“But at the end of the day, we’ll see how it plays out, won’t we? What was your closing/month prediction again? Say it again…. I want to see it”

1450 in July.

To use an analogy, a stock might have a strong support level at $35.00 per share and be falling to that point. You’d generally expect it to bounce off that point, but it probably wouldn’t if it reached that point the day Sec. Paulson announced the economy might be nearing systemic collapse.

deejayoh, I acknowledge that the J P Morgan Chase Q1 earnings benefited from WAMU loan portfolio write downs but the increase in revenue the write down caused for the quarter was just under 1.3 billion. Net of that amount they still posted a profit from operations. There Q1 profit was closer to 2 billion and that was after an 8.5 billion addition to loan loss reserves for the quarter. I think you’ve got to agree, the real issue isn’t the revenue coming from the WAMU purchase price allocation but whether the 8.5 billion being allocated to cover loan losses will be enough.

Their estimate of future loan losses on the WAMU loan portfolio supposedly took into account an additional 10% drop in the real estate market and I think they raised some additional capital immediately after the WAMU purchase to hedge against a drop in real estate prices beyond the 10% they had estimated. Obviously, they’ve probably eaten up the 10% additional decrease in the real estate market from Sept to now but the WAMU loan portfolio still out performed by 1.29 billion for the quarter. Go figure? I know , I know, Scottsman, Sniglet, you and a lot of others are saying they can’t out run the bear and the pee shooters wheeled by Treasury and the Fed don’t have the stopping power to bring the bad boy down.

The whole WAMU loan portfolio was valued at 206 billion. At 8.5 billion per quarter, they are writing off over 15% per year of the WAMU portfolio, but that doesn’t leave any loss reserve for their own loan portfolio and looser investments. Is 6 or 7 percent per year enough of a loss reserve on the WAMU loans? It is if the WAMU portfolio keeps outperforming so the 1.29 billion is actually good news if you hope to beat the bear. But I wouldn’t count on the 1.29 billion being there in future quarters.

Every company I was ever with had a deal where they would give you free tail coverage after 5 yrs. But every time I got close to 5 yrs they seemed to stop writing the coverage I needed. In the end I had changed companies the year prior to closing my practice and had to pay 3yrs premiums to get tail coverage.

Spot on!

My situation in bankruptcy was slightly different. It wasn’t necessarily a high risk area, but you were dealing with what I called Monopoly Money. High dollar claims on which little would be collected. It required that I carry much higher limits than necessary.

Or if you prefer, find some other example of something I was wrong on where I didn’t admit I was wrong. I say a lot here, so if I have such a problem in this area it should be easy for you to find something.

Either way is fine with me. But I tend to be very careful about what I say, and if I’m not sure of something I’ll say “I think” or attribute the source. So happy hunting.

http://seattle.bizjournals.com/seattle/

click on “Home tenders are booming as banks take more area property”

It’s difficult for me to believe some people are acting like we’ve hit botom and are on the verge of Ving straight up. I think many of these people do not understand that the stimulus is bound to make things appear better. Think of it like running up your credit card. While you’re spending the money, you feel rich. The real problems appear when you max out your credit and have to pay back the money.

Right now the govt. is attempting to prop up house prices by borrowing money. The bad news is this transfers money from the young to the old. What’s in store for our nation’s youth when the picture turns stag-hyperinflationary? Of course, there are those that believe the govt. will pull all the money from the system when it gets infationary. My question for those in the know is, why would it do that when doing so will decrease it’s ability to pay back the massive debt liability?

I wrote hundreds, probably thousands if you total all the contracts and wills. I finally concluded I couldn’t get enough coverage without going back to a middle or large size firm and the headaches that entails. Once we had a significant net worth, the risks just weren’t worth it anymore because we were a bigger deep pocket than my coverage limits. A million per occurance doesn’t go very far if the deal is a purchase of an appartment complex for 10 mil. I had never had a claim or a bar complaint but the commercial carriers wouldn’t write me more than 1 mil per occurance, 2 mil total as long as I was doing real estate and lending work as a solo.

Amen. I could never do business with Kary, fearing that his ego or whatever the controlling issue is would filter honest and corrective communication. How would I know if I was getting the truth or the CYA? The inability to admit error, apologize, and move forward, prioritizing truth and reality would be a real handicap. Good luck!

BTW, I seldom drafted contracts or wills. I considered them to be malpractice time-bombs that you set off afloat and hope for years nothing really bad ever comes of them. The longer you do it, the better you get, but the more you have to worry about.

The words “pay back” and “interest income” do not suggest refinancing is a major source of profits to me. Do they to you?

Now you say I misinterpret a plain statement “I suspect that’s just the result of refinancing activity”

I completely understand what refinancing is. I also understand that it is different that people making payments on their loan. What the banks says is that they are making money from payments on their loan.

but it is amusing how dogged your need to be right is. Most people would say, “yeah – thats a good way to put it”. I am guessing you were quite good at negotiating contracts as a lawyer. or at least at standing your ground on terms. Probably lots of them never got signed :^)

RE: deejayoh @ 73 Second, when I said that I suspect the gains are the result of refinance activity, I basically said the same thing you just did, without the explanation. These things were bought at X% of their face value and more right now are getting refinanced than getting foreclosed. That leads to gains. If rates stay low, eventually all that will be left will be junk, and the net losses will start occurring at that point.

Well, when you look at this I have a hard time seeing you you could misunderstand. Even the first thing you responded to:

Just last week there was another story relating to that about how Chase is showing huge gains off some of the stuff they bought from WAMU. I suspect that’s just the result of refinancing activity, and the losses will show up at the end.

When I’m talking about gains on assets bought from WAMU being the result of refinancing activity, I didn’t consider anyone would take your interpretation. Perhaps it would have been clearer if I’d said “refinancing and resale activity.”

I think you (and maybe Scotsman) were assuming I mean profit from making new loans. I was addressing only the assets they got from WAMU. not new loans they might make after buying WAMU.

This is very similar to the way I view the government’s attempts to hold down interest rates. By encouraging refinancing they’re doing an end around on Congress when Congress blocked them buying toxic assets. There the refinancing also benefits the entities holding the old loans, because they have a bit more certainty what their loans are worth, but as they go, what they have left will be more and more certain junk.

RE: deejayoh @ 73 – First, I have a degree in accounting.

Second, when I said that I suspect the gains are the result of refinance activity, I basically said the same thing you just did, without the explanation. These things were bought at X% of their face value and more right now are getting refinanced than getting foreclosed. That leads to gains. If rates stay low, eventually all that will be left will be junk, and the net losses will start occurring at that point.

Well, I guess we share that dismal bit of background then.

I am quibbling with your refinancing assumption. They took performing loans and wrote them down like they were non-performing – with no negative impact on the balance sheet – now they show a lot of profit from that loan when it pays back. And given the fire-sale price that JPM got WAMU for, they were able to write down a LOT of currently performing loans below their basis.

Here is what was published by bloomberg about JPM earnings (emphasis added):

When JPMorgan bought WaMu out of receivership last September for $1.9 billion, the New York-based bank used purchase accounting, which allows it to record impaired loans at fair value, marking down $118.2 billion of assets by 25 percent. Now, as borrowers pay their debts, the bank says it may gain $29.1 billion over the life of the loans in income before taxes and expenses.
…
JPMorgan said first-quarter gains from the WaMu loans resulted in $1.26 billion in interest income and left the bank with an accretable-yield balance that could result in additional income of $29.1 billion.

The words “pay back” and “interest income” do not suggest refinancing is a major source of profits to me. Do they to you?

Of course the loans could still go bad in the long run, but for now it is simply the purchase accounting balance sheet treatment and normal loan performance that is driving profits. No need for refinancing or workouts.

Kary, it has nothing to do with refinance activity. As ongoing operations, the banks continue to lose big time. Karl has a good summary and references to the source articles. Read at least the first third of the page- it will take two minutes and clear the whole thing up. Then you’ll be informed, and can pass the good news along to others!

http://market-ticker.org/archives/1067-The-Curtains-Are-On-Fire.html

HI DAVID

Cheer up, stop being grumpy, you think unemployment/underemployment massing up doesn’t matter for RE. Be happy, smile.

Also, don’t get into a Scotsman and Softwarengineer are just Dr. Dooms “name calling scenario” with no freedom of speech like you appear to think only your opinion enjoys, as, assuming that’s the case, I’m the opposite of you and Scotsman appears that way too….we welcome a disagreement thesis with facts and figures against our viewpoints, not just “don’t ‘cha know” pipe dreams ignoring unemployment chronically massing up. Perhaps you like the Chinese and Indian GDP growth model with half its “excess population” chronically living in cardboard shacks and hungry the last 50 years? America’s economy is just fine and improving, as long as the upper employed 50% keep adequately employed and Bernanke keeps infusing the Sucker’s Stock Market with debt cash [that's likely about to end next month, the federal stimulus cash for that apparently ran out per Yahoo Finance News yesterday].

Its my humble opinion that when the bottom 50% of America’s economy is destroyed [it is], similar to the Chinese/India model, RE prices [i.e., first time home buyers collapse] are going way down and concurrent with wage deterioration to global slave salaries [i.e., Mexican homes with their slave wages today sell for about $10,000] and the future debt to keep status quo going will inevitably fail due to a starvation investment pool [who's got money anymore?] with simulaneous plummetting consumer spending….thus driving home interest rates up in my opinion, at sky-rocketing levels too. When this happens soon, in my opinion; where will home prices go?

Or, you can be a “Dickens’ Bankster Scrooge” type and lament, “send all the excess population to poor houses or let them starve”….God help us if that current global direction is pleasing to most Americans [I don't think it is at all to date].

P.S. if you’re switching to foreign automobile purchases due to bankruptcy of American automobile production, heed my advice; put off your Toyota, VW purchase until 2010/2011, when they go bankrupt soon too, in my opinion. You may get that new Prius for like $10-15K then when they close all their dealers. Its simply supply and demand. As far as new 35 mpg cars costing more, LOL, that’s a joke and a blatant lie, they should clearly cost way less; and bear in my,opinion, Americans mostly want $10-15K cars anyway, with their current reduced wages, not $20-30K pipe dream ones. The conundrum is: a $10-15K Cobalt/Corolla type high milage car only supports like a $10-15/hr wage….ask Toyota who contract temporaries at that low wage rate.

Second, when I said that I suspect the gains are the result of refinance activity, I basically said the same thing you just did, without the explanation. These things were bought at X% of their face value and more right now are getting refinanced than getting foreclosed. That leads to gains. If rates stay low, eventually all that will be left will be junk, and the net losses will start occurring at that point.

RE: Pegasus @ 71 – Just last week there was another story relating to that about how Chase is showing huge gains off some of the stuff they bought from WAMU. I suspect that’s just the result of refinancing activity, and the losses will show up at the end. But whatever. These things are difficult to value and that leads to all sorts of uncertainty and also some potential for profit.

I am going to guess you don’t have much accounting/finance background. Here’s how it works:

Step 1) government gives JPM a bank with >$30B in book value for less than $2B
Step 2) Taking advantage of purchase accounting rules – JPM writes down the value of WAMU loans by $31B at time of purchase, even though they are probably worth more
Step 3) As those loans pay back, JPM gets a steady earnings boost thanks to government asset seizure.

See also: Bank of America + Merrill Lynch; Wells Fargo + Wachovia

The FHLB news is old news, at least as to the Seattle entity, and it’s based on the difficultly valuing these things. Just last week there was another story relating to that about how Chase is showing huge gains off some of the stuff they bought from WAMU. I suspect that’s just the result of refinancing activity, and the losses will show up at the end. But whatever. These things are difficult to value and that leads to all sorts of uncertainty and also some potential for profit.

http://subsidyscope.com/projects/bailout/fhlb/

By One Eyed Man @ 45:

RE: Kary L. Krismer @ 40 –

Kary, I think your right on the money as to the relationship between volume and the formation of a market bottom. Rising volume will preceed the stabilization of prices and any rise in prices.

Yes but it’s not exactly easy to predict the when that will happen. In late 2005, early ‘06, volume started dropping, and inventory started climbing. I was sure the top in prices was about to happen, but the top didn’t happen until July 2007.

And then it was arguably as a result of an external event that had nothing to do with the prior market action.

This year, like any year, people trade houses to get into a school, or change careers, or get rid of something, or buy something.

The difference is the shortened season. The buying and selling cycle starts in January. Corporate transfers and people spending year end bonuses usually start off the high end. February and March are Mom, Dad, and the kids time to buy. Last November and December should have had bargains.

Here we are at the end of May talking about prices going up based on two months of selling season.

I think the volitility in mortgage rates was the stupidest thing investors could have done. In my opinion it shook any dream of buying a good deal into the reality of what a shakey market place we are in.

Sellers who want to sell need to do it now. Whatever price hit you take today will be nothing compared to next year. Next year the Fed will be talking inflation. Next year the Fed will be looking for reasons to raise rates.

The economy for the next 18 months will be looking pretty good while the price of property continues to decline.

Think of what a little rattle of mortgage rates did. What will happen when they go up from historic lows?

You have to admitt this is a very delicately balanced market place of low rates, lots of inventory, $8000 credit.

When all that goes away the market is left with price.

“TrimTabs real-time data indicates that net take-home pay, which is defined as after-tax wages and salaries plus income tax refunds plus government tax credits and tax rebates, is down a staggering 16.3 percentage points y-o-y so far in May, compared to a decline of 4.3 percentage points y-o-y in the period of February through April 2009.

“Real-time data leaves little doubt the economy continues to contract at a rapid clip,” said Biderman. “Widespread expectations that the economy will recover in late 2009 are going to be dashed.””

Additionally:

“On Monday, June 1, the Bureau of Economic Analysis (BEA) will likely revise its estimates of wages and salaries and the personal savings rate substantially downward for the last quarter of 2008 and the first quarter of 2009″

Hmmm, could it be… deflation!?!

I see what you’re getting at, but for it to make much of a difference, we’d have to assume that we’re going to see a pronounced reversal, like we might see in the stock market (and unlike what happened in the still ongoing Japanese real estate bust). If this (the former) were the case, there would be a bottom that we would have missed, but certainly not by a year.

Say the index was at 100 now, but it goes down at it’s current monthly YOY rate for Seattle. Then in six months it bottoms in absolute terms and goes back up at the same rate to be at 0% YOY one year from now. In that case we see that it was back at zero 3 months after that or 15 months from the start. But the bottom happened only 9 months prior to that date that we saw it was back at zero, not 15 months prior. If the monthly YOY increase happened at the same rate as the current decline (highly doubtful it would be that fast), then another 3 months later we’d be at +4% YOY, give or take. That means we’d be 4% above the actual market bottom that happend a year prior.

In this case, we would have waited 3 months past the point that the CS numbers showed retroactively that the bottom had happened, but we would have only have missed the bottom by 4%. I would much rather buy on a uptrend, having missed the bottom by 4% than have tried to anticipate the bottom and caught a falling knife, with no clear idea where the bottom might be.

Maybe I lack imagination, but I just don’t see a catalyst that is going to make the market turn sharply upward any time soon. If it moved sideways for a year, then we’d see a the CS number at about 0% for a year. I don’t think this is unlikely at all. The stock market may look to the future, but home prices are going to depend on what banks are willing to lend, what rates they charge (likely to go up in ’80s Reagan-esque fashion), and unemployment (still rising). I don’t think people are going to run out and buy houses (or be approved to do so) just because somebody forecasts that GDP will stop contracting 6 months from now.

I’m curious what you think is going to turn price declines around.

RE: Greg Perry @ 61 -
Greg, it’s not your data, it’s your conclusions and predictions. You know, the smoking hot 2000 closings leading to a bottom that leads to a sustainable appreciation in the low tier thing. We don’t buy it, at least I’m not so we challenge it. Imo opinion you are not looking at the big picture but at a narrow segment with blinds for the state of the economy. There it is, it’s not your data so you can stop saying that it is. I believe your data is correct but not the relevance you arttribute it with.

Ya shore, of course there are a few educated conclusions based on my experience working with the way I organize my data set and the numbers I see. I am basing what I see on the numbers that are churning.

We all had a hand in predicting closings…… and YES! I still believe we’ll see 2000+ in a month in 2009. You? Did you go on record? Man, we’ll have over 6000 pends come in over a 3 month period with just a fraction spitting out so far in closed. Whooooo weeee, Unless the market turns “OFF” immediately (and that could happen, and if does, I’ll let you know), I think they’ll be a’comin!

And you are very correct. IF the market continues at this pace, I see the <$500k local price ranges starting to shed market time and see prices in this category first stabilizing, then starting to rise. Of course I also see the high end sucking lemons.

As for the economy? Yup, the market will change again. But it is, what it is, for today.

And as far as the relevance you attribute to the data I present, you can form your own conclusions based on your working marking experience! I betcha you don’t remember the upcoming market issues I see coming (and have commented on many times, such compression, lack of move up buyers, concerns about giving the tax credit up as a down payment, et al.)…..all issues I foresee based on the numbers I follow.

But at the end of the day, we’ll see how it plays out, won’t we? What was your closing/month prediction again? Say it again…. I want to see it

Signing off for today……

The government is already hiring. It will continue through the Census and subside in 2011.

I’ll say it again, house values never change. Rents, CPI, and the cost of goods are all that matter and they don’t matter that much.

I am kind of cranky today.

Let’s just put the trillions of dollars of equity to bed right now. This is the same as talking about paper profits. It means as much as talking about how many properties traded hands today.

You keep talking about going over a cliff, but that already happened. It’s over, done, finished, all that’s left is the whining and crying.

It started in 1998 with the beginning of the end of the technology bubble. That money went into Real Estate. The building boom converted tech stock into securities.

Now it’s all over, so what? You need to think of something else to do. There are so many ways to make money. There are so many things to do, so many countries with economies.

If the government choses to pay back debt, they do it. There’s no money in it, but they can do it.

The only people whining right now are the ones who feel they never got their fair share.

Whatever happens is an opportunity.

RE: Kary L. Krismer @ 48 –

I again agree, but I think there are people in the discussion who think that volume is irrelevant. IMHO its extremely likely that a “seasonally adjusted” increase in volume is a necessary component to the bottoming process. The increase in volume doesn’t insure formation of a bottom but it is a leading indicator for the potential formation of a bottom. That’s why I think some of the short term volume information that Greg provides has some relevance even though some of the bears write him off as a market cheerleader.

Only the numbers, my friend Only the numbers. Now granted, right now I believe the numbers have shifted and inventory is rapidly absorbing. Funny, nobody accused me of being a bear when I was posting numbers as the market was regressing. When it shifts again, I plan on being on the leading edge.

Yes but it’s not exactly easy to predict the when that will happen. In late 2005, early ‘06, volume started dropping, and inventory started climbing. I was sure the top in prices was about to happen, but the top didn’t happen until July 2007.

There is always a lag, or down.

Kary and Greg- ……. ah, what’s the point.

The point as I see is that this is a discussion about the current real estate market.

I understand and agree with some of your points and concerns. Tomorrow’s market will reflect the coming pot holes.

When you deciede to teach that seminar, I will buy a seat.

I don’t need to be convinced where we are headed or even some of the why’s; but I would love to see the math for someone more educated on the subject than myself. That detail level is one of the things I miss over at the market ticker. However, I realize KD must keep things in layman’s terms to educate his audience and the public at large. (like myself)

He’s no lapdog feconomist for the banksters.

To add to his great take, I’d add that we’ve also got slightly less unemployment increase to date. Big deal, its still getting worse. Part of Scotsman’s Spring Branch and proves no bottom, just proves its chronically getting worse with no end in sight.

My Broker just sent me the MOS and in city, my area of interest, is at 2.9 MOS, while King and whatever is at 4.5.

Who would possibly care? It makes absolutely no difference to the deal YOU want to do today.

Whatever the deal is that will get YOU to buy something is way off the charts YOU are looking at. YOU want a deal. So looking at the statistics is about a quarter, to one mile, radius around the deal YOU want.

Are you a buyer, or a seller? That’s it. YOU are the only person that matters in the deal you want today.

If YOU want to live in down town Seattle why do YOU really care what the MOS, MOM, YOY, WOW, is in White Center?

This is all sales gimmick stuff.

Real Estate is about YOU.

RE: Kary L. Krismer @ 40 –

Kary, I think your right on the money as to the relationship between volume and the formation of a market bottom. Rising volume will preceed the stabilization of prices and any rise in prices.

Yes but it’s not exactly easy to predict the when that will happen. In late 2005, early ‘06, volume started dropping, and inventory started climbing. I was sure the top in prices was about to happen, but the top didn’t happen until July 2007.

Uh huh.

If you buy a median or higher priced home now in the greater Seattle area you will lose hundreds of thousands of dollars of future opportunities. Yes, really. If you really think you need to buy something, and that I don’t have a clue about anything, how about a compromise? Make yourself wait until at least November of this year- homes are always cheaper in the fall, and this year won’t be any different. But you may learn something important by then that will affect your decision making process. Say “uh huh!”

Kary and Greg- ……. ah, what’s the point.

But don’t forget Tim, each would be move up buyer is also pent up demand at a higher price tier.

I again agree, but I think there are people in the discussion who think that volume is irrelevant. IMHO its extremely likely that a “seasonally adjusted” increase in volume is a necessary component to the bottoming process. The increase in volume doesn’t insure formation of a bottom but it is a leading indicator for the potential formation of a bottom. That’s why I think some of the short term volume information that Greg provides has some relevance even though some of the bears write him off as a market cheerleader.

…most owners who would normally consider selling now are would be move up buyers who choose not to sell into this market because they can’t generate the amount of equity they would like to have to purchase the new home they desire.

From a recent San Francisco Chronicle article:

No “move-up” buyers. In a normal real estate market, about 80 percent of buyers are “moving up” or “moving across” – people who sell one home before buying another, said Mark Hanson, principal of Walnut Creek’s the Field Check Group, a mortgage consultant. Remaining purchasers are split between first-time buyers and investors.

In today’s market, about half of buyers are first-timers and a third are investors, leaving just 15 percent of what he calls “organic” buyers. Those first-timers and investors all troll for bargain-basement foreclosures – leaving few buyers who are interested in the homes being sold by “Ma and Pa Homeowner.” That, in turn, leaves Ma and Pa unable to move up to a nicer home. “The organic seller is left out in the cold,” he said.

It also could impact supply down the road, when all those pent-up sellers finally decide to put their homes on the market.

Hmm, pent-up supply. What a concept. Now where have I heard that idea before… ;^)

On the other hand, how much of the low volume was Paulson? And will the recession really end this year?

But if you look at YOY, the volume will be down almost 30%, and the prices down about 15 percent. So in those two regards, the market is declining.

And finally, if you look from the recent lows, the volume is up over 50%, and the prices are up about 4%. Again improvement, but you’d expect that due to seasonal factors (but not the over 50%).

For me, it’s the third, which shows a smooth, clear trend heading steadily toward zero. Both the median and the MOS are quite noisy, especially so when you look at even shorter time periods like MOM and WOW.