by Calculated Risk on 9/10/2007 02:41:00 PM

From AP: Moody's Warns Housing Slump to Persist Through 2009, Sees Further Homebuilder Downgrades

"Our current thinking is that the downturn, currently two years in the making, will last until 2009, with any sector recovery likely to be sluggish for some time after that," said Joseph Snider, senior credit officer at Moody's.
...
"Many of these [public builders] may see further downgrades, with multiple-notch downgrades possible for homebuilders," Moody's said.

by Calculated Risk on 9/10/2007 11:44:00 AM

UPDATE: On Bloomberg Video: Yellen Sees `Significant Downward Pressure' on Economy. (hat tip Anne)

Click image for video.

Federal Reserve Bank of San Francisco President Janet Yellen speaks about the U.S. credit and housing markets, and their impact on the overall economy and Fed monetary policy. Yellen speaks at the National Association for Business Economics annual meeting in San Francisco. (Source: Bloomberg)

From San Francisco Fed President Janet Yellen: Recent Financial Developments and the U.S. Economic Outlook. As usual, Dr. Yellen's speech is worth reading. Here are a few excerpts (emphasis added):

Even with corrections to credit underwriting standards, it still may turn out that these innovations don’t actually spread risk as transparently or effectively as once thought, and this would mean—to some extent—a more or less permanent reduction of credit flowing to risky borrowers and long-lasting shifts in patterns of financial intermediation. It also could mean an increase in risk premiums throughout the economy that persists even after this turbulent period has passed.

On housing and consumption:

Beyond the housing sector’s direct impact on GDP growth, a significant issue is its impact on personal consumption expenditures, which have been the main engine of growth in recent years. The nature and extent of the linkages between housing and consumer spending, however, are a topic of debate among economists. Some believe that these linkages run mainly through total wealth, of which housing wealth is a part. Others argue that house prices affect consumer spending by changing the value of mortgage equity. Less equity, for example, reduces the quantity of funds available for credit-constrained consumers to borrow through home equity loans or to withdraw through refinancing. The key point is that, according to both theories, a drop in house prices is likely to restrain consumer spending to some extent, and this view is backed up by empirical research on the U.S. economy.

And the risks to the economy could be 'significant':

To sum up the story on the outlook for aggregate demand, I see significant downward pressure based on recent data indicating further weakening in the housing sector and the tightening of financial markets. As I have indicated, a big issue is whether developments in the relatively small housing sector will spread to the large consumption sector, perhaps through declines in house prices. Should the decline in house prices occur in the context of rising unemployment, the risks could be significant.

by Calculated Risk on 9/10/2007 10:49:00 AM

From the LA Times: Credit woes hit commercial real estate market

The global credit crunch ... is finally reaching the vast commercial real estate investment and development industry.

... bidders who have been borrowing heavily to leverage property acquisitions are falling away as lenders shut out marginal players, [John Cushman, chairman of real estate brokerage Cushman & Wakefield] said. So far, though, the long-robust market has cooled but not collapsed.
...
"There has been a spike in the last 30 days of deals falling out of contract," [Robert White, president of real estate data provider Real Capital Analytics] said. "People planning to close deals last month got hesitant."

The following quotes sound like residential real estate about 18 months ago:

"There aren't a lot of pressured sellers out there. ... " White said. "If they can't get their prices now, they can afford to wait. Probably a lot of assets just won't trade."
...
Another difference from the residential market is that "the delinquencies in commercial mortgages are virtually zero," White said. "We're seeing virtually no delays or defaults."
...
"The frenzy is all gone," [Craig Silvers of Bricks & Mortar Capital] said, "but the commercial market is not in decline."

by Calculated Risk on 9/10/2007 10:28:00 AM

From Bloomberg: Washington Mutual Says Housing Market in `Near-Perfect Storm' (hat tip Brian)

Washington Mutual Inc. ... said today that conditions in the housing market are creating a `near-perfect storm' ...

``The combination of rising delinquencies, higher foreclosures, more housing inventories, increasing interest rates on many mortgages and greatly reduced availability of mortgages due to limited liquidity is creating what we call a near-perfect storm for housing,'' [Chief Executive Officer Kerry Killinger] said.

by Anonymous on 9/10/2007 09:38:00 AM

Not only is it impossible to write about Las Vegas's real estate problems without engaging in casino-talk, it also appears irresistible to talk about real estate speculation as if it were only a form of slot-machine playing but with bigger tokens. The former might merely be annoying, but I wonder if the latter mightn't be causing a certain conceptual problem. For one thing, it erases the complicity of those who asserted that real estate price appreciation is a matter of "fundamentals" and the land that they don't make any more of and demographics and so on (Hi, NAR!), leaving the impression that speculators thought it was all just a matter of probabilities and chance, like throwing dice. However good an idea it was to listen to NAR, the fact is that they and a lot of their stenographers in the press were claiming that RE appreciation was not random or chance. Treating those failed speculators as mere crap-shooters now, it seems, is kind of convenient for the "House" experts.

This reflection arises from this Chicago Tribune article on Las Vegas's RE woes, which also informs us that:

Gamblers willing to bet on a property or two were rewarded with almost immediate payoffs. The guy who sold Karen Lewis her house for $435,000 in June 2006 raked in a $200,000 profit after holding it less than two years, she figures.

"Houses were really cheap. Loans were really easy," said Lewis, who moved from California. "These were investors who didn't ever live here. Now, they're totally walking away." . . .

From her front door, Lewis stares across Arcata Point Avenue at the for-sale signs on two abandoned houses in foreclosure. The house next door stood empty for months as well, until a couple of out-of-town cops started using it for an occasional vacation getaway.

Between 15 percent and 25 percent of the homes in her 3-year-old gated community are for sale, she estimates, many behind on loan payments and an alarming number deserted, their lawns burnt out and trash untended.

Does anyone else want to know what "a couple of out-of-town cops started using it for an occasional vacation getaway" means? You know, I'm not sure I do.