times....

As part of the regular feature, "What You Get for..."
In this case, $700,000.00.
Check it out.

[Update: be sure to check out the comments & follow the link in #1. Thanks, Jim!]

L-ish Economic Prospects: Paul Krugman

Here's an op-ed with some interesting "facts" about housing numbers...and what this economist sees for the economy's recovery. As usual, bolding courtesy of Real C'ville - The Bubble Blog.

L-ish Economic Prospects


Home prices are in free fall. Unemployment is rising. Consumer confidence is plumbing depths not seen since 1980. When will it all end?

The answer is, probably not until 2010 or later. Barack Obama, take notice.

It’s true that some prognosticators still expect a “V-shaped” recovery in which the economy springs back rapidly from its slump. On this view, any day now it will be morning in America.

But if the experience of the last 20 years is any guide, the prospect for the economy isn’t V-shaped, it’s L-ish: rather than springing back, we’ll have a prolonged period of flat or at best slowly improving performance.

Let’s start with housing.

According to the widely used Case-Shiller index, average U.S. home prices fell 17 percent over the past year. Yet we’re in the process of deflating a huge housing bubble, and housing prices probably still have a long way to fall.

Specifically, real home prices, that is, prices adjusted for inflation in the rest of the economy, went up more than 70 percent from 2000 to 2006. Since then they’ve come way down — but they’re still more than 30 percent above the 2000 level.

Should we expect prices to fall all the way back? Well, in the late 1980s, Los Angeles experienced a large localized housing bubble: real home prices rose about 50 percent before the bubble popped. Home prices then proceeded to fall by a quarter, which combined with ongoing inflation brought real housing prices right back to their prebubble level.

And here’s the thing: this process took more than five years — L.A. home prices didn’t bottom out until the mid-1990s. If the current housing slump runs on the same schedule, we won’t be seeing a recovery until 2011 or later.

What about the broader economy? You might be tempted to take comfort from the fact that the last two recessions, in 1990-1991 and 2001, were both quite short. But in each case, the official end of the recession was followed by a long period of sluggish economic growth and rising unemployment that felt to most Americans like a continued recession.

Thus, the 1990 recession officially ended in March 1991, but unemployment kept rising through much of 1992, allowing Bill Clinton to win the election on the basis of the economy, stupid. The next recession officially began in March 2001 and ended in November, but unemployment kept rising until June 2003.

These prolonged recession-like episodes probably reflect the changing nature of the business cycle. Earlier recessions were more or less deliberately engineered by the Federal Reserve, which raised interest rates to control inflation. Modern slumps, by contrast, have been hangovers from bouts of irrational exuberance — the savings and loan free-for-all of the 1980s, the technology bubble of the 1990s and now the housing bubble.

Ending those old-fashioned recessions was easy because all the Fed had to do was relent. Ending modern slumps is much more difficult because the economy needs to find something to replace the burst bubble.

The Fed, in particular, has a hard time getting traction in modern recessions. In 2002, there was a strong sense that the Fed was “pushing on a string”: it kept cutting interest rates, but nobody wanted to borrow until the housing bubble took off. And now it’s happening again. The Onion, as usual, hit the nail on the head with its recent headline: “Recession-plagued nation demands new bubble to invest in.” [You may have seen this in a comment by Diana on an earlier post; if not, click here.]

But we probably won’t find another bubble — at least not one big enough to fuel a quick recovery. And this has, among other things, important political implications.

Given the state of the economy, it’s hard to see how Barack Obama can lose the 2008 election. An anecdote: This week a passing motorist shouted at a crowd waiting outside a branch of IndyMac, the failed bank, “Bush economics didn’t work! They are right-wing Republican thieves!” The crowd cheered.

But what the economy gives, it can also take away. If the current slump follows the typical modern pattern, the economy will stay depressed well into 2010, if not beyond — plenty of time for the public to start blaming the new incumbent, and punish him in the midterm elections.

To avoid that fate, Mr. Obama — if he is indeed the next president — will have to move quickly and forcefully to address America’s economic discontent. That means another stimulus plan, bigger, better, and more sustained than the one Congress passed earlier this year. It also means passing longer-term measures to reduce economic anxiety — above all, universal health care.

If you ask me, there isn’t much suspense in this year’s election: barring some extraordinary mistakes, Mr. Obama will win. Assuming he wins, the real question is what he’ll make of his victory.

[Sure, Krugman is quoting Case-Shiller for some of his stats, and our MSA isn't part of this Index. As you know, however, the majority of economists use this index as the standard for the housing market nationwide--even though there are always exceptions. Some folks believe Charlottesville/Albemarle is an "exception;" some folk don't. Time will tell.]

Click here for the original article.

Saturday, July 19, 2008

Citigroup's Losses....

JPMorgan, Merrill Lynch, and now, of course, Citigroup. Sure, it's no "surprise." Nevertheless, these numbers are shocking.

The only reason you may be shrugging this off is because you can't conceive of how much $$$ this is--and because this news has become "commonplace."

The NYTimes reports,

Citigroup said Friday morning that it lost $2.5 billion, or 54 cents a share, in the second quarter.

The loss was largely caused by $7.2 billion of write-downs of Citigroup’s investments in mortgages and other loans and by a weakness in the consumer market, which cost Citigroup $4.4 billion in credit losses and $2.5 billion to increase reserves.

But the chief executive, Vikram Pandit, positioned the $2.5 billion loss as progress. Last quarter, the financial conglomerate lost $5.1 billion.

Read the complete NYTimes story.

Floyd Norris, the chief financial correspondent for the NYTimes, today is concentrating on what the Fed can do to fix itself--er, us. As in U.S.

He says,

"What we have here is a downward spiral, in which every institution wants more liquidity and less leverage. So banks sell assets and demand higher margins from those they have lent to."

Then he quotes
Markus K. Brunnermeier, a Princeton economist, whose paper, “Deciphering the 2007-08 Liquidity and Credit Crunch,” provides what Norris believes may be the best analysis yet of the origins of the crisis.

Mr. Brunnermeier concludes that this is a classic liquidity crisis, worsened by the extent of securitization, which made it difficult to determine underlying values and difficult even to figure out which institutions are at risk.

Norris writes:

Many of the securitization strategies used by banks and brokers were aimed at reducing the amount of capital they had to maintain while at the same time allowing them to take on more risks. Regulators knew that, but they had no idea of how severe a problem was being created. It is clear to everyone that, as Mr. Brunnermeier wrote, “we need to rethink our current regulatory framework to reflect recent financial innovation.”

But the regulators are in no mood to blame themselves. Instead, the S.E.C. is trying to make it harder to sell short shares in Fannie, Freddie and major banks. Starting Monday, you will have to borrow the shares before making the short sale, rather than simply determine that you can borrow them. The S.E.C. vows to watch carefully to make sure the rule is followed. That will probably raise the cost of borrowing such shares, and it could provide a temporary boost to the share prices.

But such moves do nothing to either strengthen the underlying balance sheets of the firms involved, or to make them more willing to lend to each other.
We know that mortgages were not the only loans made with reckless abandon of credit standards. But we have yet to see how much damage will be caused in such areas as commercial real estate, corporate loans and consumer credit cards if the economy continues to weaken. [Real C'ville's bolding, as usual]

So we have Jamie Dimon at JPMorgan telling us how terrible Prime is. We have leading economists preparing us for problems in commercial RE, corp loans, and consumer credit cards. What else is there to look forward to?

The American credit crisis has gotten so bad that the conspiracy theorists among us are predicting "terrorism" or a "natural" pandemic--just to deflect attention from the fact that the U.S. is spiraling downward from the status of Emperor and Empire. Think we're kidding? Google it.

But before you go, here's the logical outcome of last weekend's bailout: Freddie Mac Takes Steps Towards Selling BILLIONS of Dollars in Stock.

Thursday, July 17, 2008

JPMorgan's Prime Mortgages Causing Losses; Could Triple

It’s not just subprime anymore.

The NYTimes reports that James Dimon, the boss at JPMorgan, said that losses stemming from “prime” mortgage loans could triple in the coming months.

"So far, the pain in the mortgage crisis has been concentrated in so-called subprime loans, which were given to those with poor credit histories.

JPMorgan has weathered the subprime downturn better than many of its peers. But on Thursday, it said it charged off 5 percent of its subprime mortgages in the latest quarter, resulting in a hit to earnings of nearly $200 million.

And the mortgage contagion may be spreading from subprime to prime mortgages, which were given to people with the best credit histories.

'Prime looks terrible, and we’re sorry,' Mr. Dimon said on Thursday’s conference call with investors. “We can say it eight times. It looks terrible.”

Around three-quarters of the firm’s prime mortgages are “Alt-A” and “jumbo” mortgages.

Alt-A mortgages were written to people with relatively strong credit histories, but whose income was not verified. Jumbo mortgages were written for those borrowing more that $417,000."

As we all know, prime mortgages are supposed to have a very low chance of defaulting.

Meanwhile, Merrill Lynch is having a "Bloodbath," according to the NYTimes.

"The troubled securities reported a net loss of about $4.9 billion, or $4.95 a share, a drastic change from the $2.3 billion it earned just one year ago. Merrill said that it had a net loss of $4.6 billion from continuing operations. Analysts had expected on average a loss of $1.8 billion."

"It reported negative revenues of $2.1 billion, compared to $9.5 billion at the same time last year, as the firm was weighed down by nearly $10 billion in charges, write-downs and credit revaluations."

Selling a House? Tips from WSJ

The WSJ has an interesting article, which is really a long list: "How to Sell a House, When You Have to Sell It Now."

The article opens by consoling the seller with "Hey, it could be worse. You could be trying to sell a Hummer." Good point. People don't need Hummers, but they often do need houses, and the seller has to make the most of this need.

Before writer David Crook gets into his list, he says, "...don't think this is just a momentary lull, a short slowdown before the market recovers and then takes off again. What you see today is the market you have...quite possibly, for a long time to come."

We're interested in what Crook says in point 3:


"Don't fight the market by trying to price your house at bubble-era levels or by factoring in all those improvements you made. It won't fly."

"Set a realistic, salable price on day one. Don't let the house hang around on the market as you gradually lower the price. Forget what you think the house should be worth or what it was worth three years ago. That's not what it's worth today."

"Smart buyers will be looking for bargains. So you must set your price below comparable nearby properties. Look at the asking prices of neighboring houses, and set your price to beat them. If prices in your area are generally down 20% from where they were at the bubble peak in 2005, then price your house 25% to 30% below its peak bubble value. Your area down 40%? Be prepared to take just half of what the house was worth three years ago. Yes, it's painful. But if you want to sell, you don't have much choice."

"And remember: In much of the country, renting is still a better deal right now than buying. As you try to settle on a price, look at rents on comparable properties. Buyers are not likely to be counting on huge price appreciation, as they did during the bubble, so they may be less willing to take on the higher monthly costs of home buying and owning. You must set a price that makes someone's prospective mortgage and home-owning costs look like a better deal than a month's rent."

The WSJ article's other points include

1. Don't Wait Around - If you have to sell, do it now; don't imagine there will be an "upturn."
2. Fix It Up and Clean It Up - The prospective buyer is going on a "date" with your house. Don't do any major renovations--just present it as well as you possibly can.
3. Hire a Top Real Estate Agent - In the opinion of The Bubble Blog, it's no longer a market in which the seller can try to "save money" by DIY. Get a professional!
4. Play the Banker - If you own the property outright and/or can afford this, do a "private mortgage."
5. Take the Offer - Don't make the mistake of believing more offers are on the way. Sometimes there aren't.

All of the points have narrative and illustrative examples, and it's a good read whether you're a buyer, seller, or just obsessed with RE.

Local wise advice about pricing is also to be found here, on the CAAR Blog. And check out The Bubble Blog's post about how to sell in a bubble market.

JP Morgan 2nd Q Profit Down 53% From Same Time Last Year

This a.m. the NYTimes reports, "JPMorgan Chase, the banking giant that has weathered the credit crunch better than many of its peers, said Thursday that its second-quarter profit plummeted 53 percent from the same time last year, to about $2 billion.

The firm attributed the drop to increased charges tied to subprime mortgages and other bad debt bets. JPMorgan also absorbed Bear Stearns, the faltering investment bank, during the quarter as part of a dramatic government-assisted rescue."

A "strong" bank with such big losses due to risky exposures.

NAR's Public Awareness Campaign: Thanks for a Good Laugh

Agent/Blogger Jim Duncan will be on WINA AM 1070 on Thursday, July 16, from 5-5:30 pm--perfect for your walk or drive home.

While we were clicking around REALCentralVA this evening, we came across this link to NAR in the "Sideblog." We of course clicked on the link, because it was prefaced with the statement, "NAR should apologize for this."

Public Awareness Campaign: It's a Great Time to Buy or Sell a Home

"Conditions are ideal for home buyers in today’s real estate market, with interest rates near 40-year lows, and inventories higher than they have been in decades. Conditions are also improving for sellers. This year will be the third best on record and prices are expected to rise modestly next year."

Additionally, there are a couple of PDFs that one can download to distribute to one's own clients.

The above is a laughable, reprehensible statement that is misrepresentative of the economy and local and national markets, besides being misleading to uneducated buyers and, well, just downright pathetic.

But what is NAR supposed to say? Something like this?

"Spend your savings for a downpayment on a house that's been overvalued typically by at least 49% (in areas of Charlottesville/Albemarle, this number varies from 49% to 300+%). Sign yourself on to a mortgage that at 6.4% will equal interest payments of hundreds of thousands of dollars. In our current economy, the property is more likely to lose value the minute you buy it* and continue to do so for the next one to two years" (God willing, this all starts recovering by 2010).

And for Sellers? "Expect to give away the house that was your piece of the 'American Dream.' Good luck finding a buyer who believes it's as charming, functional, and "updated" as you do. And if you do find that buyer? Expect the buyer to lowball you--if s/he can even get a mortgage."

Be sure to read the PDFs available for downloading. It's perfectly understandable why NAR is now trying to get its--mostly honest, hardworking, diligent--Agents to disseminate information that is shockingly misleading. Nevertheless, it's deeply troubling.

*Unless you're extremely savvy, and make an offer like it's 2004, or earlier.

Wednesday, July 16, 2008

Good News, Bad News, Sad News, Mad News

Bad News: Consumer prices surged 1.1% in June, driven by the (manipulated) cost of fuel. Inflation in June rose at the fastest rate in 17 years, the government said on Wednesday, the day after Bernanke warned inflation posed a significant risk to the nation’s economic outlook. You can read about this here.

Good News: That being said, however, have you been to Barracks Road or Fashion Square lately? At many stores the clothes are selling for what one of our galpals likes to call "free"--so deeply discounted, you can't afford not to buy. Especially if it's basics: for instance, men's button downs, polos, chinos, etc, are on sale for $29.99 MINUS 40% at JCrew. Check out GAP, Belk, Ann Taylor, wherever you shop, and you'll find deep discounts. Retailers need to get rid of their "summer merchandise," as we've moved into what's known in the rag trade as "Fake Fall." Though it's going to be hot here (and in much of the US) until late October, there's already wool, corduroy, velvet in the stores (just thinking about these fabrics, as we try to limit our use of the CAC, makes us sweat).

Sad News: Here's an element of the Fannie/Freddie debacle not getting much press: that there are many shareholders, just like you and me, Average Joes concerned about keeping the retirement account gaining, who believed in the implicit government guarantee of the mortgage giants. These are the folk who are now losing money. Read about it here: Shareholders Left Behind in Fannie/Freddie Rescue.

Mad News: (Mad as in This is a crazy financial practice). Do you know what "shortselling" is? It's a financial maneuver that lately is impacting everybody, though many people off Wall Street have never heard of it. Many believe that when shortselling begins, and rumors of shortselling begin, a company's value can decline precipitously.

Basically, a shortseller is someone who borrows money to make "bets" that a stock will drop, and when it does, they profit. Here's a longer definition: "Borrowing a security (or commodity futures contract) from a broker and selling it, with the understanding that it must later be bought back (hopefully at a lower price) and returned to the broker is called a Short Sell. Short selling (or "selling short") is a technique used by investors who try to profit from the falling price of a stock. For example, consider an investor who wants to sell short 100 shares of a company, believing it is overpriced and will fall. The investor's broker will borrow the shares from someone who owns them with the promise that the investor will return them later. The investor immediately sells the borrowed shares at the current market price. If the price of the shares drops, he/she "covers the short position" by buying back the shares, and his/her broker returns them to the lender. The profit is the difference between the price at which the stock was sold and the cost to buy it back, minus commissions and expenses for borrowing the stock."[End of definition, which you can find at above link; you can also find definitions of any Market-related word or term there.]

Today WSJ reports, "Shortsellers appear to be the agreed-upon villains of the current markets. The Fed has now limited shortselling on Fannie/Freddie and Lehman Brothers (which many analysts fear will be the next to go down in flames, like Bear Stearns). When shortsellers are successful--when the stocks they're "betting" on actuall DO tumble, investor confidence can be shaken, selloffs begin, and the stock loses even more value. Today Treasury Secretary Paulson and Securities and Exchange Commission Chairman Christopher Cox took radical steps very close to that: they created an emergency order limiting short-selling in shares of Fannie Mae, Freddie Mac, Lehman Brothers, Goldman Sachs, Merrill Lynch and Morgan Stanley."

The new rules in effect for 30 days as compared to the old ones, according to Kara Scannell at the WSJ, go something like this:

"Under current rules, a short-seller must locate shares to borrow, which are later replaced with stock bought at a lower price. Some market watchers have been concerned that traders were borrowing the same shares from the same lender over and over, and driving down stock prices….Under the emergency order, traders will be required to borrow the stock and the lender would then take it out of the market and not allow other traders to use it to satisfy requirements that they’ve located stock."

Do you understand what was happening before these rules? Investors would "borrow" stock, but the stock wouldn't be taken out of play: it could still be bought or traded--or, worse, borrowed by another short seller. Hmmmm.

To read more about shortselling (which is fascinating in general, and is all the moreso now because it's contributing significantly to the decline of major financial entities and eroding our economy), click here, which will take you to the above-quoted material plus some additional links to other stories.

Meanwhile, Delta and American Airlines are reporting losses in the Billions. That's B like Boy. (or ohBOYohBOYohBOY). Don't you wonder how they can still be in business with losses this large?

Tuesday, July 15, 2008

The Second Day Of Our New Reality

What a compelling day:

The Dow dropped below 11,000 for the first time in two years.

In a news conference, President Bush attempted to allay fears about the economy; instead, anybody with an IQ of 100 or higher will be tempted to stockpile several months worth of food and cash--oh, wait, this is what the CDC recommends for emergency preparedness due to Avian Flu or Terrorism. Read the transcript of the President's statement, and be sure to scroll down through the reporters' questions and the President's answers.

Meanwhile, Fed Chair Bernanke abandoned his June assessment that the threat of an economic downturn had diminished, telling lawmakers that growth and inflation risks are increasing.

There are ``significant downside risks to the outlook for growth,'' and ``upside risks to the inflation outlook have intensified,'' Bernanke said in semiannual testimony on the economy to the Senate Banking Committee in Washington. Do you need that sentence translated into English? It's something like, "I've been wrong, I've been sitting on my hands as has the Treasury and the Bush Admin, and now things are getting really baaaad."

Bernanke said that stabilizing financial markets remains ``a top priority,''

The Fed chief spoke less than two hours after government figures showed that the economic boost from U.S. tax rebates began to fade in June and inflation pressures increased. To read further, go to Bloomberg.

And despite widespread concern about losses suffered by Fannie Mae and Freddie Mac, the Bush administration’s call for quick passage of legislation to authorize the use of government funds to save them ran into heavy fire, especially among some Republicans concerned about taxpayer liability.

The opposition threatened to slow down the rescue plan if lawmakers insist on making major changes to the package, which would allow the Bush administration to use the United States Treasury to help Fannie and Freddie by lending them money and buying their stock.

And the WSJ says we're not alone, in Europe's Economy Takes a Hit:

The rising risk of recession in Europe shows that despite the strength of emerging-market economies such as Russia and China, the economic downturn that began in the U.S. last year is spreading to other regions, battering hopes that the global economy might have "decoupled" just enough that the rest of the world could coast through a U.S. downturn relatively unscathed.

Want a break from all this? Time to get Shiny, Happy....

Monday, July 14, 2008

Monday, July 14: The First Day of the Rest of Our Economy

Mission Accomplished:
We are now in the worst economy since the Great Depression. The Bottom is nowhere in sight. We usually have just one Martini during cocktail hour. Tonight, 6:30pm, we're on our third. We're hoping three's a charm.

Banks Get Clobbered in Trading Today:

The Dow Jones Industrial Average ended down by 45.35 points at 11055.19, cut down by sharp declines in its banking components. Citigroup fell 6%, J.P. Morgan Chase dropped 4.4%, and Bank of America fell 7%. The S&P 500 [went] downward by a 4.9% slide in its financial sector. See the full story at the WSJ.

Soon after the Market closed this afternoon, NYTimes weighed in: "The Bush administration’s plan to help restore confidence in the mortgage finance giants, Fannie Mae and Freddie Mac, could not stop declines in the stocks of the two companies on Monday.

Shares in Freddie Mac closed down 8.2 percent to $7.11....Fannie shares were down 5 percent to $9.73.

Although [last night's] announcement may have been enough to spur a short-lived rally in the stock market, analysts say the plan was not much of a surprise.

“The market opened with a sigh of relief,” Arthur Hogan, an analyst at Jefferies & Company, said. “But upon reflection, we realized that the government’s plan doesn’t quell our concerns about the economy.”

“A rally based on nationalizing mortgage risk isn’t one that can really be sustained,” said Sean Ryan, an analyst at Sterne, Agee in New York.
To continue reading today's NYTimes stock coverage, click here.

The Bubble Blog wonders, Will WAMU be the next biggie to fail?

Meanwhile, back at the ranch--er, California--THE FDIC HAS HALTED MORTGAGE FORECLOSURES FOR FAILED GIANT INDYMAC. (Thanks here go to Calculated Risk.)

Additionally, while the default and foreclosure may be "low" in our own particular neck of the woods, we all know by now that this is a national problem that is impacting every single housing market.

And even when troubled borrowers get help,

Reworked Subprime Loans Default at `High' Rate, Moody's Says
By Jody Shenn

July 14 (Bloomberg) -- More than two of every five subprime borrowers whose mortgages were reworked in the first half of 2007 are defaulting anyway, Moody's Investors Service said.

Among subprime adjustable-rate mortgages modified in the first half of last year, 42 percent were at least 90 days late on March 31, the ratings firm said in a report today.

Modifying loans granted to consumers with poor credit records has gained favor as record numbers fail to keep up with payments and home prices tumble. Loans reworked more recently may perform better than ones modified in early 2007 because lenders are increasingly lowering interest rates and offering changes to consumers with fewer missed payments, Moody's said. That's different from 2007, when lenders focused on enforcing repayment plans.

Sunday, July 13, 2008


Here's the bailout we promised you:

Alarmed about the sharply eroding confidence in the nation’s two largest mortgage finance companies, the Bush administration will ask Congress to approve a rescue package that would give the government the authority to buy billions of dollars in stock in Fannie Mae and Freddie Mac and also lend to the companies to meet their short-term funding needs, those briefed on the plan announced on Sunday.

Housing just went Socialist--but not in a good way. Comrade Paulson and the Bush Robberbarons have now made us all propertyowners by saddling us with the debt of these irresponsible Government Sponsored Enterprises and the greedy investors they backed.

Stay tuned. It's going to be a historic week.

8pm EST
FULL TEXT of Paulson's Remarks:

Paulson Statement on Freddie Mac, Fannie Mae: Full Text
July 13 (Bloomberg) -- Following is the text of a statement issued today by Treasury Secretary Henry Paulson:

Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies. Their support for the housing market is particularly important as we work through the current housing correction.

GSE debt is held by financial institutions around the world. Its continued strength is important to maintaining confidence and stability in our financial system and our financial markets. Therefore we must take steps to address the current situation as we move to a stronger regulatory structure. In recent days, I have consulted with the Federal Reserve, OFHEO, the SEC, Congressional leaders of both parties and with the two companies to develop a three-part plan for immediate action. The President has asked me to work with Congress to act on this plan immediately.

First, as a liquidity backstop, the plan includes a temporary increase in the line of credit the GSEs have with Treasury. Treasury would determine the terms and conditions for accessing the line of credit and the amount to be drawn.

Second, to ensure the GSEs have access to sufficient capital to continue to serve their mission, the plan includes temporary authority for Treasury to purchase equity in either of the two GSEs if needed.

Use of either the line of credit or the equity investment would carry terms and conditions necessary to protect the taxpayer. Third, to protect the financial system from systemic risk going forward, the plan strengthens the GSE regulatory reform legislation currently moving through Congress by giving the Federal Reserve a consultative role in the new GSE regulator's process for setting capital requirements and other prudential standards.

I look forward to working closely with the Congressional leaders to enact this legislation as soon as possible, as one complete package.

Courtesy of Bloomberg.

Will $15 Billion be Injected into Fan/Fred Before Market Opens on Monday?

After a week of near panic among shareholders, the next big test for the GSEs comes Monday when Freddie Mac is due to sell $3 billion of short-term debt. An unsuccessful sale could be a major blow to investor confidence.

As the crisis worsens for mortgage giants Fannie Mae and Freddie Mac, Treasury Secretary Henry Paulson is insisting that any potential government rescue plan not benefit the companies' shareholders, according to people familiar with the matter.

The discussions at Treasury highlight the dilemma created by the financial crisis gripping the U.S: Some institutions are considered too big to fail, but propping them up could erode the market's incentive to properly judge risk by offering investors a false sense of security.

In a story broken by the UKTimes online, one of Paulson's plans is to inject $15 Billion into F and F. The move would protect the American housing market, but punish shareholders in both companies. Under the terms of the proposed move, the US government would receive a new class of shares in exchange for the capital, which would be hugely dilutive to shareholders.

And if Fan or Fred go into conservatorship, as many expect them tonight or in the near future? This is what it may look like.

Friday, July 11, 2008

Second Largest Bank EVER To Fail Did So Today--Entirely Separate from Fan & Fred

Regulators Seize Mortgage Lender

By Louis Story, The New York Times

Banking regulators seized IndyMac Bancorp, one of the country’s largest mortgage lenders, on Friday evening. [July 11, 2008]

The bank, a star in the subprime era, is the second largest ever to fail and the first major bank to shut its doors since the savings and loan crisis of the 1980s.

The bank collapse came after a frenzied week as IndyMac’s executives tried — and failed — to bolster the bank’s financial footing. The bank, based in Pasadena, Calif., said on Monday that it had stopped making new loans and announced layoffs of more than half of its 7,200 workers. But IndyMac’s customers — afraid their savings might disappear — stampeded tellers, demanding their money back.

The run on the bank came after a critical letter about the bank’s future written by Senator Charles Schumer, Democrat of New York. Federal regulators said on Friday that Mr. Schumer’s letter had pushed IndyMac into collapse, causing the bank run and scaring away potential acquirers.

“The senator made comments in his letter questioning the viability of the institution,” John M. Reich, director of the Office of Thrift Supervision, said on a phone call with reporters. “When a member of the United States Senate makes such a statement, it frightens depositors.”

In the days after Mr. Schumer’s letter was released on June 26, IndyMac customers withdrew an average of $100 million a day from the bank, or a total of $1.3 billion, the government said. Before Mr. Schumer’s letter, the bank had been receiving net inflows of money from depositors, Mr. Reich said.

Mr. Schumer, who has been critical of bank regulators for months, released a statement, in turn, criticizing Mr. Reich’s agency.

“If O.T.S. had done its job as regulator and not let IndyMac’s poor and loose lending practices continue, we wouldn’t be where we are today,” he said.

For all the write-downs and bad news on Wall Street over the last year, few regional and local bank have shut their doors. The Federal Deposit Insurance Corporation listed just 76 troubled banks in its report in April. The handful that have failed have been a fraction of the size of IndyMac. IndyMac held $30 billion in deposits as of late March, according to the government release.

“It’s the biggest failure in 24 years,” said Chip MacDonald, a banking lawyer at Jones Day in Atlanta. “You haven’t had a lot of failures of that size, yet.”

IndyMac’s collapse was unrelated to the market worries about Fannie Mae and Freddie Mac, the big mortgage finance companies.

Click here to view original article.


PREDICTION: This weekend, while we're enjoying the summer weather, making trips to our local farmers markets, and playing with our children, the Fed will intercede and bailout Fan and/or Fred ...quietly on the weekend, just as with the Bear Stearns Bailout.

Stock shares plunged as much as 50%, before the market even opened. By 11 am EST, the losses were 35% and 45%, with hours of trading to continue.

Virtually every home mortgage lender, from giants like Citigroup to the smallest local banks, relies on Fannie Mae and Freddie Mac to grease the wheels of the mortgage market. Virtually every Wall Street bank does business with them. And investors around the world own $5.2 trillion of the debt securities backed by the companies, out of a total of $11 trillion. The woes have moved from a trickle to a torrent.

The US government is weighing placing one or both of the ailing mortgage giants into a conservatorship.

Under a conservatorship, shares of Fannie and Freddie would be worth little or nothing, and any losses on mortgages they own or guarantee — which could be staggering — would be paid by taxpayers.

Market Report

We're looking forward to today's Charlottesville Area Association of Realtors Marketing Report. Not only will it have June numbers, but it will also have numbers for the entire first half of 2008.

Yeah, yeah, we all know the Bubble's burst and sales are slow. But we're interested in what the numbers say about our local economy, especially in light of the big big troubles brewing now with Freddie and Fannie, which will impact the rest of the selling year (not to mention years into the future if a bailout is necessary).

We'll also be bringing you the Bubble's own version of a Market Report some time this weekend. And you know you'll have fun with us, as usual.

Stay tuned.

Thursday, July 10, 2008

Do You Understand What's Going On Beyond the Albemarle County Line?

If you don't know, or don't fully understand, how damaging the failure of Fannie Mae and Freddie Mac could be, take just a few minutes to educate yourself.

The insolvency of these mortgage giants could impact every American taxpayer as well as the world-wide economy. It's your patriotic duty to educate yourself. This is true whether you're a renter or a property owner. Read through the Wall Street Journal article(s) and try not to a) lose your appetite for dinner and b) develop an anxiety attack that lasts for the next three years.

513 Dice Street - $369,000.00

The price of 513 Dice Street has "dropped" to $369K ($459K if you want the yard), we'll be surprised to see this property go any time soon.

What's especially interesting, we think, is that this house and its "Unrealistically Priced Asking" is brought to you courtesy of the optimist who had $852,000.00 as Initial Asking for 708 Park Street. And then thought "PRICE REDUCED $323,000.00" was something good to mention in the modified MLS post. (We hear that 708 Park, with its Last Asking of $529K, actually went for $475K. But this could just be gossip.)

MLS #450371
513 Dice Street
3 bedroom, 2 bath
Sq. Ft.: 2472

Acre: .10


The CAAR listing says, "Amazing light, endless distinctive touches... Currently a 2br/2ba home + darling 1 br apt but could easily convert..." And you know from reading Freakonomics that amazing, endless, and darling in a RE listing ought to raise a red flag.

So should this line: "Ajacent [sic] lot avail. w/ purchase for $459,000, or lot alone $95K." You know how annoyed The Bubble Blog gets when folks try to sell the yard.

Newsflash: Fifeville's never going to be what anybody hoped it would be, 10 years ago, 5 years ago, 2006, last year. It's some old houses that were once decent, a hodge-podge of parcels whose history is of mix-use and mixed race, until it was segregated in 1912 and then reintegrated after the Civil Rights Era. In the past few years there's been some condo-building, some UVa Landgrabbing, and some optimistic Yups zealous about DIY. And then there are the flippers. The area had been invaded by bad 'habits,' disrepair, and overcrowding long before the condos hovering over the railroad tracks were built.

If possible, Fifeville is a bigger fairytale than even Belmont; it's just that Belmont has been "happening" longer as a rehabbed neighborhood. Read what Will Goldsmith says about Fifeville's Future in a recent edition of C-Ville Weekly. The long and colorful history of 513 Dice Street, and its recent rehabbing, is covered in this story.

And want to check out the antipathy for yourself? Go to the corner of 5th and Dice Street, which is several yards from 513 Dice Street, and try to hang out for a couple of minutes. Good luck to you.

Fifeville. Yes, we're sure to be back for more.

Wednesday, July 9, 2008

Barbara Corcoran: The American Dream Ends

Why This Housing Bust Is the Worst Ever
The current housing downturn isn't over and is "much much worse" than past downturns, says Barbara Corcoran, who built The Corcoran Group into a multi-billion firm during the real estate busts of the mid-1970s, 1980s and early 1990s.

This downturn is "grossly different" than those past cycles because homeowners are much more willing to "walk away" from homes, says Corcoran, who sold her namesake firm in 2001 for a reported $66 million and is now an author and widely cited real estate guru.

Watch today's video, where she describes what will happen deep into 2009.

Montpellier's Comment: Too Many Sellers With High Prices Combined With Buyers Who Can't Qualify = Our Local Market

Montpellier, a frequent insightful commenter, has as usual left a well-reasoned comment, this time on the "Fed in Crisis Mode" post from yesterday morning. We're reprinting it here because it details reasons for local and national over-supply of properties, in addition to the fact that the higher house prices are, the more difficult it is for buyers to qualify for a mortgage.

And at the end of the post, he links us over to a cautionary tale, at REALCentralVA, and we have a link to a story about troubled borrowers/multiple applications.

We don't have any way to contact Montpellier except publicly on the blog, so we want to thank him for commenting and apologize for not getting permission, first, to feature his words in a post. We know that there are some readers who only read posts, not comments, and we wanted this to reach a wider audience.

[Note: All bolding and italics added by The Bubble Blog]

Montpellier writes,

Simply put: there are more sellers than buyers. The question becomes, why?

At the simplest, let's just start with population...are people leaving our MSA? Are we seeing a net outflow of jobs and population - reduced "household formation"? I think anyone who's looked around the area anytime in the past three or four decades can readily attest that the exact opposite is happening. Should be plenty of buyers!

Next, how about new construction? Is there a real glut of housing in our area - overbuilding? Well, it's difficult to say for certain without researching housing occupancy permit numbers, but given the constant media buzz over the past decade about lack of affordable housing in the area, I think it's a safe bet that construction didn't out-pace household formation. Moreover, the rapid rise of the price bubble here, versus places like Atlanta (developer's heaven) where they just bulldozed and built without restriction, suggests that the supply didn't outstrip demand - or those pesky laws of supply and demand would have kept the price increases somewhat in check.

Perhaps, as the head of a local housing trade association, Dave has access to or have compiled hard numbers on occupancy permits and household formation? Care to share Dave? [Montpellier is addressing the previous commenter, Dave Phillips, CEO of CAAR -- BB]

So, if the number of units built and the number of new households didn't deviate from their historical pattern, what caused the sudden surge in new home buyers and prices? Prices in our area from the late 80s through the late 90s were more or less flat, by comparison with '00-'06. Where did all these new people with lots of money to bid up prices come from?

Well, how about an economic boom? Did people's wages suddenly start growing such that a whole bunch of previous renters were able to save up downpayments and qualify for bigger mortgages? How many people really saw their income increase? During the 90s we had the great productivity boom of the internet. There was the dot-bomb bubble, but more than that, there were big productivity gains by corporate America. So, how many people got that much richer? Only the top 1/2%! There was no trickle-down.

However, wages did improve slightly, as we recovered from the post-Reagan hangover, and the economy picked up. And what happened to housing prices from 1992-2000? They did increase - modestly - they 'recovered' from the popping of the previous bubble.

So, after the dot-bomb bubble burst and wages were flat (declining with inflation), where did all this new money for housing come from?

Simple - suddenly cheap credit was available at deceptively and artificially low rates to people who weren't really creditworthy. Sure, there's always been a pent-up demand for houses among the non-credit-worthy - we'd all like a pony, please - but that doesn't mean we can all really afford one.

I don't agree that the excess of supply in the MLS is a 'problem' or somehow 'unnatural' - really, the credit markets are no less man-made than houses are - I don't recall seeing a house grow from a tree.

I believe that's the free market at work - according to the Natural Laws of economics (versus faith-based reality & statistics). It is a perfectly natural reflection of market fundamentals: there are more high-priced properties than there are buyers who can afford them. That itself, just like the bubble on the way up, is a reflection - a symptom/side-effect - of the credit bubble. If these properties were priced such that buyers could afford them - including their current owners - then there wouldn't be so many on the market. Many, many of the current buyers are people who could only afford to 'own' (and I think that belongs in quotes when the bank has a lien for >50% of your house) with a teaser rate and constant refinancing - essentially eternal revolving mortgage debt. They cannot afford to really pay them off - not at the inflated prices they paid.

Moreover, anybody who really could afford a house they could actually pay off, already has one!

The world is terrified about the downfall of FNMA and FRE [Fannie Mae and Freddie Mac, for our civilian readers - BB] because they are the only big institution still making loans. The bad housing market will turn into a true housing driven depression if they stop writing. The bad conditions were seeing are a direct reflection of the fact that the GSEs refused to completely throw out standards of credit-worthiness for borrowers. They do not give loans to people who can't really afford them, and that means there are many fewer buyers. The higher prices are, the fewer people really qualify.

This is a "natural" result of the free market. Jim Duncan has a post up on this today. His tale perfectly illustrates why the current market situation is a direct and "natural" result of the credit markets.

[Also, see this article on troubled borrowers completing multiple mortgage applications. -- The Bubble Blog]