2008 October | money blog

(a) Option ARMs are going to recast in large numbers Q4 of 2008 and Q1 of 2009.

31 10 2008

65% of Southern Californians are Delusional. No wait, 65% Jump in Southern California Home Sales. No wait, 38% Record Median Price Drop. No wait, 50% of all sales are from foreclosures. Housing and Foreclosure Voodoo Headlines.

Posted by: admin in Real-estate news

Break out the bubbly, hang up the festive piñata, and dig out those togas because the goods times are here again! Southern California home sales are up an “unprecedented” 65% from last September. That is right folks, happy days are here again. That is until you look at the actual data in this report. Leave it […]
Related Posts:
■Real Homes of Genius: The Height of Insanity. Pico Rivera Home Taking Prices Back to 1995.
■C.A.R. says 2007 will see a -2% Drop in California. Does This Feel like a 2% Yearly Drop?
■Southern California Housing Report: New Housing Motto: Foreclosure Data is so Bad, it has to be Good! Median Price Down 31% to $348,000.
■Foreclosures jump statewide by 40% in California in just one quarter! Welcome to California’s Gold!
■Zillowed, Disappearing Inventory, and Free Housing: 3 Major Psychological Reasons Why Housing is Still Declining and Living Rent and Mortgage Free.

Leave it to the spin masters to turn a pathetic report into an amazing feat of economic accomplishment. I’m surprised these people don’t give each other a Pulitzer just for getting out of bed and brushing their teeth correctly. Yes, the sales volume is up an unprecedented 65% but you can also say in the same headline that the median price is down a record 38%. Both are unprecedented records and guess which one the media ran with?

Bloomberg

Oh yes! Fantastic. Time to get my agent on the phone.

Seattle Pi

Shouldn’t the headline above be 50% of all Southern California home sales are foreclosures? The L.A. Times does a better job with their headline. After all, they are here in the area so they have a better sense of what is going on:

LA Times

The L.A. Times headline offers a much more tempered report and headline. But leave it to the Orange County Business Journal to tell you how it is:

OCBJ

That is the true headline here. The incredibly steep drop in prices. The peak for Southern California was reached only last summer and stood at $505,000. The current price for a median priced home is now $308,500. Why is this significant? Because Southern California has more people than many states in the entire union:

Population: SoCal by County:

Los Angeles: 9,948,081

Orange: 3,002,048

Riverside: 2,026,803

San Bernardino:          1,999,332
San Diego:                  2,941,454
Ventura:                      799,720

Total SoCal Population: 20,717,438

To put this into perspective, Texas has 23 million people in their entire state. Alaska on the other hand has 670,053 people, or the size of Ventura Country. Bwhahaha!

Enough of that. Let us now put on our thinking caps and dig into the craptastic numbers that really show an ugly and Medusa like picture. You’ll turn away quickly once you see the data but be warned, you may turn into your favorite granite counter top:

Let us first work through the numbers. I’ve circled the two biggest counties responsible for the sales jump. You’ll also notice one important point here. They are the cheapest and have seen the steepest price drops of all counties! Even though San Bernardino and Riverside account for 19% of the Southern California population they made up 36% of all sales last month for the region! That is why Riverside is up 106% from a year ago. Then again, the current median price is $237,500 so how will that person feel that bought a home near the peak in December of 2006 when the median price in Riverside was $432,000? That is over a 45% drop from the peak price. The price of a home in San Bernardino county in December of 2006 was $370,000. The current price of $205,000 is a 44% drop from that point. What a shocker that homes are selling after having prices cut in half.

Every county in the area is down approximately 30% in one year and much more from the actual peak. If you really dissect the numbers, this September jump isn’t that big. Let us take the largest county, L.A. and see how the past 8 Septembers have done:

L.A. County September Sales

September 2008: 6,274 <—”Amazing” 65% jump from last year

September 2007: 4,361

September 2006: 7,917

September 2005: 10,988

September 2004: 10,501

September 2003: 11,395

September 2002: 10,808

September 2001: 8,831

Is this really a number to go running home about? Just because we had a horrific September last year of course any anomaly is going to give a minor boost in home sales. In this case, it was the fact that Riverside and San Bernardino had a crazy amount of swap meet like bargains and people bought them up. It is also the case that 50% of all sales last month were foreclosures. How is this fantastic news?

In addition, many of these sales occurred in the middle of the summer before the global stock market smack down occurred. With these numbers my thesis on why home prices in California won’t see a bottom until 2011 is even further reinforced and all 10 reasons are even more viable today. It is also the case that the summer selling season data has just come to a close. This is a typical seasonal pattern. Take a look:

*Click for a bigger picture

Like clockwork, the end of spring and summer are the best selling seasons for housing especially here in California. The above chart highlights this trend to perfection. Take a look at the seasonal drops in fall and winter. The frightening thing is that if you look at the final point on the chart which includes the unprecedented rise this summer, we are at the lowest peak from the last few years. It will only go down from here since:

(b) This last month does not include the global market fiasco.

(d) We are entering into the slow fall and winter selling season

Although there are glimmers of hope in this report, there is much more to be pessimistic about. Prices are going to drop 50% from their peak. This isn’t some doomsday prediction because as you saw, Riverside and San Bernardino are already down approximately 45% from their peak so they will arrive at this milestone first. L.A. County which hit a peak of $550,000 is now at $360,000 or a drop of 34%. If L.A. County can see the median home price lose $190,000 in value in one year, is it a stretch to say we will see another $85,000 reduction in the next 3 years? Or a better question is what is going to push prices higher? Jobs? Demand? Somehow I think believing prices are near a bottom is unprecedented.

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Post from: Dr. Housing Bubble Blog

65% of Southern Californians are Delusional. No wait, 65% Jump in Southern California Home Sales. No wait, 38% Record Median Price Drop. No wait, 50% of all sales are from foreclosures. Housing and Foreclosure Voodoo Headlines.

Via [DrHousingBubble]

31 10 2008

The real car bailout candidates: Dealerships

Posted by: admin in Stocks Money News

Filed under: General Motors (GM)

Imagine going to buy a Chevy in Akron and not being able to find one. The dealer closed due to low sales and lack of financing.

According to The Wall Street Journal, “The National Automobile Dealers Association estimates 700 new-car dealerships will close this year, up from 430 last year, and taking with them an estimated 37,100 jobs.”

So, the government may put as much as $10 billion into a GM (NYSE: GM) buyout of Chrysler which could mean a loss of 60,000 jobs in a consolidation only to find that the new company is having trouble selling cars because it has lost retail outlets.

The car company rescue looks like the mortgage system rescue. The federal government puts a lot of money into large banks in the hopes that it will be loaned out to homeowners. People with houses get almost none of the money and their default rates go up, further damaging bank balance sheets.

If the government is going to save the car industry, it had better save the car dealers. Without them, there is no industry.

Douglas A. McIntyre is an editor at 24/7 Wall St.

The real car bailout candidates: Dealerships originally appeared on BloggingStocks on Tue, 28 Oct 2008 12:12:00 EST. Please see our terms for use of feeds.

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Continue reading Texas Roadhouse (TXRH) Q3 earnings show consumers staying away

31 10 2008

Texas Roadhouse (TXRH) Q3 earnings show consumers staying away

Posted by: admin in Stocks Money News

Filed under: Major movement, Earnings reports, Bad news, Industry, Options, Technical Analysis

Texas Roadhouse (NASDAQ: TXRH - option chain) shares are dropping today after the company reported a third-quarter profit of $8.6 million, or 12 cents per share, missing analysts’ estimates of 13 cents per share. TXRH also warned that earnings for 2008 will be flat with last year’s numbers.

It has been common wisdom that worried consumers won’t be spending their cash on casual dining until they feel more confident about the economy, and the flat full-year forecast from TXRH seems to add weight to that thesis. If you think this stock won’t be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on TXRH.

This morning, TXRH opened at $6.91. So far today the stock has hit a low of $6.23 and a high of $6.96. As of 12:20, TXRH is trading at $6.21, down $0.93 (-13.0%). The chart for TXRH looks bearish and S&P gives TXRH its lowest 1 STARS (out of 5) strong sell ranking.

For a bearish hedged play on this stock, I would consider a December bear-call credit spread above the $7.50 range.

Texas Roadhouse (TXRH) Q3 earnings show consumers staying away originally appeared on BloggingStocks on Tue, 28 Oct 2008 12:52:00 EST. Please see our terms for use of feeds.

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31 10 2008

Is a GM / Chrysler bailout and merger really the way to go?

Posted by: admin in Stocks Money News

Filed under: Deals, Bad news, Rants and raves, General Motors (GM)

You may file this under he can’t be serious.

Looking in The New York Times business section, I notice that GM CEO Rick Wagoner skipped on over to Washington with his hat in his hand. It seems that Mr. Wagoner has discovered that the bailout legislation has been written in a manner that would allow him to get some money for his flailing company, General Motors Corp. (NYSE: GM). The funniness starts when you realize that Rick wants some money from the government (read that, us, the taxpayers) so he can finish totally wrecking his company by merging it with Chrysler. Really, the idea is almost too funny to laugh at. It makes me glad that my dad dumped his GM holdings when he did.

The Times‘ article states: “If G.M. or Chrysler were to go under, tens of thousands of people would be thrown out of work.” That may be true in a fashion, but I have news for the Times and Mr. Rick Wagoner: if this merger happens, about 40% of those people now employed by the two companies will probably be out of work anyway. On the other hand, a merger of this sort would effectively pitch the UAW into the street, pretty much for good. Oh, I bet our friend Rick already thought about that.

If anyone who reads this has a chance to talk with GM’s CEO Rick Wagoner before he pillages the public coffers to assure his income for a few more quarters, he/she might want to offer him this one little gem of wisdom:

An attractive, quality product, in keeping with the times, would really get your rear out of a jam, Rick.

Is a GM / Chrysler bailout and merger really the way to go? originally appeared on BloggingStocks on Tue, 28 Oct 2008 09:25:00 EST. Please see our terms for use of feeds.

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31 10 2008

Just the Facts no Tinfoil Hats

Posted by: admin in mortgage industry

Another guest post from MG who went from Wharton to Wall St. to real estate to Blown Mortgage.

Some of my best friends wear tinfoil hats. These days, though, no sooner has a good conspiracy theory made the rounds, but it’s proven to be fact. This past weekend there were outrageous rumors that Argentina would confiscate citizens’ pension money. By Wednesday afternoon it was a done deal. There’s little point in providing a link; it’s old news now.

However, and borrowing heavily from a comment on Global Economic Trend Analysis, let this be a warning to us all. The Argentine state is taking control of its citizens’ privately-managed pension funds in a drastic move to raise cash. This could be a harbinger of what will happen across the world as governments discover that tax revenues are insufficient and bond markets unwilling to cover their obligations and deficit spending.

(more…)

30 10 2008

CBS put a loss on the Q3 schedule

Posted by: admin in Stocks Money News

Filed under: Earnings reports, Television, General Electric (GE), Walt Disney (DIS), CBS Corp ‘B’ (CBS), News Corp’B’ (NWS)

CBS Corporation (NYSE: CBS) lost money in the third quarter (to see the data, you can click here to link to a pdf file). The loss was huge. Would you believe the red ink was equal to $18.58 per share from continuing operations? If you’re a shareholder, you’re probably shuddering at this point. But hold on, we’re talking loss from a GAAP point of view. On an adjusted basis, excluding various charges (including the effect of the CNET purchase), CBS took in $0.43 per diluted share from continuing operations. According to my earnings preview, analysts were looking for a number around $0.40 per share. That’s more like it. Yet, there’s another angle to the CBS story that won’t be so reassuring. And that angle has to do with cash flow.

You see, CBS really promotes its dividend. For a dividend to be considered safe and strong, it needs to be backed by free cash flow. Well, during the third quarter, CBS produced no free cash. It used $38 million for its corporate activities. Before anyone panics, management was quick to point out that, for the nine-month period, free cash flow was a positive $1.4 billion. CBS paid out about $524 million in dividends. So, that should allow for some comfort. Still, for a company that likes to base itself on returning value to shareholders, that does give me pause. Yes, it’s only one quarter, but we are stuck in an awful economy right now, and the advertising outlook seems pretty challenged going forward. The Wal Disney Corporation’s (NYSE: DIS) ABC, General Electric Company’s (NYSE: GE) NBC, and News Corp.’s (NYSE: NWS) Fox are all in the same boat. Management does explicitly state in the earnings release that it’s going to keep a strong eye on costs. I hope so. I also hope it’ll keep a strong eye on the ratings of its television shows and continue to look for programming that can keep the cash coming. CBS has done well during the opening weeks of the new season.

Can CBS’ content win the day and justify the stock’s current yield? That’s the big question. Since CBS’ stock sports a yield of over 11%, the market is basically saying that bad things are to come. But, if management can sustain the dividend, then the yield can be considered a huge asset at this point. I’d be willing to give CBS the benefit of the doubt over the long term, but if you’re thinking of trading the stock, I’d have a firm exit strategy in mind and use a tight stop. Wall Street has been in a very fickle mood lately, so anything can happen to stock prices at any moment. Executive chairman Sumner Redstone is very confident in the company. I’m not sure how big an endorsement that is, but it’s something, at least, right?

Disclosure: I own Disney and GE; positions can change at any time.

CBS put a loss on the Q3 schedule originally appeared on BloggingStocks on Thu, 30 Oct 2008 15:50:00 EST. Please see our terms for use of feeds.

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Real Homes of Genius: The Height of Insanity. Pico Rivera Home Taking Prices Back to 1995.

30 10 2008

Real Homes of Genius: The Height of Insanity. Pico Rivera Home Taking Prices Back to 1995.

Posted by: admin in Real-estate news

At this point seeing housing prices drop isn’t a shock. What should be a shock and revelation to everyone is the extent of the damage the bubble has caused in certain areas. This trauma can only be measured now that we are seeing foreclosures spring up and we are realizing what peak prices were paid […]
Related Posts:
■Real Homes of Genius: $438,000 for 816 square feet in Pico Rivera! Another Example of Manic SoCal Housing!
■Real Homes of Genius: Today we Salute you Pico Rivera. $300,000 for an 856 Square Foot Home with 5 Bedrooms?
■Real Homes of Genius: Today We Salute you Huntington Park. Tweedledum and Tweedledee of housing. $500,000 Homes in Wonderland.
■World Premier! Real Homes of Genius Video.
■Real Homes of Genius: Today we Salute you Westminster. $500,000 for 886 Square Feet of Orange County Goodness.

At this point seeing housing prices drop isn’t a shock. What should be a shock and revelation to everyone is the extent of the damage the bubble has caused in certain areas. This trauma can only be measured now that we are seeing foreclosures spring up and we are realizing what peak prices were paid for tiny homes that really did not deserve to be any where near the top price. No one will really uncover every single case of fraud during this epic boom. This kind of fraud is a crime of opportunity and criminals donned a suit and ripped off thousands of people only to do it once again. Now we are starting to hear stories about these same people changing shop and now becoming “foreclosure specialist” and taking more money of an already distraught populace. The FBI should go after these people and raid their bank accounts.

The Los Angeles housing market has been ripped to shreds with this housing debacle. There is simply no other way to describe the carnage. When you see prices falling 38% from their peak in one year you know something is changing drastically. No one has been left immune from this including once nighttime sidekick Ed McMahon and his Beverly Hills mansion. Today we are going to look at a home in a lower-income area in Los Angeles County. Today we salute you Pico Rivera with our Real Home of Genius Award.

Real Home of Genius - Peak Price

Pico Rivera is located southeast from the downtown of Los Angeles. Pico Rivera is your common working class L.A. city with 64,336 people calling the city home. The city was named after Pío Pico who was the last Californio governor of California. In 1982 Northrop Grumman purchased a former Ford plant. Years later in 1988 it was revealed that much of the work on the B-2 Spirit bomber was completed on the site. This location now has a WalMart and Lowes. How times have changed.

The current median price for a home in the city is $315,000 which is down 28.4% from a year ago. Even at these levels, it is still too high. The median household income for a family in the city is $41,564 according to the 2000 Census. Given that wages have remained stagnant for the region, I would imagine that not much has changed since then. After all, you go from replacing a Ford plant, to a Northrop Grumman plant, to a WalMart. This is a microcosm of what is occurring in places in Michigan except here in L.A. The only difference here is there a large enough population to keep the consumption going. That is until this bubble burst.

As I discussed in a previous article, the most someone should spend on a home is 3 times their gross income on a mortgage. Here is the simple equation again:

Now given this equation, if we are to take the median income family we would get the following:

$41,564 x 3 = $124,692 Pico Rivera median home price in sane world

So the current median price of $315,000 is still absurd and demonstrates a willingness of people to still over pay even in the current climate. Take a look at this home in the city that exemplifies this insanity:

This stunning 744 square foot home has 2 bedrooms and 1 bath. It was built in 1938 although the peak price would make you think it was last sold in 2038. The home has been on the market for 113 days with no action. Time to reduce the price a bit:

Price Reduced: 09/03/08 — $189,900 to $174,900

Nice movement. Let us take a picture of the backyard before we decide on whether this is a good deal:

The ad tells us “lot all dirt” which we can clearly see for ourselves. We are also told in the ad that this place has “high ceilings.” Oh yeah. You have to be high to believe that. At least they tell us in the ad that this is a major fixer. Take a look at the inside:

Again, are these photographs going to inspire us to buy? Before you start feeling sorry take a look at the sales history on this place:

06/13/2008: $169,400 *

12/12/2006: $425,000

02/03/1995: $105,000

The June line item is simply the lender taking this place back. Take a look at the peak price. $425,000 for a 744 square foot home in Pico Rivera! This 744 square foot home! Which lender made that absurd loan? Paulson should flat out reject the entire institution on the basis of this one bonehead decision. Really, an area with a median income slightly over $41,000 is seeing a 744 square foot home sell for $425,000. This wasn’t even two years ago. This home is the epitome of a Real Home of Genius.

You may be thinking that the price now makes sense. It doesn’t. Keep in mind that Northrop Grumman when it was working on the project employed an estimated 13,000 people. These were high paying jobs. Do you think someone working at WalMart or Lowes can afford a $174,900 home? Would they even want to buy this place?

As an investor, why would you even buy this place? Keep in mind a similar rental to this place would go for $950 a month even after the stunning 59% price discount or a loss of $250,100 in less than two years. The numbers at first glance seem appetizing. That is after you run the real figures:

Monthly Rent: $950

Principal and Interest: $978 (7.5% with 20% down investment property)

Taxes and Insurance: $182

Misc Expenses: $95

Monthly net loss: -$305 FAIL

Downpayment: $34,980

Mortgage Amount: $139,920

This home fails on every front. Today we salute you Pico Rivera with our Real Homes of Genius Award.

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Via [DrHousingBubble]

30 10 2008

Happy Halloween, Again.

Posted by: admin in mortgage industry

I posted this almost exactly a year ago. At that point people were calling for the bottom of this thing to be summer of ‘08. Well another year, and it’s still unfortunately apropos. I have a feeling it will be good for at least one more year. You?

Thanks as always to the great readers of this site that make it what it is. Thanks for reading, thanks for commenting, thanks for all of your email. It means a lot.

– Morgan