PaperMoney - Real Estate Blogs

No Doomers, I haven’t disappeared this week.  I’ve been in New England, where I thought I’d post regularly.  The weather has been beautiful though, the relatives have kept me busy, and I figured that if I miss a day or two, the housing bust will still be there when I get back.  Look for me on Friday.

Consider this an open thread.  Catch you later!

OK, so if we bloggers can’t make fun of serious issues, who will'  It’s not every day you get Pay no attention to the man behind the curtain! from WSJ and WaPo on different issues on the same day

WaPo (8/30 ’10): “Top China bank official’s defection rumors quashed”

WSJ (8/30 ’10): “Ignore Talk of a Housing Tax Credit 'Revival' “

Clearly it will take Zhou no more than five minutes on the phone with Carol Off to Popper-off the first feverish speculation, but the second one is a bit more ticklish.  Nick knows as well as we at Doom that Son of $8k would be a disaster, but he also knows that widespread expectation of such a dumb move, in the context of the US midterm election coming nine weeks from today, would force a panicked announcement of a resumption anyway.  I think the funniest aspect of yesterday’s exercise in speculation management was Rupert’s headline editor putting that second header in the form of an order.

Who’s to blame when a house goes into foreclosure'  We’ve been debating this one on Doom for quite awhile.  Recently we heard from Karen Pettit, who places the blame for her foreclosure on GMAC.  Here’s her story.  See what you think.

****************************************************

Karen Pettit’s and her husband’s long struggle with GMAC over the foreclosure of their home is documented in this extensive comment under a post about an earlier GMAC foreclosure controversy.

I have been documenting my experience as a 52 year old Slidell, Louisiana woman who is disabled and trying to acquire assistance with housing programs from our Federal Government with an eviction looming from GMAC Mortgage.
…

My husband is a seminary graduate. If GMAC will lie to a minister and his terminal wife, I guess no one is safe.

There’s a TV story and video on this …

WWLTM Louisiana (6/17 ’10): “Disabled woman faces foreclosure”

SLIDELL, La. — Karen Pettit of Slidell has has been an auto dealership manager, professional singer, and artist, but will never forget working for the host of the Tonight Show at age 21. …

Well Igor, nothing special over the weekend.  Just a bunch of central bankers meeting in Wyoming and plotting to take over all their host governments

Reuters (8/26 ’10): “Fiscal ‘alchemy’ must mimic monetary science”

Tax and budget policies need the same regularity and independence as monetary policy if countries around the world are to cope with looming stresses from pension programs, world central bankers were told at a Federal Reserve conference on Saturday.

For anyone who thinks that the worst is behind us for the housing market, check out this graph from Michael David White:

We are headed into the slow season for housing with massive amounts of inventory out there, both in the “shadows” and out of it.  White says:

We are in a battle to the death and only fools rush in to this market. Wise men run for the hills. My suggestion' Rent. Don't Buy. If you own, sell. Then wait out the storm. We live in interesting times. Don't make yourself a statistic of them.

New home sales last month were at an all time record low. Prices were at their lowest in 6 1/2 years.  Existing home sales dropped 27% YOY and saw their greatest MOM drop ever.  Given that, it’s kind of fun to watch the ever-wrong Jim Cramer declaring last year how the bottom would be in last summer:

Consumer attitudes are changing on the “rent vs. buy” debate. When Mr. Twist and I sold in 2005 and moved into a rental, the usual response when we told friends was “Are you guys doing O.K.'” Now the usual response is “You were so smart to get out when you did.”

My personal experience is not singular. More and more people are swapping their mortgage for a lease agreement: (Thanks to Keith Jurow for forwarding us his latest. Article first appeared on the Real Estate Channel.)

There is a far-reaching change occurring now which threatens housing markets around the country. A survey conducted by Harris Interactive for the National Apartment Association in May 2010 found that 76% of those surveyed now believe that renting is a better option than buying in the current real estate market, up from 71% in 2008. Especially sobering was the fact that 78% of those surveyed were homeowners.

David Neithercut, CEO of Equity Residential, the nation’s largest multi-family landlord, believes that there is a “psychology change” in the mind of consumers. In a June address to an industry conference, he declared that there is “a change in one’s thought process about the benefits or wisdom of owning a single-family home.”

In spite of renting’s increased popularity, the number of single-family (SF) rentals continues to increase:

In August 2005, an article in the Wall Street Journal entitled “Speculators Push Rents Down” pointed out that the supply of rental homes in the Phoenix area almost doubled from a year earlier.  Average rents for these houses dropped by nearly 10%.  Similar situations were found in markets as diverse as Fairfield County in Connecticut, Kansas City, Las Vegas, San Diego and Palm Coast, Florida.

Even more ominous was the fact that 1.34 million single-family home rentals stood vacant.  This had risen from only 900,000 in 2003 according to Harvard University’s Joint Center for Housing Studies.  Many of these homes became rentals because the investor was unable to flip the property.  By the end of 2006, the number of vacant homes for sale had skyrocketed to 2.1 million according to the Census Bureau.

Here’s one example from Las Vegas.  The Greater Las Vegas Association of Realtors (GLVAR) has only been tracking rentals since 2006.  While many rentals are not listed in the MLS, the trend here is clear.

In spite of the fact that the average number of rentals in 2010 has increased 21% from 2006, the number of rentals available at the end of the period has increased by 55% in the same time period.

Occasionally analysts express worry that the number of displaced homeowners from foreclosure will create rental shortages, but it is my belief that in most of these markets, the number of “accidental landlords” (investors who were unable to sell their “flips”) more than compensates for them.  For example Jurow quotes the Cromford Report’s claim that there is a shortage of 3-4 bedroom homes available for rent, but a search on Realtor.com for 3 bedrooms + within 20 miles of Phoenix shows 3,216 rentals available.

Jurow concludes “[T]he attractiveness of renting will be a serious impediment to the return of potential buyers to the housing market“.  I agree.  There are several reasons that, at least in the near term, renting may be more appealing that owning.

1. The risk of losing value. Real estate used to almost always be considered a “safe investment”.  However, given the losses already seen in the market and current economic worries, people are hesitant to risk becoming “underwater owners”.

2. The difficulty of obtaining a mortgage. Lending standards have increased to the point that it is now a greater barrier to entry for first-time (and credit battered) buyers.

3. The lack of flexibility. In a world where job loss is a much greater possibility than previous years, many potential buyers are hesitant to commit to the permanency of a mortgage.  Even those who are skeptical about values dropping significantly further worry that if they are forced to sell in the next year or two, they will likely be looking at a loss.

The motto used to be “Why throw away money on rent when you can buy'” Now the question often is “Why throw away money on a mortgage when you can rent'”

It unwinds shelteringly.
But there were dreams to sell, ill didst thou buy:

According to Business Insider: (Thanks L!)

The U.S. economy is in decline. The employment situation is going to go from bad to worse. Americans without jobs are Americans that cannot buy homes. Millions of Americans who are employed are finding it increasingly difficult to make it from month to month. The truth is that there is no way that Americans can afford the ridiculously inflated home prices that we have seen over the past decade any longer.
So, yes, the U.S. housing market is headed for a complete and total nightmare.

I couldn’t agree more, so here’s their list of 15 reasons that “the U.S. Housing Market Is Headed For A Complete And Total Collapse”. (And why I agree with them.) You should follow the above link though and check out all the graphs they’ve got to back up their thesis.

1. Record low home sales- New home sales are now at their lowest on record, and existing home sales began a steep decent in July. (And this is the busy time of year. Wait until winter.)
2. New home sale construction is also near record lows. There is already an excess of houses. (This is actually a good thing- but it does tell you how bad things are.)
3. Demand for mortgages is at a 13 year low. (Showing that low interest rates are insufficient to stimulate demand.)
4. Foreclosures are at record highs. (And getting worse.)
5. Repos are at an all time high. (See #4.)
6. Banks are writing off a massive amount of debt. (And they are going to be writing off a lot more before they are through.)
7. Record delinquencies- more than 10% of all Americans are behind on their mortgage. (Hence #4.)
8. Banks have significantly raised their lending standards. (Low interest rates aren't useful to people who don't qualify.)
9. Home prices are still too high and out of line with what people can afford. (Especially upper end real estate. With reduced income and no 'wonky' financing, the McMansion market is being killed.)
10. With 28% of all households having one adult currently looking for employment, unemployment levels are high. (And unemployed people don't buy homes.)
11. Bankruptcies are on the rise. (See #10 and #15)
12. Even Obama is bearish on housing. (Business Insider found a great 'grumpy face' of the president for this one.)
13. Tax credits pulled home sales forward- shrinking current demand. (And future demand as well.)
14. Fannie and Freddie could be up to $5T in the hole. (You know, I doubt I've typed $XT more than a dozen times in my life. That's a big number.)
15. U.S. economy is drowning in debt. (As well as many Americans.)

Lawrence Yun, chief economist for the National Association of Realtors claims that “the worst is over” for housing. As usual, he’s dead wrong.  Massive government interference in the housing market slowed the downward slide, but the direction has remained the same, and now the velocity is starting to pick up.

The CIA’s first challenge is Recombinant Ashbery.  The plain text consists of one stanza from John Ashbery poem “A”, and two stanzas from John Ashbery poem “B”.  The encoder places the single “A” stanza before, between, or after the two “B” stanzas.  The title for the cyphertext is the titles for poems “A” and “B” in random order.  Decoder must guess which is the “A” stanza and which is the “A” title.

Meaningful Love / Mottled Tuesday [I flipped a coin]

by John / Ashbery

There were morose gardens farther down the slope,
anthills that looked like they belonged there.
The sausages were undercooked,
the wine too cold, the bread molten.
Who said to bring sweaters'
The climate’s not that dependable.

Something was about to go laughably wrong,
whether directly at home or here,
on this random shoal pleading with its eyes
till it too breaks loose, caught in a hail of references.
I'll add one more scoop
to the pile of retail.

The Atlantic crawled slowly to the left
pinning a message on the unbound golden hair of sleeping maidens,
a ruse for next time,

[...]

The above Recombinant Ashbery was abstracted directly from the John Ashbery page at Poets.org (and you can easily figure out the solution there) but there’s an enormous amount of his stuff available in libraries and used book stores with which to construct such puzzles of diabolic difficulty.

But what’s really going to drive the NSA nuts is figuring out John Ashbery’s poems themselves

The "Money" section of USA Today has a cover story by Adam Shell, "Could Investors Fleeing Stocks Become a Lost Generation'" featuring insights from yours truly. Among other things, I argue that "the lost generation is not coming back" and highlight several reasons why the average Joe may well be on the right side of what I believe is the longer-term trend:

• Investors are trying to make sense of an unprecedented economic earthquake that has left them feeling blindsided and unsure about their economic futures like never before. Nearly 15 million are unemployed, and many have seen the value of their homes ' typically their biggest investment ' crater.
• There is a feeling among investors, Panzner says, that the investment "game is rigged" in favor of professional traders and money managers. The belief that the playing field is not level has created intense feelings of animosity toward Wall Street.
• The aging of the Baby Boomers has created a demographic headwind for the stock market.
  "More people will be looking to draw down their savings," Panzner says. "As people get older, they will want to take less risk and protect their nest eggs."

Some contrarians might say it's a bullish sign that a mass market daily is playing up the bearish case. Maybe. But given that Wall Street still seems to think that it's business as usual and that things are in relatively good shape -- which most clear-headed individuals know is not true -- maybe the greater fools this time around are those they see when they look in the mirror.

In honor of today's single-positive-data-point-driven-triple-digit rally, I thought it would be a perfect time for another installment of "Scenes from a V-Shaped Recovery":

"Financial Depression Spreads Among Seniors" (Blacklisted News)

President Obama has U.S. taxpayers paying billions to meet the costly payrolls of 50,000 troops and 190,000 contractors in Iraq while 20-million-plus jobless are looking for work in USA and can't find it.

Among the hardest hit now are more than 2-million people age 55 and over, half of whom have been looking for work for six months or longer. For them, the Great Recession is a no-fooling, deepening Depression.

Many of these seniors have no families to care for them. Others are too proud to ask their families, churches, or relief agencies to help them in their time of need. Even so, many a proud, independent, well-dressed senior is a soup kitchen regular because it's either that or go hungry.

Many seniors have been loyal to a corporation for much or all of their working lives only to discover the corporation has no loyalty to them. Instead, their employer laid them off before the retirement age and hired a younger, cheaper worker to replace them or just shipped their job to an office or plant on foreign soil. Many seniors are right to feel betrayed.

'The unemployment rate for this age group actually reached 7.1 percent in May, the highest it's been since the late 1940s,' writes A. Barry Rand, chief executive officer of the AARP in his September 'Bulletin.' That's more than double the 2005 rate of 3 percent.

"New Job Means Lower Wages for Many" (The New York Times)

After being out of work for more than a year, Donna Ings, 47, finally landed a job in February as a home health aide with a company in Lexington, Mass., earning about $10 an hour.

Chelsea Nelson, 21, started two weeks ago as a waitress at a truck stop in Mountainburg, Ark., making around $7 or $8 an hour, depending on tips, ending a lengthy job search that took her young family to California and back.

Both are ostensibly economic success stories, people who were able to find work in a difficult labor market. Ms. Ings's employer, Home Instead Senior Care, a company with franchises across the country, has been expanding assertively. Ms. Nelson's restaurant, Silver Bridge Truck Stop, recently reopened and hired about 20 people last month in an area thirsty for jobs.

Both women, however, took large pay cuts from their old jobs ' Ms. Ings worked for a wholesale tuxedo distributor, Ms. Nelson was a secretary. And both remain worried about how they will make ends meet in the long run.

With the country focused on job growth and with unemployment continuing to hover above 9 percent, comparatively little attention has been paid to the quality of the jobs being created and what that might say about the opportunities available to workers when the recession finally settles. There are reasons for concern, however, even in the early stages of a tentative recovery that now appears to be barely wheezing along.

For years, long before the recession began, job growth had become increasingly polarized in this country. High-paid occupations that require significant amounts of education and training grew rapidly alongside low-wage, service-type jobs that do not, according to David Autor, a labor economist at the Massachusetts Institute of Technology.

The growth of these low-wage jobs began in the 1980s, accelerated in the 1990s and began to really take off in the 2000s. Losing out in the shuffle, Dr. Autor said, were jobs that he described as 'middle-skill, middle-wage' ' entry-level white-collar positions, like office and administrative support work, and certain blue-collar jobs, like assembly line workers and machine operators.

The recession appears to have magnified that trend, Dr. Autor wrote in a recent paper, released jointly by the Center for American Progress, a left-leaning policy group, and the Hamilton Project, which has a more centrist reputation. From 2007 to 2009, the paper said, there was relatively little net change in total employment for both high-skill and low-skill occupations, while employment plummeted in so-called middle-skill occupations.

"The Fastest-Growing Group Among Local Homeless: Families" (Seattle Times)

On this chilly May evening in the parking lot of Southcenter mall, Cherie Moore is growing anxious. She and her 17-year-old son, Cody Barnes, sit almost unmoving in the cab of their old Ford Ranger, all their belongings crammed in the back -- their 32-inch flat-screen television, a prized movie collection, Cody's video games.

Moore is down to her last $6. It's nearing 10 o'clock and it's been hours since the two have had a meal.

Mall security has been circling. Moore knows they can't spend the night parked here, but the 49-year-old single mother, born and raised in South King County, has no clue where to go.

"I'm mentally exhausted," she says.

While overall homelessness in King County has steadied, it appears to be rising among families, a trend playing out across the nation.

Parents with children are the fastest-growing yet least-visible segment of the homeless population, far more likely to be doubled up in the homes of friends or living in their cars than to be at a busy intersection asking for help.

"Our Blue-Collar Great Depression" (Wall Street Journal)

Today's job losses are concentrated among workers under 30 who are less well-educated, with those in blue-collar industries suffering the most. Employment in construction, maintenance and repair, machine-operation and transportation (think truck and bus drivers) has shrunk 18% since the recession's start.

To put this number into context, consider this: During the Great Depression of 1929-33, total employment is estimated to have fallen by slightly more than the same figure, 18%. In short, the current Great Recession for younger blue-collar workers feels more like a depression'with no end in sight.

"'An Equal-Opportunity Recession'" (The Jewish Week)

San Francisco ' Robert M., 58, worked for a news organization in the San Francisco Bay area until September 2008, when he lost his job in layoffs that eliminated 15 percent of the company's workforce nationwide.

Robert had eight months of savings. They ran out in six months.

After 14 months of unemployment, in December 2009 Robert turned to San Francisco's Jewish Family and Children's Services for help with rent, utilities and, hardest of all, food.

'It was gut wrenching,' said Robert, who asked that his last name not be used. 'I'd contributed a lot to charities over the years, including JFCS. My wife and I gave to the food bank regularly. Now we were on the other side.'

It sounds apocryphal: Former donors to a Jewish charity reduced to seeking help from that very same organization. But as more and more Jews are caught up in the recession, now two years running, food banks across the United States are reporting the same phenomenon. Middle-class Jews, professional Jews, young people with families ' they're out of work, their savings are gone, and they are showing up for help at Jewish social service agencies.

With unemployment extensions about to run out for many, the problem is expected to worsen.

'In addition to the poor and the working poor, which we've always served, there's been a substantial increase the past 18 months among the middle and upper-middle class who are not in a position to make it, yet are not poor enough to get benefits' from government, said William Rapfogel, CEO and executive director of the Metropolitan Council on Jewish Poverty in New York.

"POLL: Unemployment Affects Three Out Of Four Americans" (Huffington Post)

Nearly three out of four Americans have been directly affected by the recession, either because they have been unemployed or know someone who has lost their job, according to a new survey.

The report, prepared by Rutgers professors Carl Van Horn and Cliff Zukin, find that 73% of Americans have either been unemployed themselves (14%) or saw an immediate family member (12%), another member of their family (30%) or a close friend (17%) lose a job.

The survey also finds profound pessimism about where the economy is headed. More than half of Americans say they believe the downturn reflects a "lasting economic change" (56%) rather than a "temporary economic downturn" (43%). Large majorities believe that the economy will remain in recession or worse a year from now.

"After suffering through the worst economic disaster most have ever experienced," Van Horn said in a statement, "American workers have diminished expectations about America's economic future and do not have much faith that the nation's political leaders can move the country forward."

"Small Business Owners Fear Double Dip" (Boston Business Journal)

Most small business owners - 86 percent - fear that the economy is heading into a double dip recession, according to a recent small business survey by Citibank.

The survey revealed that three fourths of respondents felt they were at least somewhat prepared for this prospect. Over 60 percent of business owners say they have changed the way they run their business for good, regardless of what the economy throws at them next. Among the adjustments, business owners said they reduced debt, increased cash reserves, froze hiring and and delayed plans for expansion.

'Small businesses continue to feel the effects of today's uncertain business environment,' Raj Seshadri, head of Small Business Banking at Citibank, said in a statement.

Given that virtually every bit of bad news these days is somehow seen as a sign that the worst is behind us, I reckon this list of horror stories is really going to get those stock jockeys' bullish juices flowing -- right'

Yes, I'm sure it reflects confirmation bias on my part, but it's hard to ignore Howard Davidowitz's thoughts on the state of the economy given that he has in recent years been correctly pessimistic on prospects for a sustainable recovery.

Here is a brief snippet from a recent Bloomberg Television interview (posted below) with the long-time retail analyst, entitled "Davidowitz Says `Worst to Come' for U.S. Retail Sales: Video":

The consumer is totally wrecked and that's why there's no way this economy's coming back, because the consumer is 70 percent of the U.S. economy....

The consumer is out of money....They have no jobs. We've got 18-and-a-half percent unemployment and underemployment. The consumer's debt is 120 percent of disposable income...The consumer is wrecked.

According to USA Today, "Government anti-poverty programs that have grown to meet the needs of recession victims now serve a record one in six Americans and are continuing to expand.

Hmmm. Not exactly a V-shaped recovery, is it'