Slump Dashes Oregon Dreams of Californians - (www.nytimes.com) Susan and Mike Telford had a plan back in the boom years in California. They would sell their house outside Fresno at a solid profit and take their equity to this sunny mountain city to build a better life, a fresh-air future in Oregon. “We wanted to lose the commute, to lose the smog,” Mrs. Telford said. “We wanted to lose California.” They moved here in 2006, when Bend was one of the fastest-growing places in the West and money and migration from California fueled that growth. Now the Bend area’s unemployment rate, at almost 16 percent, is one of the highest of any metropolitan area in the nation. “For sale” signs dot desert-toned, unfinished subdivisions. Luxury furniture stores downtown are going out of business. San Francisco chefs have fled. The freefall has made Bend a succinct symbol for the economic perils of “lifestyle destinations” in the so-called New West, recreation-heavy communities where jobs have been heavily tilted toward construction and services and where many of the new residents were self-made exiles from California cashing in on their overpriced real estate. Bend, a former timber town that now has 80,000 residents, was particularly popular among those drawn to the often rainy Northwest because it is located on the sunny side of the Cascade Range. Now the Californians who contributed to Oregon’s growth are in some cases adding to its economic struggle. As of May, Oregon had the second-highest unemployment rate in the nation, at 12.4 percent, behind Michigan. California, which has not released its May figures, ranked fifth in April. While some other states with high unemployment, including Michigan, have seen their labor forces shrink, Oregon’s labor force has grown. Economists say some of the growth appears to be driven by people who moved here with money they made in California, whether from real estate or stock market investments, and expected to get by but now must look for work. “It’s just so depressing to hear them because they thought they had life handled and they don’t,” said Bobbie Faust, an employment counselor who works for the state in Bend. The Telfords are among those facing trouble. They had presumed they would be able to sell their house in Fresno for more than $300,000 to help pay the mortgage on the new house they bought near the Deschutes River in Bend for $475,000. But the Fresno house has yet to sell, and Mrs. Telford, an accountant, has lost a series of jobs at small firms here that she said had downsized. The couple’s only income now comes from her unemployment checks and her husband’s salary as a high school teacher. “The cash flow is negative,” Mrs. Telford said. “This will be the first time we’ve had to go into savings.”
Housing inventory increase expected - (www.lvrj.com) Lifted ban means wave of Las Vegas foreclosures is likely. A wave of foreclosures is expected to hit Las Vegas as banks lift a voluntary moratorium that was extended from March to the end of May, though nobody has an accurate estimate of how many bank-owned homes will be added to an already bulging inventory. The total number of homes for sale in Las Vegas declined to 16,202 in April, compared with 21,338 in the same month a year ago, Las Vegas-based SalesTraq reported. Real estate-owned, or bank-owned inventory stood at 14,722, up from 11,628 a year ago, but down from the previous two months. Housing analyst Larry Murphy of SalesTraq said he's heard there could be an inventory of unreleased bank-owned homes ranging from 20,000 to 30,000. It's an impossible number for anyone to "get their arms around," he said. "This thing is like a cloud of mystery out there. We can all hypothesize," Murphy said. Bank-owned inventory came down in March and April, and Murphy said he's waiting to see May's data to draw any conclusions. The country is still in the "middle innings" of the bursting of the great housing bubble, said Whitney Tilson, principal of New York investment firm T2 Partners. He recently published a 75-page report that said there's more pain to come. It takes an average of 15 months from the first missed mortgage payment to a trustee sale of the home, usually by auction, he said. The subprime loans that defaulted in early 2007 led to the wave of foreclosures in 2008. "We predicted in early 2008 that it would get so bad that it would require large-scale government intervention, which has occurred, and we're not finished yet," Tilson said. Given that other types of loans with longer reset dates are now starting to default at catastrophic rates, the "sober implications" are for foreclosures and auctions to extend into 2009 and beyond, driving home prices down further, he said. More than $200 billion in option ARMs are still outstanding, including $29 billion that will reset by the end of this year and another $67 billion that will reset in 2010, according to Washington, D.C.-based Zuckerman Spaeder. The average borrower's mortgage payment of $1,672 will increase by $1,053. Alexis McGee of Sacramento, Calif.-based Foreclosures.com said there's a "phantom" inventory of repossessed properties not showing up for sale on the Multiple Listing Service. Only about 30 percent of them are listed on the market, McGee said. Foreclosures.com counted 18,505 real estate-owned homes in Clark County through April, compared with 7,251 a year ago. Preforeclosures rose to 33,917 in the first four months, up from 20,363 a year ago. The foreclosure inventory in Las Vegas has dried up for now, Earl Crouse of Better Homes Realty said. He expects it to stay that way until the fourth quarter. Banks are "stepping up" to comply with the Obama administration's guidelines to keep people in their homes, Crouse said. Some banks are renting homes back to previous owners. "They know they're stabilizing the market by pulling back (on bank-owned inventory) and getting multiple cash offers for anything $125,000 to $200,000," he said. "Banks are going to lose anyway, but it's less they're going to lose." Tim Kelly Kiernan of ReMax Brodkin Group said the current foreclosure inventory is "being picked over pretty good" with lots of cash deals. Lenders are being more flexible in negotiations, he said. His research indicates that banks are indeed holding back hundreds of thousands of properties nationwide. There were nearly 500 notices of default filed in Las Vegas on June 8, he said. "That is just one day, so if we just do the math, more foreclosures are coming and fast," Kiernan said. "Unless the Obama administration does something to stop this, home values will continue to fall."
Pavlov's Dog and Jim Cramer's Call of the Bottom in Housing - (Charles Hugh Smith at www.oftwominds.com) Like Pavlov's dog, Jim Cramer announces "the bottom is in" every time he sees a housing chart. Sadly, this is a conditioned response, not reality. In Pavlov's famous experiment, a dog hearing a ringing bell began drooling as if food was present. In a bizarre parallel to the classic experiment, Jim Cramer announces "the bottom is in" every time he sees a housing chart. Pavlov began his experiment by showing his dog a bowl of food (powdered meat). The dog naturally salivated, what Pavlov termed an unconditioned response. Then Pavlov rang a bell when food was presented; the bell was a neutral stimulus. Finally, he rang the bell without any food present; the dog began salivating. This salivation is called a conditioned response, and the process is called classical conditioning. Sadly, we can observe this behavior now in Jim Cramer, who nonsensically called a bottom as housing starts leaped. Here's Jim's call, dated 6/16/09: Cramer: Housing Has Officially Bottomed: According to the Commerce Department, there were 47,000 more housing starts in May than the 485,000 expected, a number 17% higher than the month before. The two regions seemingly in the biggest hole, the South and West, jumped about 17% and 29%, respectively. Building permits, which can predict the market’s future to a certain extent, showed significant growth as well. Now Cramer – and probably the homebuilders, too – sense an end the morass that weighed so heavily on the markets. What does a bottom look like? It’s the combination of ramping sales, and sales in certain areas are up ten times those of last year, and an end to falling prices. That’s exactly what we’ve seen for the past three months, Cramer said. Uh, Jim, we hate to tell you, but building more housing when there's a huge inventory of unsold houses and condos as interest rates are leaping up is not exactly bullish. (Psychotic disassociation from reality would be the official diagnosis.) We know this chart is just going to trigger more of your copious bottom-calling, but look at this and tell us what's so bullish: This recent "improvement" in sales is a tiny blip up within a massive collapse. To call a bottom based on such a modest increase is truly psychotic disassociation; statistically, both the increase in sales and housing starts are minor enough to qualify as statistical irrelevancies, a.k.a. "noise." Then there's the little matter of rising mortgage rates. Sales are announced when they're signed, not when they close, so oops, a whole passel of buyers might get bumped or simply bail when they calculate what the half-point rise in rates will do to their monthly nut. So in other words, the glowing sales numbers are highly likely to be revised downward once actual escrow closings are tabulated.
Connecticut AG Targets Servicing Practices at Fannie, Freddie - (www.housingwire.com) The Attorney General of Connecticut, Richard Blumenthal, is asking Fannie Mae and Freddie Mac to turn over documents regarding the foreclosure and default servicing practices of the GSEs in the state, according to letters he sent to the firms earlier this month. The letters are dated June 4 and give a deadline of compliance by June 19. Other than that, at this moment, none of the parties involved are commenting on the requests for information. Assistant Attorney General Jon Blake, who is working the case, could only acknowledge and validate the inquiry at this point, but would not say if the firms were expected to meet the deadline. In the letters, Blumenthal notes that his office is receiving complaints that “consumers are not receiving proper foreclosure notices and are being charged excessive fees in connection with foreclosure actions.” Blumenthal states these complaints may reveal a system of favoritism, where only a few select law firms and state troopers are assigned to deal with actions the GSEs are taking on the borrowers. A source for HousingWire however, states that this “concentration of resources” is a common practice in default and foreclosure servicing and not unique to GSEs. Fannie, Freddie, and the Federal Housing Finance Agency (which regulates the GSEs, and is currently their conservator) are not commenting on the state AG’s inquiry at this time.
Think $134 Billion Bond Smuggling Is Big? Try $2.5 Trillion - (www.deathby1000papercuts.com) It’s been over a week since two “Japanese” men were detained on an Italian train near the Swiss border after Italian customs police discovered 134 billion in US Federal Reserve bonds. So far, according to the international press the men have yet to be positively identified as to whether they’re from Japan (they were purportedly carrying Japanese passports) or if Italian prosecutors have ascertained as to whether the bonds are real or counterfeit. Here’s the link to the Times Online giving more of the scant details of the story….. As for the MSM, CNN’s blog IReport had a poster named “SuperMax” in Milan post the story about the Italian train mystery. No questions asked and no followup. Must be CNN’s way of “cutting costs” in the newsroom while Asia News had these points to ponder: 1. When it comes to Italy the world press has tended to focus on Italian Prime Minister Berlusconi’s personal problems rather than on stories like the bonds smuggling affair which has been front page on Italian newspapers. 2. The fear of counterfeit bonds and securities has spread across Asia with the result that real securities are also considered with suspicion. 3. During the Second World War several countries at war printed and put in circulation perfectly counterfeit enemy money. It is also historically established that some central banks, like the Bank of Italy 65 years ago, issued the same securities twice (identical registered number and code). This way they could print more money with legal tender than they officially declared. The main difference though is that 65 years ago the world was involved in a bloody war, which is not the case today.
GSEs Hold $345 Billion in Multifamily Mortgage Debt - (www.housingwire.com) The volume of commercial and multifamily mortgage debt outstanding remained largely unchanged throughout the first quarter of 2009 at $3.48trn. Multifamily mortgage debt outstanding grew 0.6% from Q408 to $908bn in Q109, according to data analyzed by the Mortgage Bankers Association. Government-sponsored enterprises and mortgage giants Freddie Mac (FRE: 0.72 +5.88%) and Fannie Mae (FNM: 0.65 +3.17%) hold the largest chunk of outstanding multifamily, with $191bn in federally-regulated mortgage pools and $154bn in their own portfolios. “Banks, thrifts, Fannie Mae and Freddie Mac all increased their holdings of commercial and multifamily mortgages during the first quarter, while run-off among CMBS and life company loans decreased those investors’ holdings,” said Jamie Woodwell, MBA’s vice president of Commercial Real Estate Research, in a media statement. “The relatively long-term nature of commercial real estate finance,” Woodwell adds, “has meant greater stability in the levels of commercial and multifamily mortgage debt outstanding than is seen among many other types of credit.” Commercial banks hold the largest chunk — $1.56trn or 45% — of commercial and multifamily mortgages, while issuers of commercial mortgage-backed securities (CMBS) and other asset-backed securities hold the second-largest chunk — $763bn or 21%, according to the MBA’s findings. Between Q408 and Q109, the number of loans at least 30 days delinquent held in CMBS rose 0.68 percentage points to 1.85%, according to the MBA’s Commerical/Multifamily Delinquency Report. The delinquencies must have continued in the months since, as one ratings agency noted an alarming rate as recently as May. Fitch Ratings this week warned on rising delinquencies among CMBS as the retail and multifamily loans collateralizing them continue to perform poorly and ultimately default. CMBS experienced a 2.07% delinquency rate in May, the highest ever recorded by the ratings agency since beginning its loan delinquency index in 2001.