New York Magazine, September 15, 2008
By James J. Cramer, Co-Founder- TheStreet.com
For more than a year, I’ve been a huge bear on housing. From the moment the credit-crisis storm began to form, I’ve been shouting in my usual unhinged way about just how bad the devastation would be, and carrying on about how anyone who bought a home in this environment would lose money immediately. At various points along the way, my house-hating judgment has been questioned, but I’d say I’ve been vindicated by the relentless decline in home values we’ve seen, the worst since the Great Depression. Even here, in our so-called real-estate-superstar city, prices may not have fallen, but the rate of acceleration has started to soften.
These days, I don’t know a soul who hasn’t jumped on the real-estate-is-an-awful-investment bandwagon. When I interview the once-rabid bulls on housing—those who make their livelihood building and selling homes, like Bob Toll, the CEO of the best home builder in America, Toll Brothers—I get grim predictions of nary a turn in sight. When I pressed Toll recently as to whether he sees any light at the end of the tunnel, he quickly answered yes: “The light of an oncoming train!”
Well, I now have another contrarian point of view to proffer: The converted bears, as well as the panicked sellers desperate to bail out and nervous buyers afraid to jump in, will be dead wrong nine months from now, when housing prices bottom. In fact, I’ll call the precise date of the housing-market turnaround. It will begin on June 30, 2009.
Let me give you ten reasons why everyone who now thinks there’s no end in sight to weakening home prices will look like a fool in nine months and will miss the best opportunity to buy since the 1989–1991 real-estate crash.
1. Two years ago, we were building twice as many homes as in 2008, and the decline in new-home building is now accelerating. At this pace, we could see new-home construction fall an additional 25 percent, back to levels last seen when we had 60 million fewer people living in this country. By next June we won’t be building enough homes to accommodate demand, and the gap between supply and demand won’t be made up by unsold inventory.
2. The housing bears seem to forget that Congress passed a bill authorizing $300 billion in FHA loans, which give troubled homeowners a fighting chance to pay their mortgages or get current on them. By nine months from now, the FHA will have taken millions in terrible floating-rate loans with high interest rates and turned them into 30-year mortgages with much lower rates. That’s going to reduce the number of foreclosed homes, and the supply of available homes, dramatically.
3. Bargains! Prices have already come down to the point where there are real values, and by June of next year, I believe real-estate prices will have fallen 25 percent nationwide from their previous highs, with some of the hardest-hit areas of the country down as much as 50 percent. At those price levels, homes will seem irresistible to the many millions of potential buyers who have stayed on the sidelines.
4. The last holdout area, New York, is nearing its bottom. The Wall Street brokerage houses will let employees know their bonus situations—or lack thereof—next month. Look for a further softening of prices in the city and even more so in the Hamptons, as hiring vanishes and Wall Street payrolls contract drastically. When the last areas fall, the bottoming process begins in earnest. By next June, Wall Street, and its power to drive down home prices, won’t hurt us anymore.
5. Right now, mortgages are expensive relative to their historical benchmark, the 30-year Treasury note. By next summer, I believe that Fannie Mae and Freddie Mac will be nationalized to shore up their flimsy capital foundations. Once the loans that Fannie and Freddie repackaged are explicitly guaranteed by the government, they’ll become the world’s best investments, as they’ll offer much higher yields than Treasury notes, with no more risk. That will cause a steep decline in mortgage rates, making it easier to borrow money and buy a home.
6. Come June, the bulk of the reckless 2-and-28 loans—the ones with the low teaser rates for the first two years that sucked people in and then reset at much higher rates, dragging people under—will have moved through the system. These loans have been the biggest source of foreclosed property, so the rate of foreclosures should decline sharply once those loans are off the books, tightening supply and soothing anxious buyers’ nerves.
7. We may not think of ourselves this way, but we are still a growing nation: Four million babies are born each year in this country, vastly exceeding the nation’s death rate. Household formation, meanwhile, has held steady at about 800,000 a year. Families have been camped in their apartments or crowding in with their in-laws for some time now. That pent-up demand is bound to find expression and put upward pressure on prices, as credit again becomes easier to get.
8. Immigration. It doesn’t matter who gets elected, John McCain or Barack Obama. Both are much more immigrant-friendly than George Bush. Before W., we could reliably anticipate about 1 million illegal immigrants arriving each year, but that number’s gotten a big haircut, in part explaining why Florida, Arizona, and California have been particularly hard hit by excess home inventory. Look for that to change, triggering an influx of new immigrants, and home buyers, starting on Inauguration Day and building as we head into mid-2009.
9. The biggest problem areas are now restricted to those three states—Florida, Arizona, and California. The rest of the country has begun to stabilize or is deteriorating at a slower pace than six months ago. The most problematic markets have been cordoned off, limiting the collateral damage.
10. Finally, the absolute worst areas, those with the highest foreclosures, like Bradenton, Florida, and the Central Valley of California, bottomed this summer. The first to fall are the first to return. If they’re headed upward, the rest of the country will follow.
You can see these ten reasons playing out in the stock market, as the stocks of the major home builders—Toll, Centex, KB Homes, D.R. Horton, and Pulte Homes—flattened out in July and have been climbing since. These stocks peaked and started dropping nine months before the housing market began its tumble. If they predicted the top nine months before it happened, why shouldn’t we believe they’re forecasting the bottom nine months from now? The big home builders’ stock prices have already made major moves north, but I expect more upside from KB Home and Centex, as they still have lots of unsold homes in inventory and decent enough balance sheets to hold out until we reach the bottom. For those who want to roll the dice, I suggest buying Lennar, the home builder that pulled its horns in last, took a beating, and could be poised for a strong recovery. Toll’s already risen too much to recommend, and I’d steer clear of Hovnanian, which I think is still in too much trouble to touch right now.
Of all the areas I expect to boom next June, New York looks to be the most attractive because buyers from overseas will flock to it—even more than they already have. Just as the dollar appears to have bottomed, European real estate is starting to collapse. Foreigners will flee to this market as a safe haven, one that has already experienced the decline that they are just beginning to see. If you’re a seller, hold tight if you possibly can. You’re almost—almost—through the worst of the downslide. If you’re a buyer, use the time between now and next June to scout in which neighborhood you might want to buy. On June 29, call your broker.
Thursday, September 25, 2008
Wednesday, September 24, 2008
Ripe for The Picking....
CNBC “Finding Housing Markets Basement” This is a 4 minute segment, Naples is mentioned about 3:15 minutes into the article (you can actually slide the play bar to skip ahead)
http://www.cnbc.com/id/15840232?video=859022956
http://www.cnbc.com/id/15840232?video=859022956
Saturday, September 20, 2008
Naples Ray of Sunshine in Housing Market
NAPLES — In one economist’s eyes, the Naples real estate market is now seen as “slightly undervalued.”
In an interview with CNBC Wednesday night, Richard Dekaser, a senior vice president and chief economist at National City Corp., singled out Naples in talking about the “first rays of sunshine on a possible end to the housing crisis.”
“Three years ago, the poster child for excess valuation in America was Naples, Florida,” he said.
Not anymore. Through the second quarter of this year, prices have dropped 33 percent, he said, leading him to judge the market as “slightly undervalued.” That means home prices are actually lower than where they should be.
“Now it could become even more undervalued and I suspect it will,” he said in the interview. “But I think we have to appreciate the adjustment that has already occurred.”
He said prices could hit bottom within six months as foreclosure rates begin to fall.
“I don’t want to overstate the case,” he said. “The housing bust is not over. But we are in a later stage of stabilization,” he said.
Dekaser is the same analyst who labeled Naples the most overpriced market in the U.S. a few years ago.
At the end of the first quarter of 2006, National City judged that with a median home price of $383,000, prices were more than double what they should be in Naples.
Prices continue to fall.
In August, the median home price — the price at which half of the homes sell for more and half for less — dropped to $238,000 in the Naples area. That was down from $375,000 a year ago, according to a monthly report by the Naples Area Board of Realtors.
For seven straight months, sales have picked up.
It was nice to see Naples shown in a positive light in the media, especially with so much bad news going on in the banking and financial markets, said Brett Brown, president-elect for the Naples Area Board of Realtors.
He said if you took out the under-$300,000 market, where most of the foreclosures and short sales are happening, the median price would have been up 5 percent in August. Short sales are sales made for less than the bank is owed to avoid foreclosure.
Naples was the only market mentioned in the interview with CNBC.
“It shows we haven’t fallen off a cliff,” Brown said. “We are here. Properties are selling.”
In an interview with CNBC Wednesday night, Richard Dekaser, a senior vice president and chief economist at National City Corp., singled out Naples in talking about the “first rays of sunshine on a possible end to the housing crisis.”
“Three years ago, the poster child for excess valuation in America was Naples, Florida,” he said.
Not anymore. Through the second quarter of this year, prices have dropped 33 percent, he said, leading him to judge the market as “slightly undervalued.” That means home prices are actually lower than where they should be.
“Now it could become even more undervalued and I suspect it will,” he said in the interview. “But I think we have to appreciate the adjustment that has already occurred.”
He said prices could hit bottom within six months as foreclosure rates begin to fall.
“I don’t want to overstate the case,” he said. “The housing bust is not over. But we are in a later stage of stabilization,” he said.
Dekaser is the same analyst who labeled Naples the most overpriced market in the U.S. a few years ago.
At the end of the first quarter of 2006, National City judged that with a median home price of $383,000, prices were more than double what they should be in Naples.
Prices continue to fall.
In August, the median home price — the price at which half of the homes sell for more and half for less — dropped to $238,000 in the Naples area. That was down from $375,000 a year ago, according to a monthly report by the Naples Area Board of Realtors.
For seven straight months, sales have picked up.
It was nice to see Naples shown in a positive light in the media, especially with so much bad news going on in the banking and financial markets, said Brett Brown, president-elect for the Naples Area Board of Realtors.
He said if you took out the under-$300,000 market, where most of the foreclosures and short sales are happening, the median price would have been up 5 percent in August. Short sales are sales made for less than the bank is owed to avoid foreclosure.
Naples was the only market mentioned in the interview with CNBC.
“It shows we haven’t fallen off a cliff,” Brown said. “We are here. Properties are selling.”
Thursday, September 18, 2008
Mortgage rates go down, then up again
By Holden Lewis • Bankrate.com
Mortgage shoppers got stuck inside an old-fashioned melodrama in the last week.
In the first act, mortgage rates sank as markets digested the federal government's takeover of Freddie Mac and Fannie Mae. Mortgage shoppers exulted at Uncle Sam's rescue of Fannie and Freddie. Some dared to hope that rates would fall even lower.
The melodrama's second act occurred over a tense weekend: The investment bank Lehman Brothers lay tied up on the railroad tracks. Would Uncle Sam ride to the rescue? No! Lehman was gorily dismembered as Uncle Sam stood by, impassively. The mortgage market enjoyed the spectacle, as rates fell even more.
Weekly national mortgage survey
Results of Bankrate.com's Sept. 17, 2008, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
30-year fixed
15-year fixed
5-year ARM
This week's rate:
6.16%
5.84%
6.07%
Change from last week:
+0.01
+0.03
-0.01
Monthly payment:
$1006.29
$1378.14
$996.70
Change from last week:
+$1.06
+$2.66
-$1.06
"The bald eagle has said, 'We're done bailing anyone out,'" mortgage broker Dan Dowling opined Monday morning. His advice on whether to lock a rate or float: "I think right now, your best ploy is to lock and monitor."
Act III: Tuesday afternoon, Uncle Sam cackled as he denied the Fed rate cut that the villagers desperately wanted. That night, Wall Street and rating agencies fitted insurance giant AIG with a noose. Just as the trapdoor opened, a bullet sliced through the hangman's rope, and AIG landed on its feet. Uncle Sam rode up, rifle in hand. "You belong to me now," he told AIG.
The mortgage market reacted badly to the plot twists of Act III. Fixed-rate mortgages rebounded Wednesday morning and took back the declines of the previous five workdays and then some. And Dowling, president of United Mortgage Capital in Altamonte Springs, Fla., was looking mighty smart for advising clients to lock the day before.
The benchmark 30-year fixed-rate mortgage rose 1 basis point, to 6.16 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.41 discount and origination points. One year ago, the mortgage index was 6.32 percent; four weeks ago, it was 6.66 percent.
The benchmark 15-year fixed-rate mortgage rose 3 basis points, to 5.84 percent, and the 30-year, fixed-rate jumbo, for larger loans, fell 5 basis points, to 7.36 percent. The benchmark 5/1 adjustable-rate mortgage fell 1 basis point, to 6.07 percent.
A thick plot
The performance of mortgage rates in the past week brought generally negative reviews. For one thing, the plot was hard to follow. "I don't know. I stopped trying to figure this out a long time ago," mortgage broker Dan Green, of Mobium Mortgage in Cincinnati, said. Actually, he spends a lot of time trying to figure it out, but lately all has been confusion.
Green's advice: "Stay aware, take advantage of opportunities that present themselves, and be ready to act. When mortgage markets move so quickly, it's because there's a market imbalance. And Wall Street seeks balance, and that's why they're short-lived."
Steve Habetz, owner of Threshold Mortgage, a brokerage in Westport, Conn., said he believes rates will remain low, "to where people say, 'I'm willing to assume the risk of owning a home" that could lose value. He said the other outcome -- higher mortgage rates -- "is far too painful for this nation to endure."
Alan Rosenbaum, president of Guardhill Financial, a mortgage bank in New York City, said he believes the mortgage marketplace is edging close to capitulation, when holders of mortgage debt recognize the true values of their degraded portfolios. "I think that we may realize that we're very close to a bottom," he said. "If we can get banks lending again, I think real estate will come back and the overall economy will come back."
By Holden Lewis • Bankrate.com
Mortgage shoppers got stuck inside an old-fashioned melodrama in the last week.
In the first act, mortgage rates sank as markets digested the federal government's takeover of Freddie Mac and Fannie Mae. Mortgage shoppers exulted at Uncle Sam's rescue of Fannie and Freddie. Some dared to hope that rates would fall even lower.
The melodrama's second act occurred over a tense weekend: The investment bank Lehman Brothers lay tied up on the railroad tracks. Would Uncle Sam ride to the rescue? No! Lehman was gorily dismembered as Uncle Sam stood by, impassively. The mortgage market enjoyed the spectacle, as rates fell even more.
Weekly national mortgage survey
Results of Bankrate.com's Sept. 17, 2008, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
30-year fixed
15-year fixed
5-year ARM
This week's rate:
6.16%
5.84%
6.07%
Change from last week:
+0.01
+0.03
-0.01
Monthly payment:
$1006.29
$1378.14
$996.70
Change from last week:
+$1.06
+$2.66
-$1.06
"The bald eagle has said, 'We're done bailing anyone out,'" mortgage broker Dan Dowling opined Monday morning. His advice on whether to lock a rate or float: "I think right now, your best ploy is to lock and monitor."
Act III: Tuesday afternoon, Uncle Sam cackled as he denied the Fed rate cut that the villagers desperately wanted. That night, Wall Street and rating agencies fitted insurance giant AIG with a noose. Just as the trapdoor opened, a bullet sliced through the hangman's rope, and AIG landed on its feet. Uncle Sam rode up, rifle in hand. "You belong to me now," he told AIG.
The mortgage market reacted badly to the plot twists of Act III. Fixed-rate mortgages rebounded Wednesday morning and took back the declines of the previous five workdays and then some. And Dowling, president of United Mortgage Capital in Altamonte Springs, Fla., was looking mighty smart for advising clients to lock the day before.
The benchmark 30-year fixed-rate mortgage rose 1 basis point, to 6.16 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.41 discount and origination points. One year ago, the mortgage index was 6.32 percent; four weeks ago, it was 6.66 percent.
The benchmark 15-year fixed-rate mortgage rose 3 basis points, to 5.84 percent, and the 30-year, fixed-rate jumbo, for larger loans, fell 5 basis points, to 7.36 percent. The benchmark 5/1 adjustable-rate mortgage fell 1 basis point, to 6.07 percent.
A thick plot
The performance of mortgage rates in the past week brought generally negative reviews. For one thing, the plot was hard to follow. "I don't know. I stopped trying to figure this out a long time ago," mortgage broker Dan Green, of Mobium Mortgage in Cincinnati, said. Actually, he spends a lot of time trying to figure it out, but lately all has been confusion.
Green's advice: "Stay aware, take advantage of opportunities that present themselves, and be ready to act. When mortgage markets move so quickly, it's because there's a market imbalance. And Wall Street seeks balance, and that's why they're short-lived."
Steve Habetz, owner of Threshold Mortgage, a brokerage in Westport, Conn., said he believes rates will remain low, "to where people say, 'I'm willing to assume the risk of owning a home" that could lose value. He said the other outcome -- higher mortgage rates -- "is far too painful for this nation to endure."
Alan Rosenbaum, president of Guardhill Financial, a mortgage bank in New York City, said he believes the mortgage marketplace is edging close to capitulation, when holders of mortgage debt recognize the true values of their degraded portfolios. "I think that we may realize that we're very close to a bottom," he said. "If we can get banks lending again, I think real estate will come back and the overall economy will come back."
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