February 18, 2007

Stop denying Denial. It's Fear my friends. Fear.

HSBC moved $10 billion from the "denial" column straight to "capitulation" the other day.

The entire subprime industry, which fell off a cliff in the past few weeks, went from "euphoria" to "despondency" overnight it seems. And the contagion will spread. It always does during a the mania unwinding stage.

1.9 million American homes currently listed in foreclosure are in "desperation" stage.

2.2 million Americans who took out toxic loans and are expected to default, well, they've gotta be in "fear" stage now if they're paying attention.

Millions of REIC employees / contractors / commission hungry sharks are in "fear" stage today, wondering when the axe will fall, and how long they'll have to eat ramen.

The 2.1 million homedebtors with an empty home on the market and no buyers in sight have gotta be in some stage of "fear", "desperation" and yes, "panic" today.

One would-be real estate mogul who is now selling off his portfolio of failure and days away from bankruptcy and a knock from the FBI, well, even he's evidently moving past denial lately.

HP'ers, you'd have to be insane, clueless, corrupt, stupid and seriously the greatest fool on earth if you're still in "euphoria" or "anxiety" stage. Man, the train left the station, a long, long time ago. When will Americans (and the world) finally get on board? Or are they?

41 comments:

Anonymous said...

I recently saw that the US housing stock is around 120 million homes. Adding the foreclosed & vacant properties that comes out to about 4 million or 3-4% of the US housing stock. How does this compare to historical norms? While numbers in the millions give the impression of significance, if the % is w/in historical average then we're not that bad off? If its above, how does it compare to past RE bubbles & other tough times for RE, e.g. the Great Depression? Anyone know prior stats so we can get a better perspective of the gravity of the situation?

Butch said...

Keith,

May I add a few more groups who will be severly impacted to your list?:

1. Banks, which have a $3 trillion dollar exposure to real estate and will see millions of homedebtors default and will have REOs piled to the sky

2. Fannie/Freddie/FHLB/private mortgage-backed securities issuers, who will destroyed as homedebtors continue to default and the guarantees that these guys have made are now coming due.

3. Pension funds, mutual funds, money market funds and any other sucker that holds MBS in their portfolios (which also includes foreign central banks such as Japan,China, Taiwan, and OPEC countries)

4. Did I already mention the banks? Well, they have another problem in addition to their $3 trillion in direct real estate loans. They are ALSO sitting on $1 trillion dollars in MBS.

We are talking total losses well above a trillion dollars and pershaps as much as three trillion dollars when it is all accounted for.

Look for the Fed to start dropping interest rates in the next six months, the federal government to step in with debt moratoriums for sheeple homedebtors and "RTC II The Sequel" to create an orderly liquidation of the five to ten million homes dumped back onto the market over the next few years.

real estate 101 said...

Your timeframe is way off. We're, at best, only 2 years into a 10-12 year cycle. The denial stage is next. It could last a year or more.
Houses are still selling in our area.

Stuck in So Pa said...

You have got to remember that Phoenix, Naples, and LA, et.al., do not comprise 99.9% of the U.S. In areas where there has been no housing bubble, there is no place on the chart; it's meaningless to most people here. Now, the credit bubble has hit everywhere, including here, and when that tanks, even though the Fed will move heaven and earth to prevent it, then there will be a place for this area on the curve line of a similar chart.

I know so many people, low to lower-middle income range, who have bought moderately priced houses here for decent, fair prices who, unfortunately, could not even afford or qualify for THAT, in normal lending times.

When all of your bill paying depends on you’re job that’s not DIRECTLY related to housing, housing appreciation or depreciation is meaningless. Will the ripple out from the epicenters hit here, of course, but like a tidal wave, no one here will know it’s coming until it hits the beach!

Who Knows said...

I dont know if its just an outlying spike in action, but things are begginning to really pick up in my area after a dismal fall.(36830)

bozonian said...

Nah.

The put prices (investors betting against) on Countrywide spiked up after NEW crashed but quickly dropped again the next week (Sentiment went quickly to hell but recovered right away).

The housing market is like one of those aliens from those 70's movies. It's going to have to be clubbed to death about 3 times before it's really dead.

Insider selling at Countrywide is happening but I can't post a page showing that since it's an internal web page to my brokerage account (you wouldn't be able to log on to see it).

Though I have no doubt a crash is coming, a lot of optimism is propping up this dead horse. It's like Fidel Castro. They keep hauling him out saying, "Look, he's still alive" but you know it's just a matter of time.

Maybe there is a conspiracy where banks and hedge funds who are about to lose big are desperately doing something in the background to save their asses and buying lender stocks, keeping their prices up, to give themselves more time to divest. Who knows? It's sure strange how the obvious outcome refuses to manfiest.

The second largest sub-prime lender basically just Hindenberged and no fallout? I don't think so.

bozonian said...

Now, I could be wrong, but it seems to me that, in order to compete with New Century, the other mortgage lenders would have to have taken the same risks and thus are going to face the same problems.

Tuesday morning I'm buying more LEND and CFC puts.

Anonymous said...

Can some HPer provide info on how to safely buy forclosed properties.

Let's make tomorrow OUR day!!

bozonian said...

Here's what probably happened at NEW.

The accounting department probably saw this coming but since they aren't "closers" their "negativity" wasn't allowed to infect the "closers".

Anyone talking to management was afraid to tell them the bad news. Management types and salesmen types usually aren't too bright and shoot the messenger when bad news happens.

So, there you go. Suddenly management was surprised. Uh huh. Yup. If a financially ignorant shlub like me could see this coming, those guys did too. They just socked away the profits offshore and now folding up their tent and moving on won't be a problem.

brass balls said...

David lereahs boyfriend was found nude and passed out in the DC area last night.Local autorities are trying to figure out the details of what appears to be a love triange gone bad.David was not available to comment as of last night.

Anonymous said...

I don't think we're at fear yet. Leaving aside the majority of the sheeple who are permanently blighted with profound ignorance, the majority of the financial media is still blabbing about the 'Goldilocks economy'. Every blue moon or so someone like Nouriel Roubini lands an interview, but the majority of the verbage comes from people like Lying Larry Kudlow.

That said, a lot of the people who depend directly on the REIC are definately starting to sweat, which is hardly surprising.

Anonymous said...

BULL! There's plenty of denial to go around still!

Anonymous said...

Housing starts hit a new low this past month. Typically they do not build as many houses in the winter due to frozen ground, inability to mix mortar, pour cement, paint exteriors etc. If the housing market will get new orders it might start to build in the spring, deliveries of new homes were greater in the spring and summer than winter under usual circumstances.

I cannot feel the pain of home builders in Phoenix, Vegas, Denver, Cape Coral, holding extra home and land inventory and stuck with the interest and property taxes,etc. The home building business has always been a cyclical industry.

Typically I have read that the price of an investment home should be no more than 15 times the amount of annual rent or rent less some of the condo fees of comparable properties in order for it to qualify as a candidate for an investment/rental property. Due to tax considerations home owners buying a primary residence might tolerate higher prices.

Housing corrections frequently resulted in recessions. So far no recession seems to be occurring.

There were renewed worries that some of the world's largest oilfields are nearing peak stages of production or under declining production curves. The US government seems to have wanted to get into Iraq to look for oil when in fact spending the 300 billion dollars consumed so far in the Iraqi war on coal to oil technologies would have yielded more oil for the US than what Iraq is now exporting.

The president seemed unable to calculate the costs of his war, nor able to predict the outcome of his actions. Bush was not using high moral standards to produce his invasion plans.

"Great is the guilt of an unnecessary war," John Adams.

devestment said...

Soon they will talk of housing investment in past tense. Restaurants will be empty. There will be no more mortgage lender ads on TV and the radio. People will loose jobs, the draft will be reinstated, and protestors will hit the streets. No one will care about real estate; it will be ignored by most and considered necessary but not exciting similar to groceries. Is this gloom and doom? Nope, it is the normal cycle of expansion and recession. The prepared make money in both markets while the sheeple complain, deny, and blame.

Anonymous said...

I own a house and rental properties around salt lake city utah and things are still selling for more than last month and last year. Anyone tell me different about UTAH UTAH UTAH??????

My house i owe only 50,000 with a 30 year 5.875 and rental property with over 50% equity and the rents easily cover all expenses. BUT this spring i will begin to sell all rentals to californians and look for other investments.

FUNNOMINAL said...

I agree, fear combined with impending doom should be the mindset of the day. However, why is it I sense the media is still intent on minimization, denial and nimby?

Anonymous said...

Up here in Seattle we are lagging by a half year or so. I would say we are still in "Denial" stage up here.

--SeattleMoose

Anonymous said...

Here is the real picture in CHI suburbs what REIC is hiding :

Palatine il 09/25/2006


Here is a quick overview of the single family market in Palatine, IL. There currently is about 13 months of inventory.

currently on the market: 309

currently under contract: 39
closed in the last 90 days: 69
est. inventory: 13 months
lowest price: $239,900
highest price: $1,695,000

Here is a quick overview of the condo market in Palatine, IL. There currently is about 13 months of inventory.

currently on the market: 345
currently under contract: 51
closed in the last 90 days: 80
est. inventory: 13 months
lowest price: $84,000
highest price: $639,000

TWO MONTHS LATER 11/30/2006

Here is a quick overview of the single family market in Palatine, IL. There currently is about 19 months of inventory and the increase is most likely seasonal.

currently on the market: 270
currently under contract: 38
closed in the last 90 days: 43
est. inventory: 19 months
lowest price: $235,000
highest price: $1,695,000

Here is a quick overview of the condo market in Palatine, IL. There currently is about 22 months of inventory and this increase might be more than just seasonal.

currently on the market: 314
currently under contract: 34
closed in the last 90 days: 42
est. inventory: 22 months (9 month increase from the 9/25 update)
lowest price: $94,900
highest price: $525,000


Wow, !

Mid Hudson Valley NY said...

Keif,
You’re getting a little ahead of yourself, the cycle may be a little advanced in places like CA, FL, and AZ… Here in the Mid Hudson Valley NY area, we just entered the Denial phase about a month ago and will most likely peak in late spring when reality wont bring the expected bounce, Summer and Fall will likely be the ‘Fear’ phase, because the number of homes on the market will the greatest in recorded history, and in winter of 08 we’ll begin hearing the MSM talking heads advising not to buy unless you can afford to sit on a property for years (next up cycle) before making a profit.

yuccatree3 said...

Look for the Fed to start dropping interest rates in the next six months....
+++++++++
I just don't see this happening. The dollar is NOT the yen, and America is NOT Japan. The US dollar is the world's reserve currency. I can't believe our government will allow the value of the dollar to crash and burn, thus destabilizing the world economy and effectively ending the U.S. global empire.

devestment said...

Utah appears to be late in the market. I recall an article in Money Magazine posting near stagnate prices in Utah while California and Florida were nearing the top. I have also noticed rural areas of California that are late to the bubble still selling briskly and even appreciating. My prediction is that Utah is among the last to appreciate and the last to stagnate. I was able to make a bit of money by buying in a rural area after the metro run up and selling before the drop. I would be afraid to do this now as the market looks similar to a very hot game of musical chairs that could leave me holding the bag. The only bag I want to hold now has big letters on it that say "BITTER RENTER SLUSH FUND LLC" Salt Lake City has enough land to expand several hundred miles and a job market that caters to church insiders. I personally would take the money and run.

Anonymous said...

The realtors i have talked to in seattle say house prices in seattle will always just go up,because we are special

GreedKills said...

I think that it is funny that people talk about all the places that didn't bubble will be the great saviors of our economy.

I lived In Missouri from 2001-2005...yup...we had no bubble.

But I had a roommate.

He worked for one of those "lenders"

He said the majority were writing the same neg am loans.

So...the moral of that story is that you don't have to live where there is a bubble to be screwed...all you have to do is live beyond your means through toxic loans.

Anonymous said...

"I just don't see this happening. The dollar is NOT the yen, and America is NOT Japan. The US dollar is the world's reserve currency"

I agree. While "Chopper" Ben Bernake has stated on numerous occasions that dire economic situations can be mitigated by "opening the spigots" and flooding the system with liquidity, that is not a viable option at this stage.

Our currency has already been devalued substantially and with the increasing popularity of the Euro, it is difficult to simply pump more money into the system without providing a counter-balancing incentive.

Since a large portion of our debt derivatives are held by foreign nations, a further devaluation of our currency means that we need to raise interest rates to ensure that China and others buy our dollars.

Did anyone notice what happened at the most recent treasury auction? The Fed had to increase the interest rate of the 10 year note in order to promote buying.

Essentially at this stage, the Fed is stuck between two situations:

- Situation 1: decrease interest rates and print more money in a desperate attempt to soften the housing landing

- Situation 2: continue to supply the market with cheap dollars but increase interest rates to ensure that the debt derivatives are purchased.

Between a rock and a hard place. Essentially, it comes to either sacrificing parts of the housing market that are in bubbles or sacrifice the economy. Which do you think they will choose?

From their standpoint, they know many folks will be flattened by this housing debacle. But they are betting on the fact that they can keep the economy limping through it. As long as the majority of Americans can pay their mortgages, the worst case scenario for them is the house loses value but they can continue to "own" it. Note that in places like California, Florida, Phoenix and Las Vegas, we will likely see far more dire situations as a massive increase in the number of foreclosures causes those states to enter far deeper recessions, or perhaps even depressions.

Anonymous said...

Anonymous said...

The realtors i have talked to in seattle say house prices in seattle will always just go up,because we are special

February 18, 2007 9:01 PM

HUH, that's what the realtors here in DC are saying. But then what explains my friend buying a TH for 56k after being listed for 630k for 6 months and where everyone who bought in his plan the last few years paid nothing under 600k!!

Anonymous said...

keith, you were ahead of the curve in 2005, you're still ahead of the curve.

the masses are beginning the anxiety stage about now.

Anonymous said...

@devestment

One of the major restaurant chains is already in trouble. They own Don Pablo's (doing really badly) along with Hops and Romano's Macaroni Grill (does well for no reason I can fathom--the product is awful, as bad a ripoff as TGIF).

They have been running "value three course meal" promotions in the last few months. Don Pablo's is really crashing and burning. They've dropped the quality of the food, so I won't be back (it was nice with the old quality and coupons).

These chains were on the pricier side of sit-down chain food. The Darden crap-asbord (Red Lobster, Olive Garden) still seems to do okay, perhaps on the strength of major advertising to their dumb-dumb lower middle class clientele. (Yes! Let's overpay for overcooked, unhealthy food.)

We're on the watch for other chains to be in pain. Target did horribly last year, so did Walmart, so did GAP; the money just isn't there (also the product didn't have lustre, imo). The little woman works in produce (direct sales to restaurants/schools). Thanks to external events the wholesale prices will only be going up this year ... ouch.

Anonymous said...

We are at the end stage of denial overall nationally, with some variation depending upon the regional market. When the Silent Spring of 07 manifests itself with a massive surge of inventory and buyers still standing on the sidelines and/or demanding 10% price reductions + incentives/closing costs then we will see the absolute end of denial and entry of the fear stage, approximately June 07. Then fear to desperation transition will occur in the fall/winter of 07. The smart money is cutting price now to entice buyers only in borderline denial. Smart buyers will wait for blood in the water this fall as they will likely see 03 pricing, its not the optimum but hell if you've got to move and prefer ownership over renting fall 07 will be the best buyer's market in 5 years.

Anonymous said...

The Fed will try to inflate out of this mess. There won't be a bailout because the gov't is too deep in debt. We're running a $400 billion annual deficit. Inflation will ease the deficit and ease the crash. There will still be many casualties though

Anonymous said...

What is an HPer??

Anonymous said...

"my friend buying a TH for 56k after being listed for 630k for 6 months"

What's a "TH"? Toll House? If so, how?

LauraVella said...

I agree with Keith, I think it has finally reached the fear point in this cycle.

I had lunch with a friend last week, who bought a second "retirement" (she and hubby are in their mid 40's) home and when I mentioned everything is slowing down, she said nothing, no comment of any sort. I mentioned then that housing was slowing down, and again, not a word. Change of subject...

I only know one other couple, (my SIL and BIL) who will be shopping for a house in the next 1-2 years, other than that, everyone I know has already bought houses in the last 6 years, and are now struggling with loan resetting, or sticker shock from tripled property taxes.

LauraVella said...

Fun said:" agree, fear combined with impending doom should be the mindset of the day. However, why is it I sense the media is still intent on minimization, denial and nimby"?

All areas are different, but here in Reno the newcaster actually came out and said "if your house isnt selling, "it's because the price is too high"! The RE talk around here is very negative. Nothing is moving, two houses on my street that were for sale, are now rentals.

In the bay area, homes are still selling but priced lower than last year.

Everyone is waking up if they watch TV that sales are slipping and forclosures are up.

Let the games begin.

LauraVella said...

Anon said:"They have been running "value three course meal" promotions in the last few months. Don Pablo's is really crashing and burning. They've dropped the quality of the food, so I won't be back (it was nice with the old quality and coupons)".

My hubby and went to Chevys last week (special price meals) and the food was horrible! Just two months ago it was good. Seems like it went downhill overnight - we arent going back...ever. No more chain restaurants, we'll dine only at small family owned restaurants from now on.

Agree, all the food chains restaurants are in budget tightening mode, I think half of them will go under due to 1)Poor food quality 2)No customers.

LauraVella said...

"We're on the watch for other chains to be in pain. Target did horribly last year, so did Walmart, so did GAP; the money just isn't there (also the product didn't have lustre, imo)".

I think all the major stores are in trouble except for Ross and those like discounters.

A TV show exposed Potterybarn selling Mahogany coffee tables for $700 which were then sawed in half to show they were not mahogany at all, only poplar wood with 1m of "mahogany" veneer.

I hope Pottery barn and other majors have seen the last of the "big spenders" for the rest of this decade.

Frank said...
This comment has been removed by a blog administrator.
pop goes the housing bubble said...
This comment has been removed by a blog administrator.
Paul E. Math said...

I think you're ahead of the curve a little too, Keith. The NAR is announcing, yet again, that the market contraction has reached bottom and the MSM is still reporting NAR pronouncements as though they have some credibility. The media is still in the denial stage and all most people know is from the media.

There are stories here and there that identify the flaws in the conventional rosy scenario but I feel as though they are given short shrift.

As impossible as it may be to deny the housing bubble, people are still doing it and keeping their fear in check. I think fear will only really set in when more foreclosures occur and when everybody knows someone who has been caught in a toxic mortgage.

I am awaiting the day when the buzz at work or at some cocktail party is all about so-and-so who is going through foreclosure. That's the tipping point.

Wet_Chet said...

Some anecdotal evidence from Phoenix. Had a discussion with a relative yesterday that went something like this.

Background: My relative is married and in her late 50's, has had their house on the market for 10 months because of her husband's job relocation to Portland. The house was originally listed at $730K. It's now listed for $630K. They bought it for $298K in 1999 and they have a $200K mortgage.

Me: "So, have you sold your house yet?"
Her: "No, these buyers are ridiculous."
Me: "Have you gotten any offers?"
Her: "One, but it was insulting, so we turned them down."
At this point, I logged on to zillow.com and showed her the current valuation of $575K, and how it had peaked about a year ago at around $650K.
Me: "What was the offer for?"
Her: "$580K. We countered at $610K and they walked away."
Me: "Too bad, sounds like $580 was a good offer." (I bet their realtor, who is also my cousin, begged her to take it.)
Her: "No way. They would have wanted another $10K in repairs, too. They try to bleed you dry." (At this point, I thought to myself, "You're worrying about $10K when you had $250K cash in your hand, after expenses...okay...)
Me: "So what are you going to do now?"
Her: "Hold out for $630 because it's worth at least that much. There aren't very many single-story homes in our neighborhood, plus we keep our home up much better than the guy across the street who sold his for $680 last year." (I guess single-story homes are desirable. Also note denial that the market has changed in the past year.)
Me: "But the market is telling you it's worth less than that."
Her: "But you don't understand, we need at least that much to get into the house we want in Portland, unless we want to live in a run-down dump." (Apparently, $580K will only buy you a run-down dump in Portland.)
Me: "But aren't you guys getting ready to retire?"
Her: "Exactly, and this was supposed to be our retirement money."

It got more irrational after this, so I'll cut it off here. We talked for about a half hour, until I determined my comments were falling on deaf ears. I could hardly believe what I was hearing. Here was a normally rational, educated person, being so emotional and irrational about the biggest single financial decision of her life. It occurred to me on the drive home, that is was a wonderful allegory to illustrate the pitfalls of the following topics so often discussed here:

(1) Greed
(2) Lagging the market down
(3) Foolishness and lack of planning for retirement
(4) Having unrealistically high standards
(5) Denial, denial, denial about what the market is telling them.

--Chet

Anonymous said...

Chet -
Great story! There are volumes of education in the glimpse of conversation you shared!

Let your Portland bound relative know that I'd be willing to write him a check for $ 300 K by Wednesday if he decides he can't stand the soggy weather here in AZ and just wants to get out!
(it's raining today)


The $ 2K profit and $ 100 K over mortage should be more than enough to get into any kind of mortgage in Portland. That is, if he hurries and beats the coming financing reform.

Actually, with $ 100K in his pocket, he should be able to buy the house, pay 0 down, and with some creative "cash back" dealings have about $ 150K total to fund a retirement account!

Anonymous said...

Guys, let's stop bashing TGIF. It's the most standardized mid-tier national chain out there. I mean really, the Pot Sticklers are the best Americanized Asian dumplings around (Read: for western tastes) and I can't really complain about the "Jack Daniels" sauce on the steaks. I mean c'mon, what else can you expect from a chain? At least it isn't IHOP where outside of the Aunt Jemima pancakes, the chicken/beef are vulcanized rubber.