Even at Marquis Trump Properties, Your Lyin' Eyes are Belying the Real Estate is Bottoming Mantra
Last year I took the readers of my blog through a visual tour of the condo market in NY from Chelsea Pier to Prospect Park Brooklyn. Even the born and bred NYers were flabbergasted. See (again) "Who are ya gonna believe, the pundits or your lying eyes?", "Who are you going to believe, the pundits or your lying eyes, part 2". Well, things aren't looking much better a year later. They are still doing construction next to sites that still can't sell out their inventory next to sites that are falling into disrepair due to unpaid maintenance charges, next to sites that owe the city money, next to... You probably get my drift by now.
Well, the WSJ reports...
Trump SoHo, the flashy 46-story downtown hotel and condominium, is taking another unusual step to boost sluggish condo sales—offering substantial discounts to buyers who have already signed contracts but not yet closed.
Discounts are being offered to prod Trump SoHo buyers to close.
Rodrigo Nino, president of Prodigy International, the sales and marketing company for Trump SoHo, declined to discuss the size of the discounts or how many buyers have accepted them. He said Trump SoHo "is not unilaterally offering concessions. The requests have been handled on a case-by-case basis."
Even taking into account these markdowns, Mr. Nino added, "the average net closing price is in excess of $2,500 per square foot."
The price cuts aren't the first measure Trump SoHo has taken to get committed buyers to close on their deals. The developers, the Sapir Organization and Bayrock Group, are putting together a plan to offer direct financing to potential buyers who can't secure enough credit to purchases condos. Mr. Nino said the program would be implemented "shortly."
I Told You Housing Was Going to Take a Downturn for the Worse. I'll Tell You Something Else, We Are in a Housing Depression! It'll Get Worse Until Market Forces Rule Over Government Bubble Blowing!
I know, I shouldn't say I told you so but those perma-bullish, green shoots smoking pundits who have been saying for three years that we are nearing the bottom in real estate either have an agenda or really don't know much about real estate cycles. It really gets under brother's skin... From CNBC:
Existing Home Sales At 15-Year Low, As Housing Weakens
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Sales of previously owned U.S. homes dropped more steeply than expected in July to their lowest pace in 15 years, an industry group said Tuesday, implying further loss of momentum in the economic recover |
We've been down this path before. We have every reason to be very, very pessimistic on the housing front. We're in a HOUSING DEPRESSION!
Rates as close to zero as they have ever been, yet close to no demand while supply is piling up in droves as banks sell more homes (out of foreclose) than homebuilders do, yet developers keep building! If you look around in NYC, banks are STILL funding developers who are STILL building stuff right next to stuff that they STILL can't sell! This is video from a little more than a year ago that shocked many, even those who live in NYC: Who are ya gonna believe, the pundits or your lying eyes?. If you take a trip down the same strip today, you will still see empty lots with tractors, cranes, for rent signs in the commercial ground space and a whole lot of empty apartments looking for a home owner or renter, dusty from the construction right next to it.
Way back in 2007, I predicted that banks would handily outstrip homebuilders in terms of property sales due to rampant REOs and foreclosures. I issued a reminder last year since the synthetic and contrived equity rally on vapor volume seemed to have had everybody forgetting that we were in a real estate depression: Back to the Homebuilders vs. the Banks, as excerpted...
Back to the Homebuilders vs. the Banks
In 2007 I put out a lot of research and opinion on the home builders and attempted to portray them in a light that the sell side analyst community and apparently the buy side investors failed to notice. See
- Voodoo, Zombies, Lennar’s Off Balance Sheet Accounting and Other Things of Mystery & Myth (I believe this was the first time anyone ever called the homebuilders on their off balance sheet debt through unconsolidated JVs),
- Lennar Insolvent: Enron redux??? Lennar, Voodoo & the Year of the Living Dead!
- Now, a "Realistic" View of Lennar's Solvency
- Bubble, Banks and Builders – Pt III: Do or Die BedStuy
In December of 2007 I predicted that they will compete in a losing battle with the soon to be larger residential home and land owners looking to move properties at highly discounted prices: the banks sitting on foreclosed properties – Bubbles, Banks and Builders.
Well, although I do feel I have been relatively prescient in my predictions and predilections, all of you guys who were waiting for me to be wrong can now have your day. As it turns out, the largest residential land home owner will probably not turn out to be Countrywide (see Would you buy Countrywide if all of its bad mortgages were magically wiped off the books?) or any other bank or builder after all, but most likely the FDIC, or in more direct terms – You, Mr. and Mrs Taxpayer, see: FDIC Holds $1.8 Billion in Property From Closed Banks: WSJ Link. There are properties repossessed this year by the FDIC that were actually also repossessed during the S&L Crisis. Talk about not learning your lesson!
As lately as the 2nd quarter of this year, alleged experts were still pontificating the coming bottom in real estate, despite the fact that unemployment was high, supply was high, demand is low, and credit is tighter than frog ass! Exactly two months ago, I said As I Made Very Clear In March, US Housing Has a Way to Fall. See the following excerpt...
Commercial Real Estate Continues to Dropped into Foreclosure as the Landlords of Said Properties Enjoy Skyrocketing Share Prices? Yep, Makes Plenty of Sense
From the Dallas Morning News (hat tip to BoomBustBlogger lix333):
One of Dallas' oldest regional shopping centers has been handed over to lenders. The owners of Valley View Center mall have quietly transferred title to the 37-year-old mall at LBJ Freeway and Preston Road to a lender group headed by Bank of America.
The shopping center, which in recent years has lost anchor tenants, contains more than 1.6 million square feet and has J.C. Penney and Sears department stores. The mall is less than 75 percent leased.
Macerich Co., a California-based real estate investment trust, declined to comment Wednesday on why it gave up ownership of the shopping center. [No need to worry, you do realize that I have plenty of comments on why it gave up ownership of the shopping mall, don't you?]
Anecdotal Evidence That Banks Are Hiding Depressed High End Real Estate
Why are Banks Hiding High End Residential Real Estate? Courtesy of the Real Estate Channel:
- Without the FTB tax credit, the housing market is receiving artificial demand and price support from the FHA loan guarantees and banks sitting on mortgages of homes once valued at $300,000
- Banks in areas that were severely damaged by the downturn in domestic real estate (Cook County, Illinois, Miami-Dade County, Florida, Orange County, California) have significant inventories of homes worth more than $300,000 that they will not put on the market, even after foreclosures lasting more than 2 years
According to Bruce Krasting over at Zero Hedge, the FHA is "Officially Broke" anyway: FHA – “We are Officially Broke” After perusing the data above, one would wonder why... (Link to FHA/FR)
The Shortlist of the Shortlisted “Stocks to Short for 2010″: What We See as the Most Profitable Bear Postions for 2010
Here is a the final list of companies culled from a group of nearly 1,800 that we feel have the most profit potential for the year going forward.
This is a professional/institutional level document, but annual Retail subscribers and any subscribers who have been with me for a year ore more can email customer support for a copy as we show our gratitude for your continued patronage. Professional and Institutional subscribers should download this document in its entirety here:  Financial and Non-Financial Short Scan Review & Analysis - Pro (392.88 kB 2010-06-28 05:33:44) |
This is the culmination of four blog posts:
- 1. Non-Financial Companies to Short in 2010: methodology and short listing results;
- 2. BoomBustBlog Bankruptcy Search: Focus on British Petroleum and Collateral Damage: an objective look at the prospects of BP’s potential insolvency;
- 3. The BoomBustBlog Pan-European Sovereign Debt Crisis Bankruptcy Search: a review the financial and bank holding companies whose economic and financial outlook do not support their current valuations;
- 4. and On Shorting Stocks, Double Dips and the UAL/CAL Merger: a drill down of suspect airlines stocks.
Note: The embedded spreadsheets contained in the posts above should be used to access the extensive fundamental data used in calculating the results below.
After two separate and rigorous short exercises, one each for financial and non-financial companies, we have narrowed down the list of potential candidates from nearly 1,800 companies to just 10 (with 13 runner-ups) – all of which we are confident are materially overvalued given their current and prospective financial condition and economic outlooks. What is of particular interest is the fact that a full 50% of these companies landed on our computer screens as finalist in 2008, before the great market melt-up of 2009. They were overvalued and in bad shape during the lower prices of the turbulent times, hence they are significantly more so after seeing their share prices ride the wave of irrational, recession double-dipping, "recovery" exuberance. We have even released forensic analysis of 4 of these 10 companies over the last two years, and all of the banks in the list were also members of the original Doo Doo 32 of May 23, 2008. Members of this list provided significant profits for bears and short sellers as their prices gyrated and collapsed and the market began to realize the precarious situation that they were in. Now that low volume melt-ups are [starting to] giving way to realistic fundamentals, one can expect more of the same. The more things change, the more they stay the same. We plan to refresh the analysis of the repeat offenders, and offer fresh analysis of those who are new to the list.
The two separate short scans that we have conducted were for the non-financial sector and the financial/banking sector resulted in a short-list of 23 companies, with 10 of those companies targeted for full blown forensic analysis, time and resources permitting.
Below is the outline of the methodology used to produce them as well as a select excerpts from one of our previous reports on a particularly egregious "valuation" repeat offender that has proved profitable in the past whose macro outlook tied to the housing sector is a gloomy as ever - despite a near 100% pop in its share price. This the obligatory "freebie" that I toss in to entice non-subscribers to take the plunge. This particular "freebie" happens to be quite actionable, at least in my humble opinion.
As I Made Very Clear In March, US Housing Has a Way to Fall
From Bloomberg, early in the morning you get the usual, inaccurate analyst chatter: Sales of Existing Homes in U.S. Probably Climbed on Tax Credit
Sales of U.S. previously owned homes rose in May to the highest level in six months as buyers rushed to beat a June tax-credit deadline, economists said before a report today.
Purchases of existing houses, which are tabulated when a contract closes, increased 6 percent to a 6.12 million annual rate, according to the median of 73 forecasts in a Bloomberg News survey. To receive a government incentive worth as much as $8,000, buyers must have signed contracts by the end of April and need to complete deals by the end of this month.
Credit-induced gyrations will make the underlying health of the market difficult to determine over the next couple of months. A slump in builder shares since early May signals investors are concerned the damage caused by the end of government stimulus, mounting foreclosures and unemployment will exceed the benefits of lower mortgage rates.
Then the actual report comes out: Existing Home Sales in U.S. Unexpectedly Fell to 5.66 Million Rate in May
June 22 (Bloomberg) -- Sales of U.S. previously owned homes unexpectedly fell in May, a sign demand was probably pulled into prior months before a June tax-credit deadline.
Purchases of existing houses, which are tabulated when a contract closes, decreased 2.2 percent to a 5.66 million annual rate, figures from the National Association of Realtors showed today in Washington. To receive a government incentive worth as much as $8,000, buyers must have signed contracts by the end of April and need to complete deals by the end of this month.
The decline raises the risk the retrenchment following the expiration of the tax credit will be deeper than anticipated. A slump in builder shares since late April has exceeded the retreat in the broader market on concern the damage from the end of government stimulus, mounting foreclosures and unemployment may cause renewed weakness.
Now, this is the BoomBustBlog version from March of this year where I made it crystal clear that housing will fall further and significantly. The governmetn incentives are just market interference and pricing distortions, prolonging the pain: It’s Official: The US Housing Downturn Has Resumed in Earnest
Let’s take a look at some charts sourced from the upcoming BoomBustBlog subscriber “A Fundamental Investor’s Peek into the Alt-A and Subprime Market”should be released withing 24 hours or so. This release will include all of the raw data necessary for users to run their own calculation and draw their own conclusions. update, which
Click to enlarge
image202.png
...
In the chart above, you can see where CA has made some progress interms of appreciation. CA, FL, and NV account for nearly 50% of nationwide price damage. Let’s take a closer look…
Aussi Bubble Video to Go With You Aussie Bubble Speculation?
Enjoy! Feel free to leave comments on the videos.
 02:18Robert Shiller suspects Australia is in a housing Bubble  10:00 |
In Australia, Tax as a Contagion Australia: The Land Down Under(water in mortgage debt As an extension of the Chinese macroeconomic discussion at BoomBustBlog throughout 2010, there may be an “Asian Contagion” spreading as a result of a Chinese investment slowdown. Those at risk are the countries and regions that have supplied China with the commodities necessary to build empty cities. While the (comparatively, in terms of GDP) enormous Chinese stimulus package from the first part of the financial meltdown in 2008 has generated incredible growth in GDP and asset prices, the game appears to be over for flipping 1000 square foot apartments in Shanghai. After the direct hit taken to China, the picture looks very grim for Australia, where a bursting Chinese housing bubble could drive industrial commodities lower, sparking higher unemployment in one of the nation’s largest sectors, and in turn pop their domestic housing and property bubble. In the near to medium term, Australia is showing some major red flags.
Australia: The Land Down Under(water in mortgage debt), pt. Deux: Which Banks to Short? We looked into the four largest Australian banks – Australia and New Zealand banking Group Limited, Commonwealth bank of Australia, National Australia Bank Limited, Westpac Banking Corporation. All the banks, except Commonwealth bank of Australia, have ADR. The banks are trading at very high multiples when compared with their US counterparts. The current average price-to-tangible book value of the four Australian banks is 2.5x against the current multiples of less than 1.5x for US banks. The Australian banks are enjoying a premium largely owing to lower charge-off rates, delinquency levels and the NPL levels than their US counterparts. While the housing loans account for a substantial portion of the total portfolio of Australian banks, the housing bubble in Australia is yet to burst to result in defaults in this sector. Also, the Australian banks have additional shelter from two factors:
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Australia: The Land Down Under(water in mortgage debt), pt. Deux: Which Banks to Short?
As a follow-up to our piece on the Australian macro outlook (Australia: The Land Down Under(water in mortgage debt), We looked into the four largest Australian banks - Australia and New Zealand banking Group Limited, Commonwealth bank of Australia, National Australia Bank Limited, Westpac Banking Corporation. All the banks, except Commonwealth bank of Australia, have ADR.
The banks are trading at very high multiples when compared with their US counterparts. The current average price-to-tangible book value of the four Australian banks is 2.5x against the current multiples of less than 1.5x for US banks. The Australian banks are enjoying a premium largely owing to lower charge-off rates, delinquency levels and the NPL levels than their US counterparts. While the housing loans account for a substantial portion of the total portfolio of Australian banks, the housing bubble in Australia is yet to burst to result in defaults in this sector. Also, the Australian banks have additional shelter from two factors:
- The housing loans in Australia are recourse loans (borrowers are personally liable to pay even after foreclosure)
- The loans given in excess of LTV (Loan-to-value) of 80% have Lender Mortgage Insurance which covers the losses of the lending bank
The average Texas ratio of the four Australian banks is 25% and average NPL coverage ratio ( NPL+90 days past due to allowance for loan losses) is 68%. While the NPLs and the past due loans of the Australian banks have increased over the last year, a major portion of the increase is coming from business loans and commercial property while the delinquency rates in residential mortgage in Australia have remained stable (except for Commonwealth bank where substantial increase has been seen in the past due loans in the housing sector). The reported delinquency rates for mortgage or housing loans in Australia for the four banks are summarized below.
- Commonwealth bank of Australia – The total delinquent loans (1+ days past due) remained at 3.0% in 1H10, equal to the level of 3.0% in 1H09. However, owing to the aging of the some portion of the delinquent loans, the mortgage delinquency (90+ days) rate increased to 0.77% in 1H10 against 0.45% in 1H09 while the mortgage delinquency (30-80 days) rate remained stable at 0.86% and mortgage delinquency (less than 30 days) rate declined to 1.36% in 1H10 against 1.72% in 1H09.
The full analysis is available for download to subscribers below. Subscribers are also urged to review the Macro outlook document as well.
Australian Bank Analysis ProAs excerpted from Australia: The Land Down Under(water in mortgage debt:
A few minutes ago, I posted an informational piece on Australia’s creeping protectionism in the form of taxing multi-national mining companies in ”In Australia, Tax as a Contagion“. This begs the questions, “Why is Australia So Tax Happy as to Potentially Chase Away Investment in the Down Under?” Well, the answer most likely is because it is actually a ”Land Down Under(water in mortgage debt) and foreign export reliance. We, at the BoomBust feel that the government is actually attempting to take a proactive stance in meeting the consequences of what is probably going to befall most export reliant countries which is why Brazil and Chile are strongly considering following suit!
As an extension of the Chinese macroeconomic discussion at BoomBustBlog throughout 2010, there may be an “Asian Contagion” spreading as a result of a Chinese
investment slowdown. Those at risk are the countries and regions that have supplied China with the commodities necessary to build empty cities. While the (comparatively, in terms of GDP) enormous Chinese stimulus package from the first part of the financial meltdown in 2008 has generated incredible growth in GDP and asset prices, the game appears to be over for flipping 1000 square foot apartments in Shanghai. After the direct hit taken to China, the picture looks very grim for Australia, where a bursting Chinese housing bubble could drive industrial commodities lower, sparking higher unemployment in one of the nation’s largest sectors, and in turn pop their domestic housing and property bubble. In the near to medium term, Australia is showing some major red flags.
Australian property bubble, wikipedia
Australia: The Land Down Under(water in mortgage debt)
A few minutes ago, I posted an informational piece on Australia's creeping protectionism in the form of taxing multi-national mining companies in "In Australia, Tax as a Contagion". This begs the questions, "Why is Australia So Tax Happy as to Potentially Chase Away Investment in the Down Under?" Well, the answer most likely is because it is actually a "Land Down Under(water in mortgage debt) and foreign export reliance. We, at the BoomBust feel that the government is actually attempting to take a proactive stance in meeting the consequences of what is probably going to befall most export reliant countries which is why Brazil and Chile are strongly considering following suit!
As an extension of the Chinese macroeconomic discussion at BoomBustBlog throughout 2010, there may be an “Asian Contagion” spreading as a result of a Chinese
Recent Mortgage Loss and Credit Performance Commentary
This is the public version of our quarterly review of Alt-A and subprime mortgage performance sourced from the NY Fed and FDIC data. All paying subscribers can access the entire document here: 4Q09 Alt-A and Subprime commentary (452.33 kB 2010-05-21 05:49:09).
scap4q09
Foreclosures on First Lien Mortgages increased from 11.5% as on 31st October 2009 to 11.74% as on 31st January, 2010. Mortgage rates on Prime loans and Alt-A loans increased by 25bps and 21bps to 7.66% and 12.23% respectively over the same period. Delinquency rates for first lien mortgages on the other hand decreased by 7bps to 5.6%, for the quarter ended December 31, 2009.. While Net Charge-off rates for Alt-A loans increased by 2.12% points q-o-q to 30.49% as on 31st Dec 2009, delinquency rates dropped by 27bps over the same period to 12.1%
In case of Subprime loans, Net Charge off rates and Foreclosure rates, both rose to 44.6% and 15.6% respectively during 4Q09, compared to 42.9% and 15.4% during 3Q09. Delinquency rates declined from 26.4% in 3Q09 to 25.3% in 4Q09. Net charge of rates for HELOCs rose 13bps to 3.34% during 4Q09 while delinquency rates had a negligible decline.
Net charge-off rates and delinquency rates for Business Loans (C&I loans) marginally declined during 4Q09 remaining more or less constant at 2.5% and 4.5% respectively.
Delinquency rates under CRE loans remained steady during 4Q09 at 8.8% when compared with 3Q09. While delinquency rates for multifamily loans did not show any drastic changes in 4Q09, net charge-off rates under construction loans increased considerably from 6.3% in 3Q09 to 8.4% in 4Q09
Credit cards had a better quarter with net charge off rates and delinquency rates showing marginal improvements in 4Q09. Net charge off rates declined from 10.2% in 3Q09 to 9.5% in 4Q09, while delinquency rates declined from 6.6% to 6.4% over the same period.
Other consumer loans showed a healthier 2.7% net charge off rate in 4Q09 as against 3.2% in the previous quarter. Delinquency rate in this segment also improved marginally, declining by 19 bps to 3.5% in 4Q09.
Net charge-off rates and delinquency rates for Other loans marginally increased. While net charge off rates increased from 1.7% in 3Q09 to 1.8% in 4Q09, Delinquency rates remained constant at 1.1% over 4Q09.
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