We’re Looking For A Messenger (And Promise Not To Shoot)

I was at yesterday’s symposium. The first 5 panels were the doom and gloom type mentioned in the SFGate article.
Rosen’s keynote was, of course, bearish. He said that banks don’t have any more room on their balance sheets to carry any more debt. He predicted that there will be a total of $400 billion in write offs, with only $50-$60 billion written off so far. He pegged the probability of a hard landing and a soft landing at 45% and 50%, respectively. A hard landing could be triggered by gas going over $4.00 a gallon and $100 a barrel. Largest issues right now are the $250 billion trade deficit with China and the increasing inequality in income distribution. He stated that delinquincies are at 19% for subprime mortgages and 9% for ALT-A currently and will rise to 25% and 15%, respectively. Actual foreclosures, however, still remain low. On the commercial side, he expects cap rates to increase 25-100 bps.
Rosen was followed by an incredibly intriguing discussion on the foreign policy situations in Iraq, Iran and Pakistan. Relevance to local real estate market was little.
This was followed by three speakers on catastrophe insurance and basically how major catastrophes have essentially ruined the insurance industry and that only the government should be in that business. A repeat of the 1906 earthquake in SF could cause $150 billion in damages and the loss of 250,000 housing units.
After talking about hurricanes and earthquakes, we then moved on to the subprime crisis. Builders from Signature and SummerHill spoke, both saying that traffic to their projects has fallen off dramatically and that sales have slowed to a trickle. Interesting note on greenbuilding was that they see it as a marketing tool, but it remains to be seen if the consumer is willing to pay for it.
What I call the “legends” panel was next, with Sedway, Reynolds, and Tony Frank speaking about real estate generally. This was overall a fragmented discussion, with lots of denouncements about local officials who care more about getting elected than actually figuring out the highest and best use for sites, as well as condemnation of Wall Street’s short-sighted vision that caused the subprime crisis.
Finally, the symposium was concluded by three deal guys. There are still lots of transactions and lots of money raised, but M&A has essentially come to a standstill. Financing has obviously become much more difficult as spreads have widened dramatically.
Overall the theme was that the market is currently in bad shape. Consensus was that it will decline more over the next 2-3 years before picking up. The veterans stressed that this would be an overall positive market correction that is characteristic of the industry.

Thanks for the wrap up, I was wondering if there were any housing bulls represented and what their thoughts were.
On a somewhat related tangent to the housing market over all, I was reading this analysis of the Freddie announcement today and I ran across this …

The unpaid principle balance of Freddie’s single family Structured Transactions as of September 30, 2007 was $20.2 billion, representing approximately 1% of their total mortgage portfolio with a delinquency rate of a staggering 9.0%.

since it’s a blog and I hadn’t read that anywhere else I was wondering if anyone else confirm this?
That seems incredibly high for prime mortgages and would pose a real concern for future buyers being able to obtain loans.

new story on freddie needing to raise at least 4 billion, asap:
http://money.cnn.com/2007/11/20/magazines/fortune/freddie_analysis.fortune/index.htm
i don’t think the feds will let them falter too much longer but the more interesting story i find is that this could be the death nail for countrywide, since they won’t even be able to sell prime loans anymore.

one and the same:
“Overall, people are feeling a sense of malaise and dread, and that tends to have impacts in the way people behave, including spending, hiring, and once that happens, you’re in for a pretty strong downward cycle,” said Wunderman.
Bay Area employers say they will tighten their belts in the months ahead. Thirteen percent will be laying off, while only two percent will be hiring.”
“Perhaps the most sobering figure mentioned in its report today is that Bay Area home prices could fall 25 to 30 percent.”

housing definitely is facing even more considerable headwinds lately.
-Freddie and Fannie getting pounded is not good for anybody. They are the lenders of last resort. If THEY can’t make a profit lending, then to whom will Countrywide et al going to sell mortgages?
-ACA looks like they may fail. If they do, they cause big damage to the investment banks.. this would curtail IB ability to repackage mortgages. ACA failing would more importantly put doubt into the other insurers like MGIC or PMI
Overall, it just shows us what we already knew. All is NOT well in the world of structured finance. This will take some time (years) to work through. It is unlikely (although possible) that mortgage lending will loosen significantly given these headwinds, despite Fed cuts.
It will likely take govt intervention to get mortgage lending looser. (and govt is always willing to jump in)
on that front:
Sounds like there was some sort of deal between Schwartzenegger and 4 big lenders to freeze mortgage rate resets on a subset of California mortgages…
who knows what that will do… could prolong any fall in RE values as people may not get foreclosed upon as quickly?
I’ll stand by my prediction: SF RE will go up if pricing is indeed predicated on the incomes/wealth of buyers. It will fall disastrously if it is bouyed by credit.

that’s a great point ex. even if you are doing well, there’s bound to be someone in your family at the thanksgiving or christmas table really hurting.