Banks Face Growing Pressure on Home Prices 12 comments
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Add to that the ARM resets and increasing foreclosures, and you have the formula for:
1. Decreased Consumer Spending
2. Falling Home Prices
3. Economic Slowing
Whether or not this causes an actual recession is yet to be determined, but the statistical odds of one occurring keep moving higher.
In Monday's WSJ is an article that sums up how all of these elements combine: Mortgage Woes Force Banks To Take Hits to Sell Homes:
An auction of nearly 100 foreclosed homes here Saturday showed that mortgage lenders are having to accept huge discounts in some cases to unload such properties.
A surge of foreclosures over the past year or so has left lenders struggling to sell a growing backlog of homes. Rather than relying on real-estate agents, the usual practice, some are turning to large-scale auctions to speed up the sale process.
Real Estate Disposition Corp., the Irvine, Calif., company that organized Saturday's auction of lender-owned homes, plans similar sales May 19 in Los Angeles and May 20 in Riverside, Calif.
At the San Diego sale, houses and condos typically sold for about 30% below the previous sale or appraisal prices. In a few cases, the discounts were around 50%.
A four-bedroom home in Oceanside, Calif., attracted a high bid of $495,000 at the auction, 33% below the sale price recorded in November 2005 for the property. One condo in San Diego sold for $120,000, less than half of its previous value.
This raises a wealth of issues, including the absurd Appraisal Inflation we have mentioned in the past.
How might this resolve itself? As foreclosures continue to surge higher, lenders-in-possession will find themselves with an increasing number of homes. Indeed, so many so, that the only solution has become large scale auctions -- 100 or so properties at a time. As you can imagine, the impact of so much supply hitting the market all at once means that buyers can be quite picky, and bidders are free to low ball.
The net result, as seen above, is enormous price decreases from the loan amount, appraised value, or recent selling price.
Source:
Mortgage Woes Force Banks To Take Hits to Sell Homes
JAMES R. HAGERTY
WSJ, May 14, 2007; Page A2
http://online.wsj.com/article/SB117910010258001458.html
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This article has 12 comments:
Can you point to any evidence that you predicted that the current slowdown would be slow motion ?
Did you make any assessment of when it would begin and end ?
This sounds like nonsense made up to make it sound like you predicted what is currently happening.
And even if we were to believe that you predicted a slow motion slowdown, is there any value to this prediction ?
I doubt it. Its rather well known that there are business cycles and inventory cycles within the business cycle......predicting a slowdown without any accountablility to timeframes is bound to come true at some stage. And lets face facts, our country is in the midst of a 1.5 year slowdown and now you are declaring subtly that you somehow predicted it ! Ridiculous.
Lastly, even if your nonsense weren't nonsense, wouldn't it be true that a slowdown by its very nature is slow ?
If I am not mistaken, the U.S. economy is extremely large.
If I am not further mistaken, large objects do not slowdown rapidly when in motion except under the most extreme circumstances.
Doesn't this argue that it is common sense that slowdowns will tend to be slow ?
Answer: Yes. It is common sense.
Question: Is producing retrospective common sense under the false wrappings of valuable information worthwhile ?
Answer: Probably not.
So, let's summarize what you have done for the world:
1. Identified an economic slowdown approximately 1 to 2 years after it began
2. Identified a falling house price trend and increasing foreclosure trend 1 to 2 years after it began
3. Identified that foreclosures ultimately get resold and sometimes at a discount due to characteristics of banks as homeowners but not home dwellers.
Thank you. That's terrific.
Do people really pay you for this pablum ?
Seriously, I can b.s. with the best of them, and I am looking for a job right now where I can make money by sounding smart but providing no value.
Any referrals ?
John.
www.google.com/search?...;oe=UTF-8&q=%2...
Let's examine your vague slow-motion-slowdown theory.
Presumably you are suggesting that the current slow down is slower than a normal slowdown.
Right ?
Do you have any evidence for that theory ?
Or are you just making stuff up ?
How many slowdowns in the worlds largest economy are fast-motion-slowdowns ?
It seems to me that you are simply reporting the obvious facts that the economy is slowing down, something that would be expected to occur with some lag after the Fed begins rate increases.
It also seems to me that this slowdown is normal, not slow motion......just about ordinary.
Again, can you provide any evidence that this slowdown is slow-motion ?
john.
Wow, is there any other kind?
Thank you, yet again, Captain Obvious.
No offense...just don't consider the above a value-add.
see all of this:
www.google.com/search?...;oe=UTF-8&q=%2...
Do a little bit of homework -- this is something I have been writing about in print and on line for 3 years.
There are over 4000 posts here: bigpicture.typepad.com/
Start clicking
the target: unsubstantiated b.s.
if you think I want to peruse another 4000 posts worth of unsubstantiated b.s., you must not understand the sniper mentality ! there is plenty of fodder in your daily musings dressed up as analysis.
my bottom line is this:
most slowdowns are slow-motion by their very nature when you are dealing with the world's largest, most diversified economy. and with world growth increasing overall planetary diversification, one would expect slow-motion slowdowns even more.
lazy ? now, let's address that with some facts:
1. recently you cut and paste comments from some other self-styled market commentator to comprise 90% of your market musing column.
lazy ? you make the call.
Now, let's get to the whining:
If you want credit for something, avoid the high level vague commentary that provides no value and is unnacountable by it's very nature.
Anybody can report on the obvious: increasing Fed rates, increasing inflation, slowing housing sales and declining prices, general slowdown, etc.
That's pretty clear.
What's not clear is whether assets class or security prices are under, over, or perfectly reflecting these trends.
And lastly, if you truly want to make for interesting discussion as previously professed, please respond to specific points rather than hurl insults and ask people to read through 4000 posts of your unsubstantiated b.s.
Specifically, you recently wrote:
My thesis is that each FOMC meeting is greeted by a sideways action prior to the FOMC announcement, followed by a rally, followed by a sell off. This FOMC meeting followed the script pretty perfectly.
Can you help us understand when you noticed this perfect script ?
Was it before you saw the play, or after ?
Can you help us understand how you made money with your advance knowledge of this scripts future performance ?
Frankly, that type of amateurish, phony chartreading after the fact is silly.
You want interesting discussion Casual Market Muser Man ? You got it.
john.
That's the sort of half-assed lazy critique that makes these discussions utterly worthless. It would have taken you 11 seconds to research how many times I used that phrase in the past -- but rather then engage in that sort of work, you chose instead to make an incorrect assessment.
If I thought you were a sincere person with legitimate questions, I might take time out and direct you towards the answers.
Heck, Barry, read your own investment "philosophy" statement:www.ritholtz.com/conte.../.
Read your own nonsense, which can be summarized:
Barry Ritholtz stinks at predicting the future, and therefore does not do it.
On the other hand, Barry Ritholtz assesses future probabilities and focuses on the highest probability scenarios.
Do you see a problem with this crap ?
Let's continue:
You view your "good calls" as luck, and make the ridiculous claim that strategists are too busy predicting the future and forget to learn the lessons of the past.
It's just complete nonsense, though I am not going to argue with you at this stage that if you manage to make a good call it's luck.
Let's continue:
From the Ritholts philosophy: The concern is not with being "right" on any prediction – but rather, with making money for our investors and clients.
What kind of nonsense is this ? Talk about a false and ridiculous choice: hmmmm, let's see....I can be right or I can make money for clients. Do your clients really fall for that crap ?
Under exactly what circumstances are you presented with the alternative of being right or making money ?
Have you found a way to make money off your admitted stinky forecasts ?
OK, more gems from your investment philosophy: We find it to be quite liberating to be able to say: "Hey, that investment decision was wrong – let’s take a small loss and move on."
I've got a couple of questions on this one:
1. Do your clients also find it so liberating when your admittedly poor forecasting skills liberate them from their money ?
2. Was your reference to "a small loss" a subliminal attempt to deceive people into believing that large losses are not possible when under the care of stinky forecasters ?
Now, let's get to your finale:
It is a different approach – one we suspect you find refreshing.
No, Barry, I do not find this approach refreshing.
I find it to be confused and laughable, and frequently at odds with your vague market musings.
Seriously, though, if you can get paid for something you admittedly stink at, and further claim you don't do, I do have great respect for that.
Very Sincerely Yours,
john.
1. He took the bait (which is a good thing) - healthy discussion is what we were after...thanks for responding, Barry.
2. He took the bait for name-calling and introducing readers to google's search capabilities?
Barry...I really did not expect this type a response - so KG. While you're entitled to your opinion, John makes a few good points as the devils advocate (who is entitled to his opinion too) - calling people who are questioning and challenging you "lazy" is just inaccurate. "Putz" = immature. Not that you were on a pedestal, but...I was NOT expecting this caliber of answer from the Great Barry Ritholtz.
But in retrospect this outcome should have been Obvious, Captain.