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DCM
20 Comments
The Bottom's Within Sight - Barron's
as a tactic to evade doing anything to benefit the majority of Americans.
Now that financial armageddon has come to the world, who are the first to be saved? The wealthy!!!! As this world wide depression sweeps the planet, I think there is a chance that we may see a significant amount of class warfare erupt. It may get very ugly, before it gets better, but it will get better!
What Does Warren Buffett See in General Electric?
The fact is I am having trouble finding good short candidates because most stocks are soooo..... oversold right now. Good Luck and I hope we all come out alive.
As far as the article goes, did anyone learn anything from it?
Iceland: When Too Big to Fail Becomes Too Big to Rescue
New Home Construction Plunges to 17-Year Low
What in the world are these builders thinking? Would like to know which banks are lending construction money and WHY? Like we need more housing units on the market to meet the enormous demand!
How Long Until Housing Prices Stabilize?
I would also like to see charts on the number of new jobs being created in relation to the increase in population. And given an increase in both population and jobs, what effect would this have on income levels?
Assuming housing supply stays constant, if housing demand does not significantly increase as the result of any combination of job creation, wage increases, household equity increase, immigration or foreign investment, it does not seem likely that we will reach an equilibrium between housing demand and supply anytime soon.
What seems particularly ludicrous to me is any discussion of building new housing units on the top of the already burgeoning supply of homes on the market. It seems to me that the future for the construction trades will be in rehab and renovation.
The Government's Moral Hazard with Fannie and Freddie
For the record, I agree with the statement and the premise set forth in this article. I for one am not going to pay another tax dollar to a government that takes my money to protect and bailout the wealthy elite. Make no mistake - the wealthy pay billions to Washington politicians (primarily Republicans) to protect and grow their wealth into the trillons. Wake Up America! I was going to say before its too late but I think it already is.
Buffett, Rogers at Odds on Fannie/Freddie Bailout
For the first time that I can remember, I disagree with Buffett. Whether they enact this plan or not, there are going to be much greater losses down the road. I also disagree that this was a problem that was decades in the making. The greed of Wall Street, excessive CEO compensation, artificially controlled interest rates and no government oversight are all key factors in causing the recent housing bubble and they all occurred since the Republicans gained control of the Executive and Legislative branches of government in 2000. That is a fact!
IF there has to be a bail-outs and IF Congress is serious about stabilizing the housing market AND the economy, then at least make the taxpayers bail-out the taxpayers. I would first like to see the greedy elite be punished by confisicating their billions of dollars of ill-gotten gains. It would not be surprising to learn that over a trillion dollars was awarded as compensation in the past 8 years. The actions taken by our government so far have essentially rewarded bad behavior.
It is crtical that housing prices be stabilized. I have read that over a third of per capita wealth has been wiped out. This is not surprising, given that most people's equity is in their homes. Extraordinary measures need to be taken now. Beyond confiscation of ill-gotten gains, there needs to be a moratorium on foreclosures and new housing units. This is a no brainer - simply a function of supply and demand. You cannot continue to increase supply as demand is reduced.
If bold steps are not taken immediately, over the next decade this will create a downward death spiral for our economy. The result will be class warfare as never before seen in this country.
A Spurious Solution to the Housing Crisis
The solution should not be forcing taxpayers to bail out the wealthy and prosperous people and their institutions that knowingly corrupted the secondary mortgage markets and inflated the bubble. The solution should have been to immediately contain and stabilize the housing market at the expense of those who benefited the most over the previous 8 years. I ask you, how is it possible to ever reach a “bottom” when each month more homes become available for sale while there are fewer and fewer qualified buyers. The last thing banks should be doing is foreclosing on homes and selling them at fire sale prices. Homebuilders also need to be stopped from building more homes.
The way to turn this around is to require lenders to renegotiate existing mortgages at lower interest rates and eliminate the acceleration clause (allow mortgages to be assumable.) The mortgage payment at 2% is about 30% less versus a 6% interest rate. (For example, a $100,000 mortgage, the payment decreases from $745 to $515.) If lenders need to increase yield to investors, they can slightly discount the principal. Remember, lender’s generate the largest share of revenue up front in closing costs and discount points. Servicing fees are revenue producing but not profitable. Looking ahead, how bright is the future for mortgage lending in this country over the next 10 to 20 years anyway? I suggest that the aforementioned approach is potentially better than the current one of banks taking write downs; and/or, the government bailing out lenders and investment banks, or backstopping Fannie Mae, Freddy Mac and the FDIC.
A Self-Serving Non-Solution to Negative Equity in America
Given this popular self-serving mentality found in America today, it comes as no surprise that any solution to this uniquely profound mess were in, will always meet resistance from the haves. To quote Shedlock, “The real problem in the US is that home prices are still too high and those prices need to come down, not propped up by self serving bailouts.” Mr. Ross’s solution may be self-serving but it may also serve the needs of millions of Americans. I think there is a better solution but to denounce it because it is self-serving is irresponsible. You would think it would be clear by now, that if a solution is not found for this unprecedented economic fiasco, the fallout is going to grow even more painful and become more protracted. Letting the market work it out and not doing anything for millions of Americans is totally irresponsible. If this market is left to work itself out, the damage is going to be a hundred times more horrific than Katrina.
Mr. Shedlock, I have for you and your ilk, the same disgust as you do for the “self-serving” Mr. Ross. You’re just as self-serving! You oppose a taxpayer bailout. “What's unreasonable is to expect those not in trouble to bail out those in trouble.” I would suggest that this country is in great economic trouble and it is affecting most Americans. All too many people have this attitude of protecting their own at the expense of all others. Since Katrina, the attitude of most in the country is that “those people” had no business building homes below sea level, and they should not expect to be bailed out because they did not have insurance to cover their loss. The attitude of it's their problem, don't look to me for help only pushes more people into economic distress which the taxpayer ultimately pays for.
I hope baby boomers nearing retirement are paying close attention to the self-serving attitudes of Mr. Shedlock and his kind. For most of you, your primary retirement nest egg is evaporating by the minute. “Analysts have forecast that by June 30, 10.6m families will have either no equity in their homes or a negative equity.” This is an alarming statistic given that about 70% of the 80 million families in America own a home and that this situation is forecasted to get much worse. We could have one in four families with no or negative equity in their homes. What about the people that lost only 50 to 100% of their equity? For those of you in your 20’s, 30’s or even 40’s, a 50% to 100% decrease in equity may seem like no big deal as there will be time to recover. However, how can you assume that prices will bounce back? Is it because they have before? Our country has never experienced an economy like today’s nor a housing bubble of this magnitude. All the circumstances that led us to this point have never been experienced before. As long as we have more homes than buyers, mortgage debt greater than home values, and an illiquid marketplace, it is hard to imagine how home values could increase across the board until these dynamics change.
Maybe Mr. Ross’s solution is the wrong one but it is not wrong because it is self-serving. The wealth in this country has never been more disproportionate. The people who benefited from the housing bubble (investors, lenders, builders, and all the ancillary real estate actors) are not being held accountable for their greedy and self-serving actions. Punishing people foolish enough to pursue the dream of homeownership and those gawd awful small time home flippers is not the answer. You keep pushing these people lower on the food chain and I promise you, the taxpayer's bill will only go up. The government needs to step in and take steps to reallocate wealth in America because our free market capitalism is darn sure not going to do it.
Did We Learn Anything Over the Past Two Years?
So now I have to wonder, why wouldn’t a bank want to make a mortgage loan if at all reasonably possible on an appreciating asset (vs. a depreciating asset) selling at a heavy discount? Why would a bank foreclose on a property only to have to turn around and sell it at a bigger discount and with additional costs (carrying costs, repair and maintenance) when they could go to their customer and say bring me a warm body with a possibility of making payments at a very competitive fixed interest rate? The worst case scenario is that sometime in the future they have to take the property back or find a new borrower.
The banks are getting smarter about how they handle risk loss with credit card and auto loan customers. The irony is that there is no security on one and depreciating security on the other. If I was a lender, I would much rather hold a portfolio of loans on assets that have the potential to appreciate. Right now is an excellent time for banks to increase their risk reward ratio. What I am suggesting is that banks/lenders look at the real estate market like a savvy investor looks at the stock market. The savvy investor buys when others are selling and sells when others are buying. Like investors who invested in stocks in 2000 and 2006, borrowers continued to increase mortgage amounts when housing prices were skyrocketing to finally an unsustainable level. Banks acted like greedy unprofessional investors and made loans when the reward risk ratio was extremely low. Now, when the reward risk ratio is high, lenders are not lending and borrowers can’t borrow. It makes no sense! Lenders supported by government backed securitization should be aggressively expanding their portfolios by loosening credit underwriting standards (property and borrower.) What better way to get REO’s off the books and liquefy the housing market.
Banks and borrowers need to approach home ownership and lending from a different perspective. Borrowers need to stop looking at home purchases as an investment or potential retirement nest egg. Owning versus renting should be strictly a lifestyle choice. The lenders need to approach home lending from a macro investment approach. They need to lend money at times when the risk reward ratio will support lending. This approach will eliminate the chance of making loans based on rising home prices versus lending to borrowers only when their income and net worth can justify higher home prices. This approach would in effect act like a governor controlling the speed of a train.
These are just some thoughts - comments welcomed.
The Home Start Numbers Are Not a Positive
Get Ready to Short Homebuilders
The reason we have an historically high inventory is because there are fewer qualified buyers. Most potential buyers are not waiting on the sidelines for prices to fall further (i.e become more affordable.) Most are not buying because they cannot sell the homes they live in now! It is going to take an unprecedented number of qualified first-time home buyers to soak up the current excess inventory of homes. Given the new (old) lending standards, it does not seem likely that this is going to happen anytime soon. This is one time I hope I am mistaken and am missing something here.
Those Who Know and Those Who Don't
Is it not possible to have a bottom in the price of housing stocks and still see declines in the prices of homes? I don't think their is a direct correlation between the two but I may be wrong.
The bigger question is how can builders maintain any profit margin when building costs are staying level if not increasing and sale prices are declining by 30 to 40%? Were profit margins that enormous (40 to 50%) at the beginning of this decade? I was under the assumption that builders were operating at about 20 to 30%, in which case there should not be any profit margin left. Assuming that traditional credit underwriting will remain the norm where are the buyers going to come from? In many previously active markets, there is a 3 to 5 year supply of homes. How can a builder sell into an oversupply of existing homes that sell at a discount to new construction? I must be missing something here.
Anti-Foreclosure Measures and Lenders Rights - Housing Tracker
I basically agree with your premise and conclusion. However, it should be pointed out that credit underwriting standards have reverted back to having "good" credit to qualify. The percentage of people who have good credit is disturbingly low. It is hard to imagine where the buyers are going to come from to buy the existing housing available, regardless of price.
What troubles me is that builders keep building (at least in my area) which adds to our 4 year supply of homes for sale. Construction materials and labor costs have not significantly declined. Therefore, new construction per square foot costs are about the same which by rough calculation is $50 to $75 per square foot higher than our existing house's asking price! I assume that bulders are not going to build and then turnaround and sell for a loss. So, the question is how can builders continue to get construction loans or better yet, what kind of idiot lender would lend money with little hope of ever getting paid in this lifetime? In any case, it is insanity to add more housing to an already multi-year oversupply of houses on the market.
Recovery? Bottom? I will believe we are on the road to a housing recovery when there is a total stop to building new homes. Yes, if construction does stop, it will be hard on the economy - many jobless and the building material industry will be rocked to the core. But someone, please give me an alternative solution because increasing the housing supply can't be the answer.
The Fed is Terrified
I suggest that for those of you that think that the answer is to punish all the people who have been living beyond their means, you can rest easy, as that is exactly what is happening and is certain to continue. By one estimate, at least $2 trillion of equity will be eradicated as the result of this housing bust. Will the market come back? Will housing prices increase? Maybe someday but given the systemic problems in the lending system that led to this bust, it is unlikely that credit will be eased and even if it were, will there be investors willing to buy sub-prime mortgages again? The only way home equity will increase will be as mortgage principal is paid down. With retirement looming, many of us baby boomers, who have endured many inflationary periods since entering the work force and who have seen a large percentage of our jobs and careers lost and/or outsourced to high tech and third world countries, now face the prospect of little or no retirement savings, social security nor equity from our homes. Given the foreseeable future, we are in for hyperinflationary times and with no medical safety net until we qualify for Medicare and how long or to what level will that remain intact?
A large percentage of the baby boom generation is going to get completely screwed over. But, I am sure some of you think, we are just being whiney! The irony here is that many of you are the offspring of baby boomers and we brought you into this world, raised you and educated you. It is true we borrowed a lot of money and often lived beyond our means but we also became two income families and took second jobs to raise a family and have some comforts. Now that our kids are adults and prospering in this new high-tech economy, you are ready and willing to throw us under the bus for our errs.