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During today’s Financial Crisis Inquiry Commission hearing on the role of the ratings agencies in the financial crisis, the Oracle of Omaha looks back at the housing bubble.
Buffett: “The early Cassandras do look foolish … when your next door neighbor is making money very easily by buying a second house with a very small downpayemnt, after a while it sort of gets to you and maybe you figure you should be doing it too.”
Carolyn Said of the San Francisco Chronicle reports on how foreclosures and short sales are going upscale, many buyers no longer able to put off the inevitable.
Nearly 1,000 homes valued above $730,000 were repossessed by banks in the nine-county region in each of the past two years, according to a Chronicle review of public records compiled by MDA DataQuick, a San Diego research firm. This year is on track for similar numbers, with 223 homes in that price bracket repossessed by banks since January.
Back in the real estate boom year of 2005, just 42 Bay Area homes valued above $730,000 went into foreclosure; in 2006, the number was 80.
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“In high-end areas, (default notices), which started at super low levels, have grown 50 percent to 100 percent higher,” LePage said.“It definitely seems like the focus is shifting,” said John Sefton, a real estate agent with Empire Realty Associates in Walnut Creek. “We’re seeing more defaults, foreclosures and short sales in the more-affluent communities, and the activity in outlying (lower-cost) areas has dropped off.”
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Experts emphasized that the foreclosure numbers don’t fully reflect the extent of distress at the high end, because for expensive homes, banks are more likely to pursue short sales, in which the homeowner stays put while marketing the home for less than is owed on the mortgage.“Banks take the time on the high end to short-sale properties because they get a higher return and better valuation,” said Pat Lashinsky, CEO of Emeryville’s ZipRealty, a nationwide brokerage. “When you sell a high-end home, its condition is significantly more important because (buyers) expect it to be maintained.”
I wish they’d hurry up with our short sale offer – it’s been three weeks and the last we heard is that a reply to our offer by the bank is not likely to come for another few weeks. From a buyers point of view, banks seem to suck all the joy out of buying a home.
Over in the U.K., they’re fretting about whether BP (formerly known as British Petroleum but now simply BP, despite what you might hear on American television) will survive the gulf oil disaster, a point that is quite clear in this video and a related report from the Telegraph.
The clip of BP CEO Tony Hayward saying “I’d like my life back” is not going over very well on this side of the Atlantic as the American media in general and the American left in particular are skewering him today as equity markets consider if yesterday’s punishment was enough.
BP released its first estimate of the cost of the cleanup for the Deepwater Horizon “spill” and it is in the $4 billion range, prompting the question, “Why does the oil industry have to clean up its messes but the banking industry doesn’t?”
Should anyone listen to Pimco’s Mohamed El-Erian when he talks about equity markets after last summer’s disastrously wrong “sugar high” characterization that was soon followed by a nine month period of rising prices and a gain of more than 20 percent across most equity markets? Apparently so, according to this report at Bloomberg today.
The biggest monthly drop in the Standard & Poor’s 500 Index since February 2009 is ratifying Mohamed El-Erian’s prediction for a new normal of below-average returns. Analysts say not so fast.
Combined price estimates from more than 2,000 forecasters tracked by Bloomberg show the S&P 500 will rise 27 percent in the next year, the fastest projected rate since February 2009, data compiled by Bloomberg show. The rally above 1,350 will be led by industries most tied to the economy, according to analysts who boosted individual share projections by an average of 0.9 percent in May, the 14th straight monthly increase.
The estimates show Wall Street firms are discounting El- Erian’s assertions as well as Europe’s credit crisis and instead focusing on economists’ growth projections, which call for U.S. gross domestic product to expand 3.2 percent this year and 3.1 percent in 2011.
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“Structural changes are often omitted from analysts’ assessments until the evidence is truly overwhelming and the implications have already imposed themselves,” El-Erian, who oversees $1.1 trillion as chief executive officer and co-chief investment officer at Newport Beach, California-based Pacific Investment Management Co., wrote in an e-mail to Bloomberg. “Structural changes are among the hardest things for analysts to identify and to price.”
It’s like choosing between the lesser of two evils – forecasters who rely on economists’ projections (that seem to always project solid growth) or a bond fund manager who really should stop commenting on the stock market.
In this item yesterday, Eddy Elfenbein at Crossing Wall Street provides more evidence that U.S. equity markets are doing a pretty good job of “rhyming” with the 1970s.
Also see Paul Farrell’s related commentary in which he notes that retail investors in the U.S. are “predictably stupid” and that’s the way Wall Street likes it.
TOP STORIES
Jobs Bill vs. Deficit, a Showdown in the Senate – NY Times
Iran to sell 45 bln euros, buy dollars, gold -Xinhua – Reuters
New York Lawmakers Pass Ninth Weekly Emergency Spending Bill – BusinessWeek
The Case Against Keynes (With Some Questions for Krugman, Too) – The New Republic
Data implies the U.S. economy headed for a 2010 double dip – Credit Writedowns
The $5 Trillion Debt Tsunami – Daily Reckoning
‘The Big Short’ a hot read on Hill – Politico
The People Who Borrow – Mises
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MARKETS/INVESTING
Oil falls below $72 after weak macro data – Reuters
Gold in India Reaches Record on Currency – BusinessWeek
S&P 500 fails first test of the 200-day mvg avg – MarketWatch
US Mint Sells More Gold Coins Than Any Month Since January 1999 – Zero Hedge
Analysts Projecting 27% Gain in S&P 500 Defy El-Erian – Bloomberg
Euro to Go Under $1.20 ‘Almost Certainly’: Gartman – CNBC
By Tim Iacono, Since 2005
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