Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Wednesday, August 22, 2007

Brother, Can You Spare A Housing Job?

House prices weren't the only things on the uptick over the last few years, the number of people that moved into housing related jobs also soared. For the last few years it seemed that the answers to the massive job loss following the dot com bubble and the attacks of 9/11 were to be found in the housing industry. Just as in past periods of irrational exhuberance, when the most unlikely people were found peddling stocks, trading bonds, and getting money for start-ups, the housing bubble brought it's own share of get rich quick stories. The overnight RE gazillionaire, the woman who made a bundle flipping houses, the kid from Quiznos' who started writing mortgages, or doing appraisals...or I could go on.

Well, the gravy train has finally de-railed and many of those who found themselves eager participants in the pile on are now piling on to the unemployment line.

Since the start of the year, more than 40,000 workers have lost their jobs at mortgage lending institutions, according to recent company layoff announcements and data complied by global outplacement firm Challenger, Gray & Christmas Inc. Meanwhile, construction companies have announced nearly 20,000 job cuts this year, while the National Association of Realtors expects membership rolls to decline this year for the first time in a decade.

It's an employment collapse that threatens to rival the massive layoffs in the airline industry that followed the Sept. 11, 2001, terrorist attacks, when some 100,000 employees lost their jobs.

"It's far from over," said Bart Narter, a senior analyst with Celent, a Boston-based financial research and consulting firm. "The subprime lending collapse will continue to ripple through the financial sector."

This job loss train wreck is not slow motion by anymeans. These mortgage lending companies are folding their tents faster than a snake-oil salesman with a tar and feather toting mob on his tail.

"These kind of mortgage lenders just sprung up like mushrooms and grew like men," said John A. Challenger, chief executive at Challenger, Gray & Christmas. "They staffed up and now you have a bust."

America's largest mortgage lender, Countrywide Financial Corp., began an undisclosed number of layoffs this week. Last week, Arizona mortgage lender First Magnus Financial Corp. shut down its operations and laid off nearly 6,000 workers. On Monday, Capital One Financial Corp. said it would shutter Greenpoint Mortgage, its wholesale mortgage banking business, and lay off 1,900 employees.

"It's only been weeks," Challenger said. "These companies are acting remarkably quickly, stopping on a dime."

It's called leaving town one step aheade of the sheriff, with a smidge of the evacuation from our embassy in Saigon thrown in for good measure.

"It was pretty much a free for all in the office, people taking paper, stuff HomeBanc wouldn't need," he said. "I don't feel like HomeBanc did anything. It was a perfect storm of a bad housing market."

Two of Clark's friends have already landed jobs with Countrywide. Another found work with an affiliate of First Magnus, and was almost immediately laid off again. Roach plans to open his own lending business, focusing on commercial business loans and originating home loans himself.

That's sort of like transfering by dinghy from the Titanic to the Andrea Doria.

And, it's not just the mortgage lenders who may be seeing some job losses. This news story today reveals that four top banks hit up Uncle Sam for some WAM this afternoon, to the tune of 500 million each. seems they had a few bucks in Countrywide themselves. In fact they funneled about 2 Billion bucks into Countrywide jjust today. So lemme see, they're borrowing money from the Fed to put into Countrywide????!!!

In a joint statement, the latter three banks said they decided to borrow the money to demonstrate "the potential value of the Fed's primary credit facility" and encourage its use by other banks.

"Simultaneous action by these four institutions -- at the same time, on the same day, for the same amount of money -- suggests that the move is intended to have some symbolic value," said Aaron Gurwitz, co-head of portfolio strategy at Lehman Brothers Investment Management Division. "But it may also be a way for them to make money."

Yeah. That too.

Friday, August 17, 2007

The Bonfire of the Housing Vanities

Savanarola take note. The days of the 1 million dollar starter house appear to be over. Those of us who goggled and gasped in disbelief at the lying fraudulent don't ask don't tell no doc , no down payment mortgages have now been justified. They have rolled up the free lunch counter and taken it away, no more seconds.

So then why did house prices rise in almost every county around here even as the sales numbers dropped faster than Lindsay Lohans' Seven For All Mankinds ? Simple, when the lower end ie: first time buyer is effectively knocked out of the box the only thing left is the higher price house.

The median price was $738,500, up 7 percent from $688,955 a year ago.
The median rose because a greater proportion of expensive homes were sold, said Andrew LePage, an analyst at DataQuick. Tighter lending standards after the subprime loan debacle have knocked many entry-level buyers out of the market because they lack down payments, good credit or solid income proof. "If you yank out a bunch of low-cost sales, then guess what happens to the median?" he said.
"The higher you go up the price ladder, the more stable (the market) appears, with the big caveat that things could change, even if temporarily, in August because of the credit crunch," LePage said.

Remember kids, these are Jluy figugres we're talking about. Stuff from before the market went all medieval on everyones ass. Good times.

Jumbo loans are't going to save the day either .

In the latest developments in the mortgage market, "jumbo" loans above $417,000 have become more expensive and harder to get, and more lenders are falling by the wayside. All of that could hurt the high-end sales that have been strong up until now. Because sales typically take a month to close, the fallout will not be reflected until data are collected for this month and next.
"We anticipate it will be an especially weak August because of all of this," LePage said. "A lot of people are waiting."

That is an understatement.

Ok. So the median price is going up everywhere even as the sales languish. Everywhere but three places.

Despite the drop in sales, median home prices rose in all counties except San Joaquin, Solano and Sonoma. In San Joaquin County, the median home price dropped 13.6 percent to $380,000.

Hey! I thought everybody wanted to live in Sonoma. Stuff never goes down here, right??? Maybe those now hard to get jumbo loans had something to do with it...or not.

Most of the Bay Area reported sales drops year-over-year in the single digits. In Contra Costa County sales dropped 24 percent, and in San Joaquin County sales dipped 43.1 percent. San Francisco reported the only rise in home sales — 4.1 percent.
Foreclosure sales accounted for 4.5 percent of the state's July's sales activity, up from 4.1 percent in June, and up from 1.5 percent in July of last year. DataQuick said they have not had a large impact on regional sales.

Not yet they haven't. Just wait.

The Vallejo Times Herald has some figures in an article about what's going on housing wise.

Interestingly enough, they have different foreclosure sales figures, different by quite a large margin.

Home sales were down 21.9 percent last month compared to July 2006, and down 8.1 percent since June, the firm said.

Statewide sales have decreased for the past 22 months on an annual basis.

Meanwhile, the median home price in California in July dipped slightly to $478,000, down 0.2 percent from $479,000 in June.

Foreclosure resales accounted for 7.8 percent of sales in July, up from 2.0 percent in the year-ago period and from 7.0 percent in June, the firm reported.

For some reason my feeling is that over in Vallejo they got it right. Maybe they just have more common sense over in Vallejo, maybe they're just more grounded.

In all, 7,423 new and resale homes and condos were sold last month in Alameda, Contra Costa, Marin, Napa, Santa Clara, San Francisco, San Mateo, Solano and Sonoma counties.

Sales have decreased on an annual basis in that area for the past 30 months.

It's not just realtors hurting this week, but builders too, who've been feeling the pinch for awhile. The term Perfect Storm is now being bandied about.

For California's home builders, it has gone from a perfect storm to a pathetic one.
Each week, it seems, there is more bad news as potential buyers stay away in droves. A recent wave of discounting has lured some shoppers to subdivisions, where a backlog of unsold dwellings await ... something ... anything.
But the price cuts, ranging from $10,000 to more than $150,000 on $1 million-plus homes, have yet to turn many of the looky-loos into buyers, according to anecdotal information from homebuilding executives.
"This is the first recession (in the housing market) that isn't being driven by job losses," said Steve Delva, president of the South Bay division of Standard Pacific Corp., a major Northern California builder. "Somebody called (the housing bubble of 2005-06) a perfect storm of cheap interest rates, a lack of supply and rampant speculation. Then, when the air went out of the bubble, everybody turned back into pumpkins."

The thing that jumps out at one in this article is the term the first housing slump that hasn't been driven by job losses. That I think is the missing link. For a long time I have been wondering about the true unemployment figures. There were massive job losses after 9/11 and the tech bust. I personally know people, executives, who lost there jobs in the last several years and were unable to get new employment. They're now "consultants". Who they are consulting with remains a mystery as the way ends are being met is not with consulting fees but with credit cards, and money being pulled from rapidly appreciating houses, that are appreciating no longer.

So I surfed on over to the BLS....that is the Bureau of Labor Statistics and found some interesting numbers. Officially they talk about unemployment figures at about 4.5 %, but if everything is counted in the numbers are much higher.

Table A-12. Alternative measures of labor underutilization


Table A-12. Alternative measures of labor underutilization


Not seasonally adjusted Seasonally adjusted


July June July July Mar. Apr. May June July
2006 2007 2007 2006 2007 2007 2007 2007 2007

U-1 Persons unemployed 15 weeks or longer, as a percent
of the civilian labor force....................... 1.4 1.4 1.5 1.5 1.4 1.5 1.5 1.5 1.6

U-2 Job losers and persons who completed temporary
jobs, as a percent of the civilian labor force.... 2.2 2.1 2.4 2.2 2.1 2.2 2.2 2.2 2.4

U-3 Total unemployed, as a percent of the civilian
labor force (official unemployment rate).......... 5.0 4.7 4.9 4.8 4.4 4.5 4.5 4.5 4.6

U-4 Total unemployed plus discouraged workers, as a
percent of the civilian labor force plus
discouraged workers............................... 5.2 5.0 5.1 5.0 4.6 4.7 4.7 4.8 4.9

U-5 Total unemployed, plus discouraged workers, plus
all other marginally attached workers, as a
percent of the civilian labor force plus all
marginally attached workers....................... 5.9 5.6 5.7 5.7 5.3 5.3 5.3 5.4 5.5

U-6 Total unemployed, plus all marginally attached
workers, plus total employed part time for
economic reasons, as a percent of the civilian
labor force plus all marginally attached
workers........................................... 8.8 8.5 8.6 8.5 8.0 8.2 8.2 8.2 8.3

NOTE: Marginally attached workers are persons who currently are neither working nor looking for work but indicate that they want and
are available for a job and have looked for work sometime in the recent past. Discouraged workers, a subset of the marginally attached,
have given a job-market related reason for not currently looking for a job. Persons employed part time for economic reasons are those
who want and are available for full-time work but have had to settle for a part-time schedule. For further information, see "BLS
introduces new range of alternative unemployment measures," in the October 1995 issue of the Monthly Labor Review. Beginning in
January 2007, data reflect revised population controls used in the household survey.

Now I may be math challenged but those numbers don't look to me like anything close to 4.6 %

My guess is that the credit crunch that's going on right now, is finally going to shake out those unemployment numbers and stop people lying to themselves. One can only "consult " with air so long, whatever goes down, also goes up.

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Thursday, August 09, 2007

Sub-Prime Patty Meltdown, Or How Those Subprime Mortages Keep Coming Back Like A Bad Hungarian Dinner...

The Dow has gone looking for the Titanic this afternoon as the French get antsy about all those wonky subprimes they invested in, and who can blame them?

Wall Street plunged again Thursday after a French bank said it was freezing three funds that invested in U.S. subprime mortgages because it was unable to properly value their assets. The Dow Jones industrials extended its series of triple-digit swings, this time falling more than 380 points

The safe has been dropped into the middle of the US Credit Market and the real tsunami hasn't yet been felt. The only Ripples we're talking here is the cheap wine the brokers are going to be drowing their sorrows in. The days of Chateau Mont Helena are gone. Welcome to the real world, and the reality based financial community.

A move by the European Central Bank to provide more cash to money markets intensified Wall Street's angst. Although the bank's loan of more than $130 billion in overnight funds to banks at a low rate of 4 percent was intended to calm investors, Wall Street saw it as confirmation of the credit markets' problems. It was the ECB's biggest injection ever.

The Federal Reserve added a larger-than-normal $24 billion in temporary reserves to the U.S. banking system.

There's only so long that one can live in denial. Even Cleopatra had to get off her barge once in a while. This situation is more than Joe, and Jane Doe with the suicide loan or the giganto HELOC swimming sideways toward the drain. It impacts the prudent and the imprudent alike. Worldwide.

The ECB's injection of money into the system is an unprecedented move, said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co., adding that it shows that problems in subprime lending are, in fact, spilling into the general economy.

"This is a mini-panic," he said. "All the things that had been denied up until this point are unraveling. On top of this, retail sales were mediocre, which shows that indeed, the housing collapse is affecting the consumer."

Yeah, and that includes even those of us who've sat this dance out. The band is packing up, don't look at us to pay the tab.
I was particularly struck by this little incident when the "other" Cramer had his own meltdown last night.

If you want to get a general idea of things just watch the little birds that have been living off the dung on the housing rhinos back for the last five years. Can you say Hakuna Matata!

In another sign of credit market trouble, Home Depot Inc. warned that the sale of its wholesale business might bring in less than expected. The world's largest home improvement retailer, which also cut how much it intends to pay to repurchase stock, said volatility in the stock, debt and housing markets has led to the possible repricing. Home Depot fell $2.01, or 5.3 percent, to $35.79, and was the worst performer of the 30 Dow components.

But American International Group Inc., one of the world's largest insurers, on Thursday reassured investors that it remains comfortable with its exposure to the subprime lending market as an investor, lender and mortgage insurer. AIG, which reported a 34 percent jump in second-quarter profit late Wednesday, said it has enough cash and liquidity and "does not need to liquidate any investment securities in a chaotic market."

AIG fell $2.18, or 3.3 percent, to $64.30.

Of course this headline probably didn't help.
Mortgage delinquencies, defaults spreading: AIG

Let me get this straight, they're not worried about anything, and yet they're warning their investors. Ok.

While saying most of its mortgage insurance and residential loans were safe, AIG made a presentation to analysts and investors that showed delinquencies are becoming more common among borrowers in the category just above subprime.

Although acknowledging the "significant declines" in subprime securities, Chief Executive Martin Sullivan said AIG's tight underwriting standards had minimized losses and he was "poised to take advantage of opportunities" in the mortgage market.

But it was clear the overall market was getting worse.

"We are experiencing stress in the Midwest markets where jobs have been lost and we are now seeing it in Florida and California," said William Nutt Jr., chief executive of AIG's mortgage insurance arm.

Everything's A-OK, except where it's not.

Yeah, and other than that how did you like the play Mrs. Lincoln?

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