The Vegas Casino Room Glut
Steve Wynn's new Encore resort is just what Vegas doesn't need right now--more high-end hotel rooms. Some friends of mine just stayed at the nearby Venetian resort for just $119 a night with $100 in restaurant and other credit thrown in as an enticement. They said they'd never seen the Strip so free of traffic.
The tough economy and abundance of rooms has casino builders doing their best to cut back. Among the high profile projects that have been shut down or put on hold in recent years are Boyd Gaming's Echelon resort, George Clooney's Las Ramblas, a Waldorf=Astoria and a W hotel.
A new report from Deutsche Bank analyst Bill Lerner screams "We have never tracked a greater number of stalled projects in Las Vegas than today," some 41,000 new room cancelled. "What a difference two years makes."
Lerner now forecasts that 25,000 new rooms will open over for the next three years. That's half what he had been predicting a year and a half ago. Lerner figures at least one more project could enter the "bone yard." Among the new ones still expected to open, MGM's massive City Center in late 2009 and the Fountainebleau in 2011.
The city's condo hotel market has also taken a hit.
According to Lerner: "Since the end of September, we have identified only 37 units closed
at the four actively closing high-rise condo / condo-hotel projects
we track (Allure, Palms Place, Panorama and Trump 1; there have been
no additional closings at MGM's Signature III since we began tracking
earlier this year). This works out to be just over three closures per
month per project, or significantly below the theoretical average of
100 units per month per project in the prior economic environment.
Palms Place has now closed nearly 60% of its units, while Allure
(condo-only) has closed nearly 50%, with Trump 1 still below 25%
closed."
Still. a recent review of the Encore in the Los Angeles Times concludes: "That dry desert floor outside town is littered with the corpses of pundits who have proclaimed that Las Vegas is overbuilt. And there's probably a special section in that cemetery for people who underestimated Steve Wynn."
Happy New Year everybody! Here's to a better time in '09.
Mortgage rates hit fresh 37-year low
Rates on mortgage loans are the lowest in the 37-year history of the Freddie Mac Primary Mortgage Market Survey, according to a weekly report released Wednesday.Peter Schiff foresaw the housing bust way early
Credit where credit is due: Peter Schiff of brokerage Euro Pacific Capital saw this housing bust coming from a mile away. To prove his perspicacity, his brother (and p.r. agent) Andrew Schiff is recirculating some of the pieces that Peter wrote back in 2004, when most of us were just getting excited to be out from under the shadow of the 2001 recession and subsequent jobless recovery.
Here is what Andrew sent me after seeing my recent blog post about March 2004.
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Wednesday, February, 25 2004
There He Goes Again
In recent months the statements of Fed Chairman Alan Greenspan have become increasingly confusing and self-contradictory. So much so, that an impartial observer must conclude that his motives are somewhat less than honest.
This week, the Chairman was true to form as he continued misleading the public with respect to the enormous risks facing the U.S. economy. Rather than expressing an obvious concern over the increasing use of adjustable rate mortgages (ARM's) he instead praised them, encouraged greater use, and expressed regret that too many homeowners were wasting money on fixed rate mortgages. In the same speech he declared that the high levels of consumer debt did not concern him because the cost of servicing that debt was so low. Given that reality, one would assume he would hope most borrowers would lock in those low rates. After all, when rates do ultimately rise, higher rates would certainly make the debt load unmanageable. These comments are even more peculiar given the concerns he expressed the following day over the mortgages insured by Fanny Mae and Freddie Mac, as ARM's have a much greater default risk than do traditional fixed rate mortgages!
Rather than a reflecting the sophistication on the part of savvy American home owners, as Greenspan suggests, the reality is that most homeowners are choosing ARM's because that it is either the only way they can afford to buy a home, or it is the only way they can afford to make ends meet. The average ARM is 50% larger than the average fixed rate, suggesting that the larger the mortgage the more likely it is that the borrower needs the lower payments to qualify. Also, financially distressed homeowners typically refinance fixed rates mortgages into ARM's to save money. In so doing, they trade the benefits of lower current payments for the risks of higher future payments. Given the facts that interest rates and domestic savings are at historic lows, the budget and current account deficits are surging, commodities prices are soaring, and the dollar is collapsing, this is perhaps the worst time in history to make such a trade-off.
What Alan Greenspan is in effect saying to homeowners, or potential home buyers, is "go ahead, get that ARM, don't worry about rising interest rates, I've got your back. It's O.K. to pay $500,000 for that two-bedroom town home that sold for $300,000 two years ago, because you can afford the payments with an ARM. Can't afford the car payments on that brand new imported SUV? Just refinance your fixed rate mortgage into an ARM. After all, you’re just wasting money with that fixed rate mortgage."
Is it possible that Greenspan really is this naive? Or does he see the danger posed by ARM's, but does not want to acknowledge his concerns publicly? I believe that he is so worried about the proliferation of ARMs that his comments were intentionally designed to defuse any legitimate fears that may be developing, particularly among America's creditors, concerning this issue. Also, I believe Greenspan's comments are specifically designed to help keep the housing bubble, and by extension the U.S. economy, expanding. Greenspan knows that the only way most home buyers can afford these ridiculously high prices is with ARM's. Without them, housing prices would collapse. He also knows how important re-fi money is to the U.S. consumer. Since long term interest rates cannot fall low enough to facilitate another wave of fixed rate re-fi's, he is trying to encourage homeowners to re-finance on last time: fixed to ARM.
Isn't it odd for Greenspan to even make recommendations concerning which type of mortgage homeowners should choose? After all, he doesn't comment on what stocks investor should buy, or what bond maturities to favor. He even refuses to comment on the dollar. You would think Greenspan would not want to put himself into a position of having to raise interest rates after encouraging home owners to refinance into ARM's. Do such comments actually tie his hands in some respect? Do they leave the Fed or the U.S. government vulnerable to legal action from bankrupt ARM borrowers, who relied on the chairman's comments in their decision to opt for the riskier loan?
The reality is that such absurd comments by Greenspan further reveal that his statements are more propaganda than sincere expressions of opinion. He says whatever he thinks he has to say to sustain the bubble economy, regardless of his personal beliefs. Everything he says is designed to postpone the day of reckoning as long as possible, no matter how much worse that day will become as a result. It is only when viewed from this perspective that Greenspan's comments make sense.
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Schiff's piece looks pretty smart in retrospect, doesn't it?
$48M First Phase of Brooklyn Bridge Park Project Breaks Ground
Reusing and revitalizing Brooklyn’s deteriorated East River waterfront began with a groundbreaking in February on the piers area and now a $48 million contract was awarded to Skanska for Phase I of the Brooklyn Bridge Park project in New York City.Home prices post record 18% drop
Home prices posted another record decline in October, falling 18% in October compared with a year earlier, according to a closely watched monthly report released Tuesday.Home prices are back to March 2004 levels. Where were you then?
Where were you in March 2004? Because that's the last time home prices were as low as they are now, according to the Standard & Poor's/Case-Shiller 20-City Composite Home Price Index for October 2008, which was released on Dec. 30.
Back then, prices were going up. Now they're going down. The nation's mood could not be different. Euphoria then; a deep purple funk now.
So back to the question. Where were you in March 2004? Negotiating for a nifty option ARM? Scouting out a home in a new subdivision in the remotest exurbs? At the time--and this was before things really got crazy on prices and crappy mortgages--everything seemed possible.
I searched the Factiva database for housing-related articles that appeared in local newspapers in March 2004. Here are a few I found.
From The Desert Sun newspaper in the Coachella Valley, east of L.A. and San Diego:
"World Development, the Palm Desert company putting up Waring Palms, is having a hard time keeping up with Coachella Valley's sizzling demand for new homes, said Executive Vice President Scott Stokes. He and other builders say they can't find enough skilled workers in the valley to build as fast as customers are buying their homes."
From The Patriot Ledger of Quincy, Mass.:
"Another big boom emanated from the South Weymouth Naval Air Station property this week, but it had nothing to do with planes.
"Rumors started flying that 3,000 or 4,000 homes could be part of plans for the 1385-acre property that lies in Weymouth, Abington and Rockland. Numbers like that scare the wits out of local residents and officials because of the impact so many homes would have on local services. The reaction was predictable."
From the San Antonio Express-News:
"Jaime Arechiga - a Laredo land developer who expanded his horizons to San Antonio four years ago - is carving up lots all over Bexar County and New Braunfels.
"'I'm in the community. I'm here to stay,' said Arechiga, who now maintains residences in Laredo and San Antonio."
From the Las Vegas Business Press:
"New legislation and rising land prices are helping fuel Southern Nevada's condominium market. In 2003, vacant land prices averaged $202,100 an acre in the Las Vegas Valley, a 27 percent increase from the previous year, says Applied Analysis, a locally-based economic research firm. The southwest submarket reported the largest land appreciation at $244,200 an acre, a 32 percent increase over 2002."
From The Washington Times:
"As home prices climb in the Washington area, buyers in the upscale home market can expect to spend more than ever before for a home with opulent features.
"Home price is not simply a function of the quality of construction and finishes, nor is it based solely on size. Prices often are based more on location. Buyers of luxury homes are sometimes looking for an exclusive, gated community; sometimes wanting plenty of land for privacy; and sometimes desiring a home as close as possible to Washington.
"Many buyers want to live in a planned community with recreational amenities and the convenience of a local retail center. Some luxury homes are found in developments with these amenities, often including a golf course.
"Other expensive homes are smaller homes in fashionable enclaves on small homesites.
"Priced from the $700,000s and up, upscale homes do share an abundance of opulent features such as hardwood flooring throughout the main level; two- or three-piece crown and chair-rail moldings; oversized ceramic-tile flooring; or even marble flooring in the baths and a master bath with a tub and a separate shower upgraded with more space, a seat, steam showers and multiple shower heads. 'Walk-through' showers with two doors or even without doors and just perhaps a glass-block divider are becoming popular for those homes with the space for an extended master bath."
How silly that seems now.
Last but not least, here's an excerpt from an article by Michael Gregory in Investment Dealers Digest that all of us should have paid more attention to:
"But despite the benefits of structure that allow them triple-A-status, events in recent years have shown that asset-backed securities have their own risks. The collapse of Heilig-Meyers in late 2000, the messy servicing transfer that followed and the ultimate disturbing recoveries to the once triple-A-rated bonds offer the clearest lesson of the huge risks for ABS investors."
Happy new year!
Acorn Calls for More Loan Modifications
The activist group ACORN got a bad rap during the recent presidential campaign when John McCain accused them of using paid solicitors to sign up bogus voters. Barack Obama had to distance himself from the group, which has been a big advocate for low income homeowners.
ACORN has come out slugging against Hope Now, an alliance between banks, mortgage servicers and other consumer groups.
Says ACORN:
"HOPE NOW's own numbers show that far less than a third of their nearly 3 million foreclosures prevented in 2008 actually involved modifications to the underlying mortgage, rather than weak repayment plans that do nothing to address the structural unaffordability of so many loans. The HOPE NOW estimate of 950,000 mortgage modifications in 2008 is a pathetic failure when stacked up next to the 2 million Americans who lost their homes. We don't know how many of these modifications actually resulted in reduced monthly payments that are affordable to homeowners, the driving reason behind high re-default rates. Instead of more excuses, we need solutions that will stop all these unnecessary foreclosures and fix our economy where it is hurting most."
The group also notes that Credit Suisse recently released revised projections that foresee 8 million foreclosures in the next four years, up from a prediction of 6.5 million in April. "The industry's current bad practices are essentially responsible for doubling the foreclosure crisis and preventing the broad economic recovery we need. The mortgage industry doesn't need any more PR, it needs systemic change."
ACORN is calling on mortgage servicers to enact a 90-day moratorium on foreclosures, taking that time to implement the FDIC's modification protocols that were successful at avoiding unnecessary foreclosures and re-defaults at Indymac. This change alone would stem the glut of Real Estate Owned properties that are dragging down housing prices and would help jumpstart the economic recovery. The federal government must use every stick and carrot at its disposal to help Americans save their homes, including enacting the Bair proposal to use TARP funds to facilitate 2.2 million mortgage modifications, lifting the ban on judicial modifications, and demanding that banks receiving TARP funds start modifying loans per the FDIC protocols."
SL Green Aims to Raise $95M with Sharp Dividend Cut
SL Green Realty Corp. has slashed a planned dividend payment in efforts to pay down debt and conserve funds for future investments. The company set the new dividend payment at $0.375 per common share for the fourth quarter of 2008. The third quarter dividend was $0.7875 per share.Linn Buell - Veridical Estate Agent/Broker
Port Orange, FL, USA Specialist in Spruce Creek Fly-In, the world’s premier fly-in country club community. Pilot and home owner within the community for over 9 years. More…When good appliances go bad
The hot water goes cold, the air conditioner goes hot or maybe the washing machine's spin cycle is starting to sound like a Harley-Davidson rally. Alas, your warranty on the appliance in question expired long ago. Suddenly you're faced with a tough, potentially pricey decision: fix the broken item or replace it? Repair would cost less in the short term, but you'd hate to invest in something that could spring another problem soon. These guidelines will help you decide.:: Next Page →