A path of devastation
- From: "s_knight8" <s_knight8nospam@xxxxxxxxxxx>
- Date: 08 Apr 2006 16:30:49 EDT
http://globaleconomicanalysis.blogspot.com/
Thursday, April 06, 2006
A Path of Devastation
The Rocky Mountain News is reporting Foreclosure shock.
Denver market sees 31.5% increase from first quarter of 2005
The 31.5 percent jump is the largest year-over-year percentage increase
for a quarter in almost two years.
The jump to 4,764 foreclosures compared with 3,624 in the first three
months of 2005 took some experts by surprise. Public trustee offices in
Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas and Jefferson counties
estimated the number of foreclosures they expect to open this month.
"That is disturbing," said economist Patty Silverstein of the soaring
number of foreclosures.
"We still expected to see increases in 2006, but this is larger than
what I would have expected. At this point in our economic recovery, we would
have expected to have seen a smaller increase in foreclosures," said
Silverstein, principal of Development Research Partners.
She said that a main culprit appears to be interest-only and other
variable-rate loans that homeowners have taken out in huge numbers in recent
years to reduce their monthly mortgage payments.
"What I see is not pretty," said Healey, who also heads the Healey Group
and hosts a radio talk show called The Real Estate Advocate on KKZN
(AM-760).
He said the number of unsold homes on the market has been growing by an
average of 2.5 percent a week. The increasing supply is putting downward
pressure on sale prices, especially for the lower-priced homes most likely
to go into foreclosure.
That's a vicious cycle because it forces more sellers to lower their
prices, driving even more houses into foreclosure, Healey said.
"Primarily, I see a huge glut of homes priced under $300,000," Healey
said. "Under $200,000, it is just a blood bath, a path of devastation. It is
just ugly."
In some areas of Adams County, sellers of lower-priced homes are finding
that the market value of their home is down 15 percent to 17 percent from
what they paid a couple of years ago, Healey said.
Economist Tucker Hart Adams said that foreclosures are a lagging
indicator and will continue to rise even as the economy gets back on its
feet.
Quotable Quotes
1. "That is disturbing"
2. "What I see is not pretty"
3. "Under $200,000, it is just a blood bath, a path of devastation. It is
just ugly."
Economist Tucker Hart Adams said that foreclosures are a lagging indicator
and will continue to rise even as the economy gets back on its feet.
Exactly what kind of nonsense is this: "as the economy gets back on its
feet"?
We have had 15 consecutive rates hikes (presumably showing economic
strength), as well as low unemployment if you happen to believe the
government numbers (I don't). We have also had record low interest rates for
years, so I am tired of these cheerleaders making up excuses. The "lagging
indicator" of foreclosures is just another feeble excuse .
That said, Tucker Hart Adams is correct in a way. Foreclosures are indeed a
lagging indicator. Unfortunately his thought process is flawed. We are so
deep into a recovery that foreclosures should be falling. We are also so
deep into a recovery that wages should be rising. In fact we are so freaking
deep into a recovery that the recovery is nearly over. Yet here we are,
foreclosures rising in a recovery, real wages falling in a recovery, and in
our Alice in Wonderland scenario virtually no one sees the recession that is
staring us smack in the face.
Just as every peak produces new logic proposing that "It's different this
time", this bubble peak is no different. Check out the latest New Math on
Homes. I was staggered by the number of economists falling for such absurd
assumptions.
Every week there is another story.
* Inventory rising.
* Sales falling.
* Builders slashing prices.
* Foreclosures rise.
The real estate bears certainly were early, but it is the bulls that have
zero sense of reality right now.
Builder Sells Homes For Cost
This market turned on a dime. They always do. In July of 2005 people were
camping out in Florida to get in line for buying a condo. Now you have
projects being cancelled, not only in Florida but Los Vegas and
Massachusetts. Want to buy a home in Florida? How about 40?
The Datona Beach News Journal is reporting Builder's sale aims to move 40
homes.
Skittish investors, leery of the air seeping out of the housing bubble,
have left at least one area home builder awash with completed homes and no
buyers in sight.
Holiday Builders, the 30th largest builder in the nation, is hoping to
turn the situation around by selling homes at what the company says are
"builder's cost" this weekend.
Jennifer Youngblood, a spokeswoman for the builder, said homes that were
previously priced between $219,000 and $276,000 will be sold at rates
ranging from $204,000 to $249,000.
"These homes are available on a first-come, first-served basis,"
Youngblood said, about the properties that are spread throughout the
community.
The company is staging a special sales event between 10 a.m. and 6 p.m.
today at their showcase home here on Eagle Harbor Trail in an attempt to
sell about 40 new homes that had been ordered by investors. Consumers should
be prepared to put down $5,000 and close on the property in 45 days.
Changes in the market, including rising interest rates and an abundance
of inventory, apparently caused some buyers who hoped to profit from the
boom in area housing prices to walk away from the idea.
"We found ourselves in a unique situation," Youngblood said. "This is
the first time that we have done something like this."
Charles Rinek, president of the Flagler/Palm Coast Home Builders
Association, said he has heard of similar situations in which buyers
forfeited their deposits and walked away from contracts.
Selling homes at cost huh?
How desperate is that?
If true (and it is hard to say) this builder is in deep trouble.
If it is not true then the builder is a liar (but likely in deep trouble
anyway).
My guess is that they may be going near cost, but the developer is hoping to
escape with profits because of the forfeited deposits.
Cancellations in Las Vegas
The Miami Herald is reporting Las Vegas a rough ride for Miami builder.
Two years ago Miami developer Jorge Perez said the Las Vegas market was
ripe for the high-rise condominiums he has built so successfully in Florida.
But Sin City has not been kind to South Florida's ``Condo King.''
In January Perez canceled a twin-tower condo called ICON Las Vegas. Now
he's weighing selling the 25 acres on which he, along with actor George
Clooney, planned to build a massive -- and much-hyped -- 11-tower condo
project, Las Ramblas.
The $3 billion project was to rise near the Las Vegas Strip, and
full-page newspaper ads heralded the arrival of Perez, Clooney and team as
the second coming of the Rat Pack. But now Perez says demand is lower than
expected and construction costs much higher -- in fact, he says, Las Vegas'
condo market has dropped off more sharply than any of his other markets.
"Did we misjudge the levels of demand and costs in Las Vegas?" said
Perez. "The answer is yes."
Fortune International CEO Edgardo Defortuna considered a Las Vegas
project but backed out.
"The reality is that there are such wonderful, gorgeous hotels at very
reasonable prices," said Defortuna. "Why would you stay in a condo when you
can stay in a hotel in the middle of the action and not pay that much
price?"
But not everyone is ready to throw in the towel on condos in Las Vegas.
WSG's Eric D. Sheppard said the condo market is real in Las Vegas, but too
many builders rushed in and sold units before understanding their
construction costs.
"We are very bullish," Sheppard said. "We plan to announce a two-tower,
1,600 unit condo, condo-hotel and spa project in the next 30 days."
It seems to me that Sheppard is begging for bankruptcy. Perez and Defortuna
saw the warning signs and backed out in time. Perez in particular got very
lucky. Once groundbreaking starts, it is very hard to back out of it. On a
condo project that size (11 towers and $3 billion on the line), Perez was
going to be in one nightmare of a problem.
"The reality is that there are such wonderful, gorgeous hotels at very
reasonable prices," said Defortuna. "Why would you stay in a condo when you
can stay in a hotel in the middle of the action and not pay that much
price?"
That indeed is the reality of the matter. Let's add to that reality.
Why would you buy a house in California or Florida when you can rent it for
half as much? Please add Boston and Las Vegas to that list. Also note that
the Phoenix active listing count is now over 40,000 homes. That does not
include for sale by owner.
I do not know how to even begin to describe what is happening in to one of
the most affluent suburbs in the nation. Please read Down and Out in
Bloomfield Hills.
Outside of a few still appreciating areas (One trusted source tells me that
Atlanta is still one), housing has turned. But not only has housing turned,
it has turned 180 degrees. Yet Bernanke keeps hiking. Why? Bernanke hikes
because he has to. The stock market, the carry trade players, 5,000 hedge
funds, and the mortgage loan sharks still have not gotten the message. The
message is that the Fed no longer wants speculation.
Speculation was fine "nudge nudge wink wink" when the Fed was acting to
contain "the deflation monster", but now it seems that perhaps they have
unleashed something else indeed: a bubble credit blowout that they do not
know how to contain.
Yet each hike in rates is another nail in the coffin of housing. Given that
"Housing Is The Economy, Stupid" Bernanke better damn well be praying that
the markets get the message before he turns a recession into a depression
with these rate hikes. Right now he simply has no choice whether he likes it
or not. Market speculation is forcing his hand. Laugh if you want, but it
seems to me that housing says Bernanke has overshot already. It remains to
be seen how long it will take before the market gets the message.
.
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