Entries from January 2008 ↓

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Earlier this week my Dad sent me an editorial from the Wall Street Journal. It is probably buried behind a paywall but the link is at the bottom of the page.

The most important point I got out of it was how small a part of our Gross National Product (GDP) housing is. According to this editorial housing is only 4.5 percent of the GDP.

Think about that and then hear that our booming export market (IE weak dollar) is 12 percent of the GDP. So the actual give and take of housing is not going to send the country into a tailspin unlike the thoughts of many in the blogosphere would think.

The biggest impact of the housing market in todays economy is the reaction of the politicians and bureaucrats. The recent cut in the interest rates combined with Washington’s support for housing is more about calming the populace and buying votes than sound economic policy.

So if you are thinking will send the nation into a recession, think again.

With housing so weak, the recent softness in production and durable goods orders is understandable. But housing is now a small share of GDP (4.5%). And it has fallen so much already that it is highly unlikely to drive the economy into recession all by itself. Exports are 12% of the economy, and are growing at a 13.6% rate. The boom in exports is overwhelming the loss from housing.
Personal income is up 6.1% during the year ending in November, while small-business income accelerated in October and November, during the height of the credit crisis. In fact, after subtracting income taxes, rent, mortgages, car leases and loans, debt service on credit cards and property taxes, incomes rose 3.9% faster than inflation in the year through September. Commercial paper issuance is rising again, as are mortgage applications. via  WSJ.com.

It is funny that the one of the first moves that the Tribune Company has made since being acquired by Sam Zell is a commercial real estate sale. But that is what he has done by selling the property that KTLA-TV is using and was the original home of the Warner Brothers Studios.

The property in Los Angeles was sold for 125 million dollars and is expected to provide capital for the purchase of buying 6 other properties in downtown Los Angeles. Did anyone tell Sam Zell that the Tribune is a media company?

Hudson Capital, which owns Sunset Gower Studios a few blocks away, completed the expected purchase from Tribune, Hudson managing partner Victor Coleman said. Chicago-based Tribune owns KTLA, the Los Angeles Times and other media outlets.

It was the first major sale of Tribune property since Chicago real estate mogul Sam Zell took over the company last month. via the Los Angeles Times.

We are so focused on how the real estate is affecting us in the United States we forget the credit crunch is hitting the rest of the world too. Raising the Roof, the excellent real estate blog of the International Herald Tribune, has this interesting post on real estate agents in Spain. It seems that the slowdown is so extreme over half the agents in the country have been fired or quit.

Now that is a real estate slowdown.

This has the ring of urban myth, but the number is so huge it seems worth repeating: API, the trade association for Spanish property agents, is reporting that 40,000 estate agents—half the estate agents in the country—closed down last year, in the wake of the slowdown in the market. As a result, it is believed that as many as 100,000 property agents lost their jobs last year. via the International Herald Tribune

The FBI is investigating 14 unnamed companies who have been involved in the subprime lending industry. They are searching for fraudulent behavior in the packaging and selling of loans and the subsequent bundling for investment purposes.

We all know that there was a great deal of fraud that was in the system at the end of the housing boom that was tacitly approved of by the mortgage companies in the search for volume. At the time many were begging for the government to investigate and slow down the fraud, but it seemed like it was beyond the ability of the government to cope with it.

Now that the system is self correcting the FBI is looking into it, a day late and a dollar short.

Agency officials did not identify the companies under investigation but said the wide-ranging probe, which began in spring 2007, involves companies across the industry, from mortgage lenders to financial firms that bundle home loans into securities sold to investors.
The FBI is working in conjunction with the Securities and Exchange Commission, Neil Power, chief of the FBI’s economic crimes unit in Washington, said during a briefing with reporters. via Fox News

Continue reading →

 With the media focusing on the high rate of foreclosures in the country the people of these state must be wondering what every one is talking about. With rates of less than 1 hundreth of a percent, South Dakota and Vermont must be confused.

Meanwhile 10 states have a foreclosure rate of 1 home in ever 500 in foreclosure, not even a blip on the radar screen. So maybe the issue is not in the ability of average homeowners to repay their mortgage but that speculators took a big bite out of an overbuilt market and now they are paying the price.

But that does not play well in the major media so it can not be the case.  

Rank    State           Total   % of Homes
1       South Dakota    24        0.007
2       Vermont         29        0.009
3       Maine           286       0.042
4       West Virginia   460       0.053
5       North Dakota    250       0.082
6       Mississippi     1,409     0.114
7       Wyoming         356       0.151
8       Hawaii          966       0.197
9       Kansas          2,434     0.203
10      Louisiana       3,968     0.204

via RealtyTrac

Click here to for a Free Foreclosure search in your area if you are still interested in getting into the foreclosure game to find properties near your home.

When Countrywide CEO Angelo Mozilo announced yesterday he was not taking the severance package in the Bank of America takeover you had to wonder what was on his conscience.

Now we know. After telling the world that Countrywide would be profitable in the 4^th quarter they announced a 422 million dollar loss. I would love to be a fly on the wall in the Bank of America mergers and acquisitions department right now. Do you get the feeling there will be a great deal of CYA going on over the next couple of weeks.

Right now Bank of America says the deal is still a go, but you have to wonder what the Board of Directors will do going forward.

Calabasas, Calif.-based Countywide (NYSE: CFC) said Tuesday that it had a fourth-quarter loss of $422 million, or 79 cents per diluted share. Total revenue for the latest quarter fell 58 percent, to $1.16 billion.
In the year-ago period, the mortgage company had a net income of $622 million, or $1.01 per diluted share.
The losses were much wider than analysts had expected, according to data compiled by Thomson Financial. Though analysts’ predictions varied wildly, reflecting the difficulty of untangling much of Countrywide’s business, the average forecast was for a loss of 30 cents per share on sales of $1.72 billion.
Countrywide’s losses also flew in the face of the company’s prediction, made when it announced a $1.2 billion third-quarter loss, that it would return to profitability in the fourth quarter.  via Triangle Business Journal

One of 2007’s top stories was the huge increase in foreclosures across the United States. The final numbers have been released by RealtyTrac and they are tough but expected. The worst states hit were markets where speculators walked away from properties or the effects of a miserable Midwestern economy.

Nevada led the way with one out every 33 homes in foreclosure with Florida coming in second with 1 out of 50 homes.  

Rank    State           Total   % of Homes
1       Nevada          34,417  3.376
2       Florida         165,291 2.002
3       Michigan        87,210  1.947
4       California      249,513 1.921
5       Colorado        39,403  1.919
6       Ohio            89,979  1.797
7       Georgia         59,057  1.566
8       Arizona         38,568  1.516
9       Illinois        64,310  1.25
10      Indiana         27,980  1.027

Click here to for a Free Foreclosure search in your area if you are still interested in getting into the foreclosure game to find properties near your home.

Do you think that Angelo Mozilo giving up his 40 million dollar severance package is from the goodness of his heart or to mollify his guilt? Let’s face it, Countrywide placed a number of big bets on the mortgage industry to maintain it’s growth and most now have turned up poorly.

So the Countrywide merger with takeover by Bank of America was one of saving the company, not one of growth and optimism. Mozilo did the right thing, probably for the wrong reasons.

In a statement released early Monday, Mozilo explained that his focus “is to do what is in the best interests of Countrywide employees, customers and shareholders.”
Despite the multi-million-dollar gesture, Mozilo will still walk away a rich man. He will keep his retirement benefits and deferred compensation, totaling more than $40 million, a recent proxy statement said, according to Associated Press.
For now, he remains a substantial stockholder and an employee of Countrywide.
Mozilo’s employment agreement with Countrywide entitled him to $36.4 million in cash severance and $400,000 a year in consulting fees, in addition to the use of a private airplane and other amenities. via  CNN.com.

Florida real estate has had an interesting go of it the past few years. First hurricanes came racing through and the insurance companies increased their rates dramatically. All this time the housing boom was occurring increasing the property taxes to record highs. Now that the housing industry has slowed down, people are fearful of being upside down on their housing.

And with the politicians in town to pander for the votes in the Florida primaries, real estate is issue #1 with the folks in the sunshine state. So far the pandering has been kept to a dull roar but remember that when the national elections come into play in the fall California and Florida are the two hardest hit states in the country and both have a huge number of electoral votes.

Expect a great deal of focus by the politicians on real estate and a host of regulations to be forthcoming out of this election cycle. The most dangerous 9 words to hear are, “We are from the government and here to help.”

Florida has felt the effects of the national mortgage troubles and housing slowdown as acutely as anywhere in the country. Rampant construction has come to a halt, home sales have plummeted and job losses in housing-related industries have soared. At the same time, residents have seen a rise in property taxes and, after devastating hurricanes in 2004 and 2005, an increase in insurance rates.
Interviews with about two dozen people in this fast-growing Central Florida city found that of all the issues confronting the state, none was as important to most voters as the real estate crisis. Almost all said that slumping property values and rising taxes and insurance costs were at the top of their concerns. via the New York Times.