Builders Giving Up On The Sinking Market (4 Trillion in Losses)

CBS News ^ | Oct. 10, 2007 | CNS

[2banana]

Dear Editor:

The subprime/ adjustable/ HELOC/ ALT-A and other mortgage schemes have an estimate loss of 2.8-4.0 trillion dollars (see below). Today, only a few banks and mortgage companies have reported losses of some 20 billion dollars (see below). The vast majority of these crazy loans (that never should have been made) will not reset until 2008. For comparison, the entire loss for S&L crisis was $150 Billion in 1988 dollars (see below). We are in the 1st inning of a massive write down of wealth that will affect nearly every aspect of financial life.

Consumer spending is 70% of our economy. For the last 5 years this has been greatly driven by the housing bubble and by people taking out Home Equity Loans on their ever increasing house equity to buy stuff. This has now come to a screeching halt.

The music has stopped. In fact - we are going in the exact opposite direction. I expect, on average, houses to lose 50% of their value from peak. Now imagine how that will affect the economy. Add in oil at near historical highs, the stock market at historic highs, gold at near historical highs, the dollar at historic lows and long term interest rates moving higher – something has got to give.

Regards,

2banana

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Builders Giving Up On The Sinking Market In California, Developers Leaving Behind Housing Projects — And Their Tenants

http://www.cbsnews.com/stories/2007/10/10/eveningnews/main3355299.shtml

That moving target, collapsing house prices, has already cut $1.2 trillion from the value of American homes. And the losses are mounting, going to $4 trillion by one estimate, by the end of next year.

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http://www.truthout.org/docs_2006/091107R.shtml Recession Time! The Housing Bubble Bursts the Economy By Dean Baker

Subprime mortgages accounted for one-fourth of all mortgages issued in 2006. The equally troubled Alt-A mortgage category accounted for another 15 percent. With segments that account for 40 percent of the mortgage market going into convulsion, there was no way that the housing market as a whole would not be affected. Of course, record supplies of unsold new homes and vacant homes also ensured that there would be substantial downward pressure on house prices.

However, the direct impact on the housing sector is just the tip of the iceberg. The housing bubble created more than $7 trillion in housing wealth. Homeowners have used this bubble wealth to support a surge in consumption over the last five years, pushing the saving rate to near zero. They borrowed against their home equity to pay for vacations, new cars, or just to meet necessary expenses. As this bubble wealth disappears, consumption of all forms will be cut back, slowing growth and leading to more job losses.

40% x $7 trillion = minimum of $2.8 trillion in losses

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Bank of America, JPMorgan face $3B hit - report Combined loss would bring total writedowns from subprime-related securities to $20 billion, says the Financial Times. October 8 2007: 6:55 PM EDT http://money.cnn.com/2007/10/08/news/companies/banks/index.htm?source=yahoo_quote

NEW YORK (CNNMoney.com) -- Bank of America and JPMorgan Chase are thought to be on the verge of announcing combined losses of $3 billion from mortgage-backed securities and leveraged loans when they report third-quarter earnings this month, according to a news report today. The announcements would bring total losses at the world's leading banks from subprime-related assets to $20 billion, said the Financial Times. JPMorgan (Charts, Fortune 500) is expected to announce losses on leveraged loans of $1.4 billion, Sanford Bernstein analyst Howard Mason said in the report.

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http://en.wikipedia.org/wiki/Savings_and_Loan_crisis The Savings and Loan crisis of the 1980s was a wave of savings and loan association failures in the United States in which over 1,000 savings and loan institutions failed in "the largest and costliest venture in public misfeasance, malfeasance and larceny of all time."[1] The ultimate cost of the crisis is estimated to have totaled around USD$150 billion, about $125 billion of which was consequently and directly subsidized by the U.S. government, which contributed to the large budget deficits of the early 1990s. The concomitant slowdown in the finance industry and the real estate market may have been a contributing cause of the 1990-1991 economic recession.

[Attention Surplus Disorder]

Shhhhhh! Think “contained”!

[Mr. Jeeves]

Across the street Amy Sturdevant paid $585,000 for a house. But now the developer has set $295,000 as the opening bid for similar houses down the street.

“I feel like my parents’ grave has been robbed."

It was. By you - and your poor financial judgment.

[Alberta's Child]

“I feel like my parents’ grave has been robbed. This was an inheritance. I sit out here and I look at this…” said Sturdevant.

I don't see how the parents had anything to do with this woman's decision to spend $600,000 on a home.

[Larry Lucido]

Anyone who paid $585,000 for a house isn’t gonna be sifting through dumpsters just yet, though they may have to buy generic groceries for a while. My give-a-damn meter isn’t registering at all on this story.

[Alberta's Child]

The Savings and Loan crisis of the 1980s was a wave of savings and loan association failures in the United States in which over 1,000 savings and loan institutions failed in "the largest and costliest venture in public misfeasance, malfeasance and larceny of all time."

I'd like to know the basis of this description of the S&L crisis. It had far more to do with the simple reality of changing tax laws and interest rates than anything else.

[Hydroshock]

Mortgage/Credit/Housing Issues Ping

If you want on or off this list let me know.

[lewislynn]

My daughter sells real estate here in California, she’s never been busier.

[fireforeffect]

All that data assumes (and we know what that means) that the conditions in California and the north east apply every where.

My market lost about 1% in the last few months (1.2% over the last year). Inventories have actually peaked here and prices have begun to rebound.

Sounds like a blue state problem to me.

[Larry Lucido]

Shhh! It’s supposed to be doomsday.

[Eagles Talon IV]

Uninformed gloom and doomers, all.

The # of mortgages in default is equal to aprox 1.5% of ALL mortgages. More, approximately 96.5% of ALL mortgages are performing well. Even more. The uninformed among us here believe the holders of ARMS and sub prime mortgages are all sitting around waiting for the axe to fall. Not so since by all accounts a large % of them have already converted to fixed rate mortgages.

So now it is 2008 when all the calamity befalls the markets. Why only last July I read where it was the 3rd and 4th quarter of THIS year when the sh*t was going to hit the fan.

Face it all you gloom and doomers, the sub prime debacle, while serious was way, WAY overblown and the markets reaction in July both here and around the world was driven far more by emotion then any real evidence.

[ßuddaßudd]

I would be interested in buying one of those vacant houses at cost and plus maybe 10%.

[Larry Lucido]

2008, 3008, 8008, whenever. We’re eventually doomed.

[Moonman62]

It had far more to do with the simple reality of changing tax laws and interest rates than anything else.

And in response, the government loosened regulations to try to keep S&Ls in business. Some people took advantage of that, leading to the malfeasance.

[Larry Lucido]

something has got to give.

Regards, 2banana

Something did give - the prices. Doomsday averted yet again, to the dismay (or perhaps relief) of the doomsayers.

[KarlInOhio]

“I feel like my parents’ grave has been robbed. This was an inheritance. I sit out here and I look at this…” said Sturdevant.

Could you at least hide the shovel in the garage and wash the dirt from your hands before complaining about your parents' grave being robbed?

[Larry Lucido]

LOL!!

[ctdonath2]

That’s what happens when people dive into a boom market just before it busts.
Everyone knows it can’t keep rising at that rate forever, yet somehow those who get in at the top are tragically surprised that _they_ are the ones left standing when the music stopped.

[2banana]

My daughter sells real estate here in California, she’s never been busier.

Does "busy" = sales? And what part of CA? And what does she see on prices?

[edcoil]

Its very busy in most of CA. What developers are saying is the loss is from expected sales price vs actual - helps on tax returns.

They put homes on the market for 600,000. They sell for 500,000 they say they lost 100,000 per home. Headlines and news at 11.