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alstry (35.42)

Housing Rescue=Housing Death

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July 23, 2008 – Comments (13)

Earlier I pointed out that the massive spending from the housing rescue package was going to likely cause selling of dollars and interests rates to rise.  Rising interest rates is going to inevitably have downward pricing pressure on housing.

But tonight, CABuilder pointed out another very important aspect of the bill....namely DAP(downpayment assistance programs) will be eliminated.  The reason, because FNM states thay they have a 3X higher rate of defaulting.

Without passing judgment, eliminating DAP will take out a huge number of entry level buyers.  Those buyers are needed to push existing sellers to larger homes.  The amount of total sales lost will be very very large.

Without DAP, not only is the entry sale dead...so is the subsequent move up sale.  In addition to DAP, the rescue bill is going to make it harder for almost everyone to qualify for a loan.

What's funny is that access to credit is drying up everywhere......Wachovia just shut down its PRIME wholesale lending business.  Good luck gettng a HELOC right now.  Or borrowing money to build or buy commercial real estate.

Basically, unless the project is already underway, little new construction is beginning.  Just take a look at the archetectual billings for confirmation.

If you think about it, banks have relatively few places to make loans these days compared to just a few years ago.  No Land Developments deals.  Private equity is practially dead.  LBO's are few and far between.  No securitizing toxic debt.

Without making loans, there are few places these days for banks to make money.  As a result, banks profits are tanking and are pulling back on lending even further.

For those that can remember, we didn't enter the Great Depression because the stock market crashed......we entered it because people and businesses couldn't access money.

Credit is the oxygen that drives the economy.  As credit is taken away, the economy begins to suffocate....especially the real estate economy.  As credit outlets continue to shut down.....so will the economy. 

We are seeing shutting down everywhere....airlines, autos, Starbucks, commercial real estate, land development, banks, mortgage companies....expect to see a bunch more in the very near future as credit continues to contract.

Expect this rally to be fairly short lived.....those that really know what is going on really know how bad it is out there.

13 Comments – Post Your Own

#1) On July 23, 2008 at 7:05 PM, cwlawrence (< 20) wrote:

Wow, when is the sky not falling for you?

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#2) On July 23, 2008 at 7:18 PM, alstry (35.42) wrote:

Take a look at RYL's earnings report tonight.  RYL is down to under $200 million in cash and a constricted line of credit where it is approaching its tangible net worth limitation.

Conditions continue to deteriorate into July.  At this point, RYL is essentially losing money on every home it sells in the aggregate. 

Further, as entry level home seller, RYL has greater dependance on DAP financing than other higher end builders.....it will be interesting to see of the analysts raise this issue on the conference call tomorrow.

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#3) On July 23, 2008 at 7:38 PM, alstry (35.42) wrote:

CW,

I wish I didn't see what I see...but at this point, a very negative outcome is practically a certainty.

America is shutting down economically.  Credit for almost any project is very difficult to come by.  Existing debt is defaulting at ever increasing rates.  Just take a look at the recent AXP release or other banks.

Our states and federal deficit is running at record highs.....and that is before accounting for the likely further decreases in tax revenues due to continued deterioration.

The problem is that we have a system that is withholding the truth as conditions deteriorate.

If you lived in the penthouse of a high rise and owned it free and clear, and most of the the other condo owners defaulted on their maintenance fees, you too would be in trouble.

That is the problem right now, we have an unprecedented number of people, businesses and municpalities defaulting or on the brink of defaulting......and as I see it, there is really no way to avoid further contraction.

At this point the distress is open and obvious, it is just a question when the market chooses to accept it.

For a clear picture, if you have access to bankers, mortgage brokers, or CPAs....you may want to querry them.

Right now, most of the people I know simply have no clue how this is going to resolve(commerical real estate is basically dead, customers are slow to pay or going bankrupt, banks are pulling years of credit availablity ect...).......and these are very successful people.

When few in the state are making money, and the state itself is unable to pay its bills under the current system.....often the system is FORCED to change.

It is this potential change that concerns me.....and it appears a number of other people right now.

 

The following is an interesting article about what happens when credit evaporates....and let me tell you, credit is now evaporating at the fastest rate in history:

http://online.wsj.com/article/SB121675515709274459.html?mod=googlenews_wsj

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#4) On July 23, 2008 at 8:13 PM, DemonDoug (73.55) wrote:

@!#$%& dammit i just spent a whole bunch of time writing out a reply and it got lost in the flotsam and jetsam of the internet.

anyway i agree with you al.

Ryland posts wider than expected loss.

I wish I didn't see what I see...but at this point, a very negative outcome is practically a certainty

And this is the statement i'm particularly agreeing with.  We might disagree on the behind-the-scenes machinations, but the bottom bottom line is that we are still headed downward on a viscious cycle.

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#5) On July 23, 2008 at 8:23 PM, LordZ wrote:

ALSTRY ~~ shakes his head ~~~ ALSTRY ~~~~ shakes his head ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

when the BULL gores you to death and stomps you...

I'll be dancing to the screams...

 

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#6) On July 23, 2008 at 8:33 PM, alstry (35.42) wrote:

Me too!!!!!

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#7) On July 23, 2008 at 9:10 PM, mandrake66 (83.43) wrote:

For those that can remember, we didn't enter the Great Depression because the stock market crashed......we entered it because people and businesses couldn't access money.

Just be aware that it didn't really happen until about 1932. From 1929 until then there were lots of rises and falls. Nothing happens overnight.

Wow, when is the sky not falling for you?

When is it falling for you? My god, you just went long WaMu yesterday.

I'll be dancing to the screams...

It must be pleasant to have absolutely no self-awareness. Most people would have tired of being the village idiot by now, but you just keep on keepin on.

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#8) On July 23, 2008 at 10:19 PM, lquadland10 (< 20) wrote:

That is ok. The FAN and Fred bill would increase the federal debt limit by $800 billion to $10.6 trillion.  For now. They might need more. By Michael Hodges
published in the U.S.A. as a public service - - updated regularly
http://mwhodges.home.att.net - email Michael
Send a link to this pageAmerica's Total Debt Report

$ 53 Trillion - - and soaring
- household, business, financial and government sectors -
by Michael Hodges - email
updated March 2008   And we think we are free. Bush and friends just bankrupted the country. WE Are So Scr* *$&*ed.

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#9) On July 23, 2008 at 10:29 PM, Donnernv (< 20) wrote:

alstry:

Your death-spiral observations are, to the first order, on target.  But you ignore feedback mechanisms.  In servomechanism terms, negative feedback dampens or reverses the first order effects of a primary stimulis.

The prime mover for a negative response is cash money.  There is an enormous amount of capital sitting, waiting, to invest in the depreciating assets being marked down.  I am sitting on (xxx large) millions ready, willing and able to put to work.

My sum is trivial (but there are many like me) in comparison to the sovereign wealth funds, the major hedge funds and the vast capital flowing to our crude suppliers and the beneficiaries of our trade deficit.

Of course things get crappy.  Of course the market goes down.  Of course the financial institutions lose billions, and their market value plummets.  Of course there are failures, acquisitions, mergers...adjustments.

But we are waiting...to pick up the shattered shards of the borderline crazed rush to the exits.  Will WFB fail?  No.  C, WB, BAC?  No.  GS, MER?  No.

Will the growing world demand for crude, natgas, coal decline?  Not in any significant sense.  Will the supply increase?  Not in any significant sense.  Iron ore?  Copper?  Gold?  Silver?  Moly?  Zinc?  No.

But once the crazed "sky-is-falling" doom-sayers trash their accounts and throw out today's latest negative fad...we'll be there to scoop up the bargains, provide the healing working capital and credit and reap the rewards of the transcendent world macro flows.

Get a grip.

 Donnernv

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#10) On July 23, 2008 at 10:45 PM, Donnernv (< 20) wrote:

This is not to say the market won't fall.  It will.  S&P to 1100 by June.  Certain.  To 800 by November 2009?  Possible.

It simply makes the rewards from waiting, watching and buying all the greater.

Depression?  Absurd.

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#11) On July 24, 2008 at 10:41 AM, lquadland10 (< 20) wrote:

mandrake66 For those that can remember, we didn't enter the Great Depression because the stock market crashed......we entered it because people and businesses couldn't access money.Yes you righ. Back then people ( the consumer) stoped living on credit and cut back on spending and started saving. Sound familar as to what is happening today?

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#12) On July 24, 2008 at 11:58 AM, cwlawrence (< 20) wrote:

If people increase saving activities won't that give more capital to banks?

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#13) On July 24, 2008 at 6:58 PM, DemonDoug (73.55) wrote:

If people increase saving activities won't that give more capital to banks?

Yes, but it won't help, because banks have to increase their loan loss reserves, and they are probably doing that at a much higher rate than any savings coming in.

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