Connecticut. This is one of the tonier Zip codes in America. It is the
home of Greenwich. A very nice town indeed. The hosts (Muffi and Chas)
put on a great spread. The invite read, “Seasonal Attire”. I had no
clue what that meant in this circle.
It turns out that Seasonal Attire means for the ladies a $3,000
Bergdorf outfit with lots of ice and gold. For the men it means khaki
colored pants, a blue blazer and hand made French cuff shirts from
China. No tie. I show up in a brown sport coat and black pants. I wore
a tie with holly berries on it; I bought it just for the occasion. What
do I know?
I ditched the tie in a potted palm and tried to be invisible. In a
short period of time I downed six flutes of Moet and most of the shrimp
platter. One of the serving girls saw that I was hungry and kept the
canapés coming. Her name was Laurina; I learned that she comes from
Guatemala. Her story is that her mother hocked the family home for a
$12k IOU to the Coyotes. They, in turn got her to El Paso, Texas. That
was in 2006. She lives in nearby Bridgeport and works steady. She has
already paid back the coyotes (with interest). She thinks America is
great. Can you see this picture?
I did my best to mingle. The ladies had a lot on their minds. There was
a consensus that the private schools were not as good as they used to
be, and as a result there is pressure to find home tutors. The problem
seems to be that there is a shortage of the ‘best’ tutors. That struck
me odd given the number of layoffs in the public schools of late.
Anyway “all” the good tutors have been taken and there is now
competition. One lady confided her solution. “Offer to double the fee
and they will drop one of their other clients”. Money talks in
Greenwich.
They guys seemed to be either bankers, Wall Street types, lawyers or
involved with a hedge fund. They only talked money. From the chitchat I
concluded that every one of them was long the dollar and short gold
last week. At least that was the talk. I think this was like lying
about one’s golf score. I attempted to participate in these
conversations. At one point I threw out something erudite like, “Ben
Bernanke is screwing things up. QE will destroy us!” From the looks I
got, you would have thought I had farted.
I did get some insight on the status of Greenwich real estate.
Properties with a price tag above $10mm are still in demand and the
price drops have been modest. “At most 10%”.
Evidence of this was a home that recently went on the market for a cool
$22mm. It sold in a fortnight for $21mm. All cash, of course. Deep
pockets are still very much in existence in Greenwich. One guy who
might have been drinking a tad too much reminded everyone that there
were still another five properties in town with a price tag north of
$20mm looking for a buyer. Party pooper.
The problem, it seems, are those properties that are in the $1-5mm
range. These have been marked down by 30 –40% and there are still no
takers. These are not for the deep pocket set. These homes have
traditionally been financed by Uber-Jumbo mortgages. No more. From what
I heard, there is no mortgage money around for a $4mm house.
One of the numbers guys provided an update on the market.
-There are currently 496 homes for sale with a price tag
greater than $1mm. The listed value of these properties comes to a
whopping $1.9 billion.
-The 2009 full year sales for these homes will come in around 175.
So there is a two plus year supply on the market. And that is just what
is listed.
-Of these high-end homes, 24 are in foreclosure. The listed mortgage
balance outstanding against them comes to a tidy $50mm. An average of
$2mm. There was some discussion as to who was the lender for the $6.7mm
mortgage on the property out on Close Road. No one knew for sure, but the thinking was, “It had to be Wells”.
-Some concern was raised for the “poor bastards” who might be losing
their big buck homes to foreclosure in the near future. As I looked
around at the unfamiliar faces in the rooms I wondered if any of them
were “poor bastards”.
The average mortgage in the US is about $200k. The average loss in
foreclosure is $75k. In Greenwich the average mortgage is $2mm. So when
one of these babies goes under it causes a big splash. The loss is
closer to $1mm. About 10 times more destructive than your every-day
foreclosure loss.
After listening to all this I concluded that America’s problems with
Sub Prime and Alt-A are in fact finally contained. That is not to say
the problem is resolved. But we at least know what the scope of the
problem is. The problems with Prime Jumbo mortgages are however still
in fourth gear. It is not just a Greenwich issue. It is in every
high-end community in the country. The loss of wealth by the owners of
these palaces is staggering. The impact to the lenders will be so as
well. The stink of Sub Prime has finally bubbled to the top.
I have never been a big proponent of the “trickle down theory”. But a
lot of others are. We may be seeing its affects. The impact of the
illiquidity and the drop in value of high end RE will influence
consumption and demand for a very long time to come.
At one point someone asked me what I did. I responded that I wrote
about financial issues. When asked where these might be seen I said
“Zero Hedge”. Talk about cutting a fart. I went home early.
The Wall Street crowd is very much aware of Zero Hedge and the other
new sources of financial information/ideas. I did not get the sense
that it was welcome. That’s a good thing.
"Florifornia" paper (CA, FA, AZ, NM, NV, MI) ... has another HUGE leg down coming into Q3 2010 and then Q2 2011 if i'm not mistaken as per resets upcoming ... Bruce's EXCELLENT point is that Alt-A is NOT the issue upcoming SIMPLY bc we (in the know) are fully aware of what sits on the books ... the real next shoe (outside of CRE, duh) are the New Canaan, Purchase, Rye, Scarsdale, Stonington, Dallas, McLean etc. Mc-Mansions where the "wealthy" are sooo f'ing hung out to dry without a lifeline (think retard Nick Cage or one of the biggest assclowns ever, Lenny Dykstra).
Once Thornburg (TMA) was effectively neutered so too was ANY chance of financing such deals ... after a quick client call, I'll put up some crap on TMA and why their be-heading was so instrumental for this niche market of ginormous size that has simply been ignored by most anal-ysts.
Dr. Bubble has a good handle on CA RRE. His side point about strategic defaults representing an economic mini-boom is kind of interesting.
Larger than the RE gloom and doom is the reality that the USA cannot pull out of this downturn until CA stabilizes, at least.....probably in '11 as he predicts the recasts running their downward course. Very little action in midrange sales now as most prospective buyers see '10 as another leg down in values....which really sucks.
CALI's contribution to GDP , fed tax revenue and buying income is/was #1 among all States. It's hard to pencil any measurable National economic rebound without CA.....even harder to do if adding FL, AZ,NV troubles into the mix.
As a real estate agent with about 6 years experience listing REO properties, it's fascinating to see the dynamics in the whole default/foreclosure/sale by lender process. I quit doing them earlier this year when a long-term client/lender sold their business and REO portfolio to a large asset management company.
Often the agent starts working a property over a year before the actual market sale upon which a commission is paid. Rainman's example above is a good one. An agent may have started checking on the property back in late '08, maybe going out to check occupancy and complete a BPO (Broker Price Opinion-sort of a mini market analysis for the lender) for free in hopes of eventually getting the listing. The agent fronts a lot of money out of their own pocket, and in the current scenario of securitization, bank/asset management company failures & consolidation, I decided that putting my money out there (at risk) was not justified by the ever-decreasing commissions and ever-increasing work expectations.
Agents are tripping over themselves to get these bank listings, and asset management companies know it. If they're not careful, an agent will get screwed out of thousands in reimbursement owed. It never happened to me, but I know someone who lost $7,100 on one listing due to a asset manager challenging documentation & not getting a response within 48 hours. Lots of agents are making money and will continue to do so, but I decided it wasn't worth the risk. Sooner or later the music will stop.
Lots of property out there in various states of limbo too. I even saw one lender-owned house that failed to sell on the MLS (Multiple Listing Service), but later sold "offline" for a song to a private buyer directly from the lender/asset management co. That sale will be missing from some statistics reports, especially those from the MLS. How many more of these are there? Does anyone else have any familiarity with this? I caught it only because I was keeping an eye on that specific property as one I really liked.
Some things never change.
First, what a bunch of snarky, class-envy, class-hatred comments. Not cool. Maybe these guys lead productive and useful lives, and maybe they are the lawyers and doctors you call on when your ass is in a sling.
Second, everyone is taking a hit this time. We were all greedy. No one seemed to mind things when values were skyrocketing. So now we all get to suck it in and live on less.
Third, these folks care intensely, as do I, about their kids education. They want their kids to succeed, to be ambitious, to work hard, and to prosper. Maybe if everyone in the USA cared as much about their kids, we might have fewer drop outs, fewer broken families, fewer folks gaming the welfare system and dropping out.
Just because folks look dressed up, doesn't mean they are jerks. Save the false modesty for the New Yorker....
I'm sure laurina aspires, to be just like them. how long will it take , investing your disposable income, when you make minimum wage. everybody cares about their own, even predators
Puhlease..."Anonymous"...you are obviously not from one of these areas, but desperately want to be. Envy is ignorance. I am from 'this place' and your comments above certainly reveal your lack of ever living 'here'.
Having lived in Greenwich (granted 20+ years ago), I found Bruce's comments regarding his fellow party attendees to be directly on point and far from snarky or envious. I'm sure that thinly veiled class-hatred was present at the party. Based on my residence in Greenwich, I'm very confident that the class hatred was not coming from Bruce but, in fact, from the other attendees. JMO.
+1,000,000
Well, time for an update on my sis-in-law. Custom home purchased in '06 in AZ for $ 1.6 M. Option ARM with $200k in. Has not made a payment since Sept. '08 and just got the 30-day and out letter last week for Jan.4 '10. She must have set a world record for living in a mini-mansion for " free ".
Two Short sale offers were in for $ 500 and $550 , which the bank never considered. So they'll wait for a better day, I suppose. I wanted to ask about the bank holding it while there at Thanxgiving, but she never shuts up long enough to hear a question.
Nice story , Bruce.
Good post. Very well written.
Re: Jumbo Mortgages - You're absolutely right.
They are very hard to obtain. Even if you do find a willing lender, if its not the down-payment amount, the reserve requirements surely make it unfeasible.
Yep, upper middle in the process of getting crushed.
Wife gets hit up all the time , know anyone that wants to move into the neighborhood?
The aspirational class is perspirating.
Folks go broke slowly and then all at once....
"The Wall Street crowd is very much aware of Zero Hedge and the other new sources of financial information/ideas. I did not get the sense that it was welcome. That’s a good thing."
On behalf of everyone, let me just say FUCK THEM! It's actually an honor not to be invited to these cocktail parties full of shallow, hopelessly insecure Wall Street types and their trophy brain dead wives. I use to allocate to the top hedge fund managers in the world, and they wouldn't be caught dead at these cocktail parties.
As for RE in Greenwich, it is highly correlated to hedge fund flows and bank profits. The rich are getting richer while the working class are struggling to keep their jobs and pay their mortgages.
"The owners of this country know the truth, it's called the American Dream because you have to be asleep to believe it."
- George Carlin
Leo, I bet you'd be right there with them if you had the opportunity. EVERYBODY has their price! And somebody who speaks like you do, does so out of envy. What is your price?
Leo, you shouldn't even respond to this. It's the argument of a six-year old. When you can't attack the content, you go after the person. This isn't group therapy, Anarkst, it's Zero Hedge. Be serious.
cdskiller, thank you for your profound wisdom.
Leo, everybody in this life has their challenges, as you have yours. This does not give you the right to stand in judgement of anyone. You do not know these people or what their situations are. Maybe they have MS also and are doing the best they can.
Would you be willing to cover a $50k bet that they have MS and are doing the best they can?
This is false political correctness...take it back home , is not requested. The article was clearly a Dickensian paradox...and was focused on the mortgage market , not much on social environment.
You attacked someone out of the blue personally and not on his points....so, the shut up and bugger off is on you.
You are absolutely right, the comment wasn't worthy of a response.
You must be one of those investment banking clowns that use to come visit us to peddle their crap. What's my price? You have no idea. If I could have my own hedge fund, I'd fuck the investment bankers and redistribute most of my profits to worthy charities. Having lived with MS for the last 12 years of my life, I can assure you money doesn't define me or bring me happiness. Faith, family, friends and my health is really all that matters to me. Having a house in Greenwich with the trophy wife that goes for plastic surgery every other month is for the lunatics on Wall Street. Envious? They should be envious of those of us who are secure with the litle we have.
Leo, I hope you checked this out: http://www.theglobeandmail.com/news/national/researchers-labour-of-love-leads-to-ms-breakthrough/article1372414/
Amen, brother.
"I HAVE ALWAYS THOUGHT OF CHRISTMAS TIME, WHEN IT HAS COME ROUND, AS A GOOD TIME; A KIND, FORGIVING, CHARITABLE TIME; THE ONLY TIME I KNOW OF, IN THE LONG CALENDAR OF THE YEAR, WHEN MEN AND WOMEN SEEM BY ONE CONSENT TO OPEN THEIR SHUT-UP HEARTS FREELY, AND TO THINK OF PEOPLE BELOW THEM AS IF THEY REALLY WERE FELLOW PASSENGERS TO THE GRAVE, AND NOT ANOTHER RACE OF CREATURES BOUND ON OTHER JOURNEYS." CHARLES DICKENS
h/t Jesse
Leo,
My late father had chronic-progressive (?) MS from the time I was 8 until the time I was 22. It wasn't fun to watch.
God bless you and may you continue to manage well with your MS.
Woops, walked right into that one...
+10000
Bad news for the banks - mortgages above $2.5M were generally not securitized.
Why not? No buyers for low-risk bonds?
Soon there will be a (not so) mysterious buyer stepping up to buy them at par, no questions asked and no conditions required.
Jumbo, premium priced equity hit.
Reading this, the phrase, "It's not just a river in Egypt." comes to mind.
Sounds a lot like Bronxville.Tons of empty stores in town,and a lot of home shoppers in the 1.5-4 million dollar range.These browsers will come to look at a house they LOVE 4 or 5 times , but not even make a low ball bid.Similar to Greenwich, 5million dollar sales are happening(bonus cash).With no one pushing up prices...700 -900k sellers looking to buy up,prices will have to adjust.It is too bad the government cannot create an index that can ,second by second ,track the value of your home.They could give you a number of units ,create a national value for a home ,and manipulate it...very similar to the S&P 500.
My home is for sale in another NICE community,Larchmont.Figured if they were going to throw around Money (interest rates and tax credits) that maybe someone would love to buy my charming ,but small and low expense(utility and taxes) home.So far not a bite ,2 very poorly attended Open Houeses(broker and public) just no traffic...
Thank you for your story today..
Sellers are higher ...buyers are lower
A funny read about a very serious topic. They should have been thankful for the farts. When the new year rolls around and the managers of 'new' hedge funds have locked-in their fees for this year those farts will become blue flames all around.
Did you retrieve the tie before bolting? Great work, keep hitting those holiday parties for us!
Solid read, appreciate it Bruce...and thanks for telling us about Laurina, surely the hardest working person in the room.
I really enjoyed this. I'm not quite sure why. Maybe it's because I can smell the panic...theirs, not yours. I had this image while reading that you were surrounded by dinosaurs who knew the meteor had hit, the climate had changed, and they were on the verge of extinction, but that they were trying to exhibit a kind of British stiff-upper-lipiness in spite of the inevitable and inexorable decline. Their age has passed. They can only hope they succoumb to old age and not fall prey to the hyenas soon to be on the loose.
I left that party on my own terms a while ago. I hope I've learned the skills Laurina already knew, because they're going to be more useful in the coming years than knowing Black Scholes or Green's Theorem.
fabulous morning read with a fresh ground cup of java. Smiles and chuckles, and imaginations rampant with your question, can you picture this? A wonferful array and melding of perspectives and data. Great work!
The perfect storm is coming and it will get them too.
Thank you Bruce...an excellent read!
My only question/comment relates to the notion of public schools laying off teachers. I don't know about Conn but New York certainly hasn't rocked the boat with the teachers unions yet.
Actually, that is a big "yet" in light of Paterson's mention last week that checks going out now to school districts will be lighter because NY is out of cash, per Paterson.
Are you seeing layoffs in Westchester County and downstate? I'm in upstate and have seen nothing, though one can feel the anxiety of teachers, school boards, superintendents growing exponentially.
DH,
Completely OT but, if you have not seen Furthur yet, I strongly recommend a show on the upcoming winter tour. Saw them at Wallingford, CT on Friday night. They are still gelling and only 90% polished (I heard the NYC shows on Tues/Wed were only ok), but that show on Friday had the best second set I've seen/heard in 15+ years. Phil and Bob were sporting big smiles. If you miss JG as much as I do, check these guys out. You will not be disappointed.
thanks boeing....
i have gone to more ratdog concerts in the past few yrs than i can count! saw 'the dead' do the obama thing at penn state and it was okay (not a warren h. fan).
there are 3 furthurs very close to me in feb and i'm still on the bubble.....
DH,
You're welcome! Just doing my part to try to share something special with my brothers and my sisters while it's still out there (Phil is pushing 70 with somebody else's liver after all).
I understand being on the bubble (I've now heard from several folks about the Obama concert not being that great and I've never seen a Rat Dog show but saw GD 100+ from 1985-1995). In fact, I went to Friday night with very measured, low expectations but high hopes (based, in part, on what I know of John Kadlicek from seeing DSO). And, I was stunned after the show to have had every high hope met or exceeded.
a great read today, Bruce ! thank ya for it.
deadhead:
NYS is not going to touch Tier I / II teachers et al BUT, if you're Tier III, would not feel as comfy and would be very interested in synthetic pension protection. When we were running our fin. adv. / biz consult practice we had the vast majority of our clients entertain the idea: guess how many actually wanted any protection ? about 3 who weren't family, which was less that 1% of such clients across all relevenat group bills.
they all know there is no way that anything can ever happen to their Plan B option for 8.375% guaranteed a year. ha ha ha. retail.
as per layoffs : there have not been such but there has been a very interesting turn, which will exert further public pressure upon the issue of public pensions themselves in the coming 1-2 years ... retired pensioned teachers are returning to service at different districts to "double-dip" (garner a pension check plus a salary).
basically ... a retired / pensioned teacher with say 30 years and MA + 60 (masters degree plus 60 CE credits) earns an average of about $75 - 82K a year depending on their old district and how hard they pushed during the final three years of tenure.
what is happening is that young teachers, well, they suck for the most part ... and while this is NOT a knock on all young teachers, welp, the reality is that there are just not that many young folks entering the field bc who are quality educators; they tend to be lazy frat-type guys / sorority bookworm girls who, welp, just couldn't do much so they teach. again, not a general knock just a valid complaint that almost any tenured teacher of more than a decade will tell you. similarly, if you don't have the pension / benefits of a Tier III or greater, then the retirement / benefits package is just not that great. it is good, but nothing like Tier I / II, which are just outstanding.
SO ... what's happening is that retired teachers who do not have their aces covered for retirement and are only realizing so now, while they hope that their 403(b) holdings in plan A will somehow magically just return to their former glory ... welp, they, who are truly quality educators compared to young teachers earning a check (for the most part, not all of 'em) are re-entering the field at another district to fill a void and are earning about 60- 70% of their "normal" salaries if not the identical amount of their annual pension.
SO ... much like california firefighters ( san fran fire chiefs ) this is an "issue" which will soon enough have the unintended consequence of drawing further ire from public toward public employees; ESPECIALLY teachers. this is NOT a new idea, just one that many of us who are / have been on the ground have been talking about for the past year plus. it is going to bite the NYTRS / NYS teachers themselves in the ass soon enough. cali fire chiefs are just beyond reproach and ought be reigned the F' in real f'ing quick; "they" will be the ones who will have "ruined it" for decent folks like teachers who are 'double-dipping' in legitimate fashion and filling a much needed void in the process. rant over. enjoy your saturday. great piece, Bruce.
The US education system was very good for time until the Jews basically Jew'd it up. Like usury, Jews eventually ruin a good deal when they get involved to the hilt. The Fed? Yes. The US Education system? Yes. The US University system? Yes. The US Mortgage system? Yes. Obama the black Jew puppet? Yes.
Their time is coming though. All of the Jew crap will be turned out of the US Education system after their overreaching with integration, busing, Open-Borders and free ride College visas for foreigners.
thanks for your insights chop.....i'm in ny and keep an eye on the educational complex leviathan here
this govt employee pension thing should be very interesting to watch...people in a pension system that pays them regardless of savings, investment results, have no clue how much better off they are than people who have to rely on their savings in a 401k to get them by when they are older.
I have heard city workers, cops, fireman that get their benefits no matter what, say their deals are not that good, not all of them are getting six figures in retirement, some of them have to get by on $40k a year in retirement!?!?!.
I'm no financial planner, but maybe some smart ZHers can tell me, how much would a working professional have to have in their 401k account to be able to draw $40 k a year for the rest of their life starting a 50 yrs old, 55, 60 or even 65, not even counting value of health care benefits until age of 65. And to have that much in their account, how much would they have had to save over the years, assuming they had their money in funds that tracked snp. So if you made 60-100k while raising a family and trying to help a kid or two thru college, what are your chances of having a retirement savings like that?
And yet the person who has actually been a fairly decent saver and fairly conservative investor who maybe has 250k in their 401k to get by in their old age, if they were lucky enough not to get laid off, they are supposed to pay more taxes to ensure a cop can retire at age 50 and make 90 percent of their working salary in retirement. I know a military friend that never saw combat, just did paralegal type stuff who is pulling over 50k/yr in retirement after 20 years in. I have smart, competent engineer friends with 20 years of experience that are having a hard time finding a job for 60k/year, and they will be working for another 20 years to make similar money as retired govt employees will be collecting without doing a thing.
I would love that all us regular folks could have a secure income source that allows us all to an early age retirement, but I think its very wrong to expect those paying taxes for this take all the macroeconomic hits, it should be shared prosperity and shared hardship.
A teacher friend of mine here in SE Virginia told me they had many teacher layoffs planned tthis year, but the govt stimulous was used to keep them on...........that might change next year.
Enjoy your observations. Sometimes these things go badly awry though. Here is a bit from the SF Chronicle on how one man dealt with his financial plight.
His Alamo home, surrounded by redwood trees on a cul-de-sac, is worth $2.5 million. Inside, when he takes a break from running his construction business, Bennett can look out the window at Mount Diablo.
In the driveway, there's a boat, not far from the pickup truck with the stickers for the Air Force Academy and National Rifle Association. Down at the airport, Bennett owns a plane.
But Thursday night, police say, officers found Bennett in the doorway of the Alamo Jewelry Mart, pointing a gun at his head and threatening to kill himself. He had already shot the store's owner, police say, and the owner had managed to shoot Bennett as well.
Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/12/05/BA3P1AV10H.D...
Tom Bennett, the alleged shooter, is no Hedgie bankster. He built his business, as a journeyman, subbing jobs through Home Depot, and the like. It is definitely a sign of the times, rather sad indeed. BLS can lie all they want about the jobless rate, for those in construction it will be a long time coming.
A builder I met a couple of months ago informed me that he has an AK-47 and 20,000 rounds of ammunition. Somehow, I doubt he plans to shoot himself.