Housing Rolling Along 2

OUCH, Big OUCH.

 

I Want My Bubble Back!

By Seth Jayson
The Motley Fool
The housing spin

There’s nothing funnier or more satisfying (for me, at least) than watching the National Association of Realtors (NAR) change its tune these days. The latest news release from this sunny-Jim industry group finally fesses up to its past fiction, but even when it admits the bubble’s going to pop, it can’t muster the courage to just come out and say it.

Nope, according to the news template the NAR released to the press on June 6, “The housing boom has ended, but sales at historically healthy levels will continue.”

Wow, sounds great! What about all those poor HGTV-addled suckers — oops, I mean investors — who’ve been buying property on interest-only ARMs with the hopes of flipping it for an easy profit?

Not to worry, folks — a flop in prices is good! Here’s why, according to the NAR. “Experiencing a slowing from a hot market is a good thing because we need a solid housing sector to provide an underlying base to the economy, and slower appreciation will help to preserve long-term affordability.”

I hope all those people out there who leveraged themselves up to their eyeballs with risky loans to get into the market are going to be greatly comforted by the “long-term affordability” their homes may offer the buyers of the future.

Who moved my bubble?

So, yeah, the NAR is full of it and will spin the numbers any way it can to keep up the pleasant fiction that all is well. But the cracks began to show in subsequent remarks from NAR “Chief Economist” David Lereah. The head outfit that ridiculed the idea of a housing bubble for years is now crying for Ben Bernanke to bring it back.

“But this is a time for the Fed to pause on rate hikes because we have some interest-sensitive housing markets that have become vulnerable,” Lereah said.

Allow me to translate:

Interest-sensitive housing markets = “Bubbles”
Vulnerable = “Ready to pop”
A more honest version of what I think he really means to say is: “Come on, Bennie! We need that cheap money! How else are we going to keep skinning 6% off all those marks out there? It’s not like they can really afford these prices without the easy credit and ARM gimmicks!”

And lest you think I’m being too harsh, that the NAR is a group that cares about things like homes and families, take a close look at the terms it uses to describe the current situation: “For most of the nation, this means future home price gains will be much closer to the normal returns we expect from housing,” said NAR President Thomas M. Stevens, who hails from one of the country’s most ridiculously bloated markets, Vienna, Va.

Price gains. Returns. These are people who want us all to believe in housing as an investment, and they just happen to take a cut on the deals. Of course, housing, over the long run, is not a good investment, except for a very savvy few. It’s a roof over your head that tends to keep pace with inflation, but not in a straight line. But if you can’t afford your place because you made a bad deal based on reports of the never-ending happy housing story, that cozy home could be a personal finance time-bomb waiting to explode.

Don’t be hatin’

The real problem here isn’t the NAR, of course. You have to expect these people to spin the facts for their industry, even if that means they’re putting their checkbook concerns ahead of yours, and even if it leaves them begging the Fed for an adherence to shortsighted economic policies that could send inflation spiking.

No, the real problem here is the uncritical press out there, which is all too happy to pepper every contrary indicator or bearish remark with an NAR official’s informed-sounding bubble denial. Never mind if what the NAR folks are saying doesnt seem to make sense (or contradicts what they said just a few months back). Hey, opposing viewpoints give the appearance of objectivity, and they’re an easy way of pretending to have looked for truth. It keeps your editor off your back, and if people out there get burned on account of your waffling reportage, no one can say they weren’t warned. Look, here’s the quote from the other guy!

It should have been completely obvious to anyone with a loan calculator and a glance at wage increases that those months of industry bubble denials were just wishful thinking.

The simple fact is that no one wants the party to end — not the Realtors, not the companies who make a mint on loans, like H&R Block or Freddie Mac, and certainly not the home builders like Pulte or Toll Brothers. But at least the homebuilders, who have shareholders to face, had the guts to come clean.

And let’s face it. I don’t think the average retailer out there, from Wal-Mart to Best Buy, relishes the thought of a consumer who can’t tap marshmallow equity to keep buying iPods and PowerAde. Nor will you see a celebration from a company like GM, which made a lot off mortgages and also benefited from the illusory equity wealth by selling high-ticket SUVs until a predictable spike in oil prices took the fun out of that party.

Foolish bottom line

Unfortunately, we live in an imperfect world. The information you get on housing is confusing, often inconclusive, and sometimes, I’d argue, downright crooked, woven into a complete fairy tale by people who want to convince you that no harm could ever come from partaking of transactions in which they have a financial interest. That’s why you need to be a Fool and do the math yourself.

Those home industry advertisements might feature kitties and puppies, blue skies and little girls with dimples frolicking in the home of your dreams, but the people putting together those ads measure their success by how many greenbacks they can extract from your wallet. The only person out there who’s really looking out for your financial well-being is you.

 

About a year ago in this thread I posted this news story....turned out in the last year Ken Heebner pretty much nailed it. The home builders stocks since his call are down around 50% and still tanking. This guy has a fantastic track record, and controls billions.

And now there is more news today from Mr. Ken Heebner...

http://online.wsj.com/public/articl...avFBN5w_kTARC8T9SKB_Fs_20060711.html?mod=mktw

“To get a lay of the land, we tracked down Kenneth Heebner, who since 1994 has managed the $1.2 billion CGM Realty Fund. It has the best 10-year record of all real-estate-focused mutual funds, according to fund tracker Lipper Inc.”

“WSJ: How is the housing market? Mr. Heebner: A significant decline in prices is coming. A huge buildup of inventories is taking place, and then we’re going to see a major [retrenchment] in hot markets in California, Arizona, Florida and up the East Coast. These markets could fall 50% from their peaks.”

“WSJ: What has you so concerned? Mr. Heebner: I’m worried that more people will default on their mortgages. Risky mortgages..have been widely used in the last two years. Some people got 100% financing for their homes. It made the tech bubble look like a picnic.”

“As housing prices fall more people will be under water, and these people are just going to walk away from their homes. They are going to say, ‘I’m outta here.’ You’re going to see increasing foreclosures over the next several years. As [home] prices come down, it will create a difficult environment for home builders.”

“WSJ: What data have you most worried? Mr. Heebner: We’re seeing a huge increase in inventories of unsold homes. The role of incentives in selling a home is increasing so the weakness doesn’t show up immediately in list prices. Large price declines will follow in inflated markets.”

 

Not long ago Ken would get crucified on finance shows for his positions and thoughts. Like just last year.

A house in my community was on the market for 6 months at 489K. Listing expired. Now listed for 419K with 10K in incentives.

I had to do my best to keep from ROTFLMAO when the realtor stated the market is still very strong for sellers.

Yep, a 70K reduction, really 80K with incentives, in price is a sellers market. I can't wait for a buyer market!!! Plus currently owned units have to compete against remaining inventory the builder still has available. I can get the same place from the builder for <400K...

 

Does anyone know who was the biggest publically traded lender in the California and Florida real estate markets?

 

Who owns the paper on mortgages these days?? In the old days, an S&L would own it and if the payments were not met they would promptly do something about it.

Now with the securitization of mortgages I am not clear on who actually decides to foreclose.

I guess I am also wondering who the counterparties to these foreclosed mortgages will be.

Thanks


John

 

us (via 401k)

 

Hedge Against A Housing Bubble With Housing Futures

Average contract is $50,000. All the major regions are close to or at all time highs. I take it they won't make a "po boy" contract say around $10k anytime soon?

 

How "po boy" can you get? At 50k it still takes a 10 lot to "hedge" a modest half million dollar home.

 

Maybe a "Guest House" contract lol

John