Snow Storm in New York City December 26 2010- December 27

No real estate deals will be done today in NYC. None.

Real Estate Downfall

Bernd Eichinger, producer of Downfall (interview on baader-meinhof com)

"I find those parodies tremendously amusing! Obviously, the film and this scene in particular is a real fire starter for people’s imagination. What else can you hope for as a filmmaker? This is moviemaking heaven! My favorite one is when Hitler is having his tantrum over his losses in the real estate crisis...."

American homes are worth $1.7 trillion less

^ That's a headline from CNN Money this morning which points to the loss in value of American houses since last year. From the article:

   American homes are expected to be worth $1.7 trillion less in 2010 than they were worth last year, according to a report released Thursday by real estate website Zillow.

   This year's drop in home values is 63% bigger than the $1 trillion dip in 2009, and brings the total value lost since the housing market's peak in 2006 to a whopping $9 trillion.

   Instead of leveling off from the $1.0 trillion loss in home values in 2009, the value destruction is accelerating again and the carnage will continue for a few more years. My timetable remains 2018 before any recovery in real estate is evident and prices begin appreciating again. Will real estate values eventually recover entirely to their highs in 2006-2007? Yes, I think so. The market has a short memory and when the good times are rolling again, old manias will reappear. It wouldn't be natural if booms and busts didn't cycle like the seasons.

Foreclosure, Have Americans Given up? How to fight back today

Jiggaboo Jones layin' it DOWN, son.

New home sales unexpectedly fall in October- Reuters

http://finance.yahoo.com/news/New-home-sales-unexpectedly-rb-579554621.html?x=0&sec=topStories&pos=2&asset=&ccode=

WASHINGTON (Reuters) - New U.S. single-family home sales fell unexpectedly in October and prices dropped to a seven-year low, a government report showed on Wednesday, pointing sustained weakness in the housing market following the end of a home-buyer tax credit. Analysts polled by Reuters had forecast new home sales rising to a 310,000 unit pace in October. Compared to October last year, sales were down 28.5 percent.
  
    The clowns continue to get it wrong. You could have walked on the sidewalk on any street in America and asked 10 random people if they thought houses were going to be selling in October. None of them would have said yea. Analysts are useless. Get rid of them. Smoke 'em out if they won't leave because none of them are going to walk away from a bullshit job on their own volition. Alas, that will never happen because the system is broken and a broke-ass system needs its army of touters, patzers, and imbeciles to continue marching.

Real Estate Downfall

J-Sonoma's back in New York but he didn't make it to work today. He should be back tomorrow. Anyway, in the following video, a real estate speculator comes to terms with reality.

Property Billionaire Sam Zell Interview

J-Sonoma returns from vacation tomorrow. Here's a blurry Bloomberg interview with Sam Zell talking about Freddie and Fannie:

J-Sonoma's on vacation so we're half-assing his page. Literally

Mortgage Modification Video LOL

J-Sonoma is on vacation. Until he returns, us temps are going to be half-assing it on his pages. Sorry J but we don't have your payscale. This lady in the video talks about something related to real estate.

Real Estate Listings on Youtube

   Did you know that real estate brokers use Youtube to showcase homes that they're selling? Well, it's true. The videos are usually between 1-2 minutes and allows viewers to look at the outside of the home as well as the inside. None of the videos get much traffic but they're a great way to hook a potential client if he/she needs more than a photograph in a brochure. One example from a few hours ago:

Fannie and Freddie may need another $215 billion

   The black holes known as Fannie Mae and Freddie Mac continue to suck money into their nether regions like a pair of ravenous vortices without end. From today's Reuters article:

http://finance.yahoo.com/news/Fannie-and-Freddie-may-need-rb-2323937639.html?x=0&sec=topStories&pos=1&asset=&ccode=
   NEW YORK (Reuters) - Fannie Mae (OTC BB:FNMA.OB - News) and Freddie Mac (OTC BB:FMCC.OB - News) may need as much as $215 billion in additional capital from the Treasury through 2013 to offset losses and maintain a positive net worth, their federal regulator said on Thursday. Fannie Mae and Freddie Mac, whose programs fund the lion's share of all new home loans, are at the center of debate as Congress sets to overhaul a U.S. mortgage finance system that contributed to the worst housing crisis since the 1930s.

   The capital to support those two hulking disasters ultimately come from the American taxpayer. The wealth of the United States is created by working men and women who toil at their jobs and a good chunk of that will be going to fund Fannie and Freddie and keep them from imploding. I'm of the belief however that if that capital wasn't being used to keep F&F alive, it would be going to waste in another BIG program designed to destroy wealth and feed the wastrels. Remember Gravina Island Bridge aka "The Bridge to Nowhere" which was advocated by Representative Don Young and Senator Ted Stevens? That's the kind of waste and wastrel(s) I'm referring to.

   Continuing further into the Reuters article:
   "The cumulative capital needs of the two housing finance giants, which were seized by the government in late 2008, will likely fall between $221 billion and $363 billion through 2013, the Federal Housing Finance Agency estimated."

   Whenever I read a cost estimate preceded by the word, "likely," I automatically double the figure in my head so I'd pinpoint the total losses to be $750 billion when 2013 rolls around. Since I'm certain there's no housing recovery until 2018 or thereabouts, the total losses will probably reach $1.5 trillion when it's all said and done.

My Favorite Housing Stock

   Nah, it's not Toll Brothers or D.R. Horton nor Pulte Group. My favorite home builder stock is Ryland (RYL) which I've followed and traded since the 90s. Their profile is as follows:

The Ryland Group, Inc., together with its subsidiaries, operates as a home building and mortgage-finance company in the United States. The company’s operations cover various aspects of the home buying process, including design, construction, and sale. It offers single-family detached homes; and attached homes, such as town homes, condominiums, and mid-rise buildings, as well as sells land and lots. The Ryland Group also provides mortgage-related products and services, as well as title, escrow, and insurance services to its homeowners and subcontractors. It markets its homes to entry-level, and first and second-time move-up buyers. The company was founded in 1967 and is headquartered in Calabasas, California.

   Ryland's near 52-week lows so I'm not buying now. I do think ~$16 is a good price for each RYL share but as mentioned before, I normally don't buy on weakness. I prefer to buy as a stock goes up and then pyramid the position as higher prices lead me upwards. The market's pulling back today but housing stocks are nursing middling losses. This doesn't mean anything based on a 1-day snapshot but I am of the opinion that housing stocks will recover way before the real estate market recovers and they're my indicators for the impending real estate recovery.

Housing Slump Offers Opportunity In Apartment-Building Market

   CNBC has a reasonable article on apartment-building investing during the current downturn in real estate. The first paragraph draws the reader in with a small tale of success:

http://finance.yahoo.com/news/Housing-Slump-Offers-cnbc-1220757498.html?x=0&sec=topStories&pos=8&asset=&ccode=
   "The property in Fort Lauderdale, Fla. was originally valued at $285,000. Clint Gordon, a private investor in multifamily properties, offered the bank $50,000 cash-and within 10 days had closed the deal. A few days after that, he began renting it for $15,000 a year.

"Anybody that's getting into this business now, you get a whole lot of return if you're paying cash for properties," he says. "You're just buying them so cheap."

   The company I work for has been investing in various businesses in the past year and I think buying a few apartment buildings might be a workable plan in depressed areas like Fort Lauderdale. Then again, do we really want to be landlords? I mean, landlords have to deal with non-paying tenants, evictions, dirty ass people, property damage, bed bugs, and sabotage. What's going to stop an evil tenant from putting bed bugs in his apartment and then withholding rent until the bed bugs are evicted? I have an active imagination and I can think of a thousand ways a tenant might torment a landlord but I won't post them here. Posting the bed bug evilness was bad enough. 

   So, anyway, we probably won't become landlords anytime soon but it's awful tempting with the knockdown and blowout prices that we've seen in Florida. The economy's going to be roaring back in another few years and buying sometime in the next 2-3 years might be a wise investment.

White House doubts need to halt all foreclosures

   That headline up there is from an AP article today. First off, who is proposing a "need to halt all foreclosures?" A few paragraphs into the article, we find one of the culprits who are calling for a moratorium:

"Rep. Debbie Wasserman Schultz of Florida, a top House Democrat, said she backed a foreclosure moratorium and government talks with the banking industry to concoct ways to let lenders reshape troubled mortgages. She said the foreclosure problem has been "extremely vexing" in her state."

   I'm not going to blame her for being a woman. I'm not going to blame for her being stupid. I'm not even going to blame Debbie of being self-serving in the face of her proposal. I'm not going to do any of those things because there simply won't be a moratorium. It really is that simple. Why belabor or argue a point when I know that nothing will come of it? Debbie, you're going to get some votes and nods from constituents but that's pretty much it. Well, the banks probably won't contribute anything to your next campaign but you'll probably make it up from the donations provided by impoverished homeowners who are facing foreclosure. Yeah, that's the ticket.

Real Estate Collapse Spells Havoc in Dubai

   Think back to the summer of 2007 when real estate around the world was still booming and average citizens were caught up in the hype. Goaded by cheap money, easy mortgages, and the infectious "me-too" mentality, everyone was getting into real estate. Janitors who couldn't afford it, single-income families who definitely couldn't afford it, and people like Casey Serin who eventually lost all of the houses he speculated on.

   The disease of real estate speculation also reached Dubai as an article in the Times relates today:

http://dealbook.blogs.nytimes.com/2010/10/07/real-estate-collapse-spells-havoc-in-dubai/
On a sultry June evening in 2007, more than 100 people camped out at the offices of Emaar, a prestigious Dubai property developer, to ensure that they would land a coveted spot in a gleaming new skyscraper scheduled to open this year near the Burj Khalifa, the world’s tallest building, Liz Alderman writes in The New York Times.

Today, the property, designed by the New York architect Frank Williams (who died in February), is like a number of others around Dubai — little more than a foundation. Its value has plunged by more than 40 percent since 2008, after the collapse of Dubai’s real estate boom.

   This type of capital destruction was happening everywhere at around the same time and billions in wealth got transferred in a big way.  The speculators and buyers got swindled and bamboozled by a slick shell game that ended in 2008. If global real estate was a piece of golden farm land in 2007, it's a bombed out crater now.

Pending Home Sales Rise 4.3 Percent in August but Remain Below Last Year's Pace - AP

   Some good news on housing coming down the pike? Nah, not really. From today's AP article on home sales:
   WASHINGTON (AP) -- The number of people who signed contracts to buy homes rose in August for the second straight month but remained far below last year's pace. The weak economy and fears that prices will fall are keeping many consumers away from the housing market.
The National Association of Realtors said Monday that its seasonally adjusted index of sales agreements for previously occupied homes rose 4.3 percent to a reading of 82.3. That's still more than 20 percent below the pace in the same month a year earlier.
Economists surveyed by Thomson Reuters had expected the index would rise to 81.4.

   Don't you love the part about economists expecting the index to rise to 81.4? I do. It bolsters my contention that economists are far removed from reality and operate on models, dogma, and "data" that insulates them from what's happening in the real world. I'll bet that no economist surveyed by Thomson Reuters has a clue about how the average American family lives or what the price of a quart of milk is. Until the reality of life blows through the sanctified world of the economists, we'll continue to get dumb and nonsensical expectations about the real estate market and the economy.

Bank of America delays foreclosures in 23 states

   During the height of the real estate boom when anyone with a pulse was able to get a home loan, banks were signing off on mortgages like risk was dead. Back then, banks couldn't process mortgages fast enough and liar loans were approved without much of a background check or due diligence.

   All of that laxity came back to haunt and nearly destroy the big banks during the real estate crash of 2008-2009 when loans soured like milk under a hot Alabama sun. Now, news come from the likes of JP Morgan, GMAC Mortgage, and Bank of America that they didn't do their due diligence when processing foreclosure documents. Homeowners in foreclosure now have the process delayed while the banks go through the paperwork to determine if the foreclosures were properly handled.

   Are the banks really this shitty? Well, yeah, I guess so. When big banks have the full backing of Uncle Sam and by proxy, the American taxpayer, banks have a blank check to do whatever they want. When they take on too much risk and that risk bites them in the ass, it's okay. Taxpayers will bail them out. Bail Out Nation. That has a nice ring to it.

Housing Conversation

   I reconnected with an old college buddy yesterday who sent me an email asking what I was up to. I called him and we talked for about 30 minutes. I consider "Brad" one of the most down-home good 'ol boys I've ever had the privilege of knowing. He's honest, upright, and I guess you could call him a square. Brad's a family man with a 9-to-5 and he tends to believe what he sees and hears in the news. In other words, he hasn't been bitten by the cynicism bug yet.

   He supported President Bush, is wary of Obama, and has no opinion on Sarah Palin... yet. Our conversation turned to housing and he told me that he's been unable to sell his house due to the market. My ears perked up. "Why do you want to sell your house," I queried. "My wife says we need more space but we can't get a house until we sell the current one we got," he replied. I wanted to go into a rant about consumerism and why the real estate market wouldn't bottom for at least another decade but I spared him my diatribe. I don't think he'd appreciate what I had to say and his wife definitely didn't need to hear about my prognostication if her heart was set on another house. So, I encouraged Brad to continue trying to sell the house and suggested hiring a staging company to spiffy up the house and show it every other weekend to drum up traffic. If Brad sells the house, I'll post up an update but I think it's going to be a long time coming.

Is the Government About to Make Mortgage Market Even Worse?

   Ever read a really dumb headline and think to yourself, "Man, that is real dumb?" That's what I thought when I read CNBC's "Is the Government About to Make Mortgage Market Even Worse?" this morning. From the article:

   "Yes, refinancings-which have been running at around 80 percent of all mortgage applications-fell despite a new record low average rate on the 30-year fixed of 4.38 percent.

Not so good.

   But on the other hand, purchase applications rose 2.4 percent, largely driven by a 4.5 percent increase in government purchase applications (FHA).

Great, except for that last part.

    In other words, the government has been propping up a dead real estate market for a year and because they're going to stop propping up a corpse, they're to be blamed for making it "Even Worse?" I guess Uncle Sam's supposed to keep supporting real estate for the next decade until investors wade into the market again. I've stated before that real estate prices have to continue to drop to bring buyers back - prices have to drop to a level where the risk vs reward proposition makes sense. Propping up prices only delays the inevitable and prolongs the pain. 

   Government purchase applications have been driving the market for the past year, accounting for, at times, nearly half of all new loans. That may be about to change. New premium authority (translation: higher prices) goes into effect next week, on Oct. 4. New seller concessions policies are about to go into effect as well.

"These two policy changes will increase the opportunity for private capital to return to the market while improving the safety and soundness of FHA," FHA Commissioner David Stevens tells me. "

Home prices to take hit next year in many markets

   A new AP article today starts off with, "Don't take the latest snapshot of U.S. home prices too seriously." and goes on to reveal:

"The Standard & Poor's/Case-Shiller 20-city index released Tuesday ticked up in July from June. But the gain is merely temporary, analysts say. They see home values taking a dive in many major markets well into next year."

Where are the housing bulls? Nowhere. They're NOWHERE for the next few years as I've prognosticated in previous entries on my little blog. I'm a contrarian's contrarian in that I always bet against the crowd during extremes. When shoeshine boys, Barbara Streisand, and UPS drivers were trading internet stocks in 1999, I knew the jig would be up soon. When it looked like the end of the world on September 11, 2001, I felt just as scared as everyone else and admittedly, I didn't buy anything when the market opened up again. I did start buying too early in 2002 and racked up losses before the market took hold and started to climb again. So what's the J-Sonoma meter telling me now?

   An extreme melting point in the real estate market hasn't been reached yet. Prices have pretty much stabilized and although buyers are scarce, deals are still being done. I think there's still steady price erosion ahead that'll probably ratchet prices back to the levels that were being bid in 1999-2000. If that happens, I think buyers will become courageous and start bidding again.