Subprime: Interest in Housing Slumps Due to ‘Mortgage Disruptions’

Toll Brothers’ (NYSE:TOL) chief executive says he hasn’t seen such little interest in housing in 20 years. And Bloomberg has a report predicting that the housing slump will deepen amid further “mortgage disruptions”.

What happened in Florida, according to the press, is that the flippers got flipped. They bought condos and houses…expecting to flip them to other buyers at a higher price. Some new apartment houses were bought almost entirely by flippers. They all thought that the final buyers would come along with fat wallets and empty heads. Many did. But not enough. After flipping the places back and forth between themselves, the flippers could not find retail buyers willing to move in, pay the taxes and mortgages. The whole market is suffering from an overhang of properties – which could take years to work down.

The Wall Street Journal reports that desperate builders are offering incentives to get buyers in the door. In Virginia, for example, they’re advertising “Sizzlin’ Summer Sale Savings”. Then, running out of ‘s’s, they offer – yes – free granite countertops. This is amazing to us. We thought every kitchen in America already had granite countertops. We considered granite countertops the one solid, lasting, tangible thing this boom had really produced. Apparently not. There seem to be a few counters still in the USA without granite on top. We hope this boom continues for another couple of years in order to complete the granitisation of America’s kitchens.

Thanks to these problems, the entire markets seem to be ‘re-pricing’ risk, say the experts. It looks to us as though they had re-discovered risk. Volatility, long thought dead, seems to have suddenly risen from the grave.

But, we repeat, don’t worry, dear reader. This too shall pass…and soon stocks will be headed to new heights of glory… they will mount the hills of Zion, for sure.

That must be what investors in Blackstone’s new fund think. Blackstone (NYSE:BX) has raised the world’s biggest pile of private equity money ever – more than US$21 billion.

Even the California state teachers have put a billion dollars of their pension money into it. Talk about true believers! What is Blackstone going to do with so much cash? How is it going to find such huge values that, somehow, the investing public has overlooked?

But that is what happens when you reach the silly side of a credit bubble. People are ready to believe anything. They no longer fear losing money. And they can’t tell the difference between an investment and a rank speculation. So, even pension funds and bible schools put money into swaps, CDOs and private equity funds. They can’t imagine losing it. Things always go up, don’t they?

And things always do go up when the credit bubble is expanding. When it contracts, most things go down. If we are not on that side yet…we will be sooner or later. So, we’ll leave our Crash Alert flag up for a while…

Bill Bonner
Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.
Bill Bonner

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Richard Wicks

Granite sucks and is a hassle to maintain. It’s a porous surface. It’s fine for a home where nobody actually cooks.

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