WaMu Says Housing Market In "Perfect Storm"

WaMu’s CEO is saying that the subprime meltdown isn’t just magically going away:

“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.

“It now appears that housing and capital market corrections will be worse and longer lasting than even we expected,” Killinger said.

Meanwhile, Countrywide, the nations largest mortgage lender, announced over the weekend that they would cut between 10,000 and 12,000 jobs, or 20% of their workforce. Countrywide had previously announced 1,400 jobs cuts. Their stock is down 57% in 2007.

Countrywide to cut more jobs [MSNMoney]
Washington Mutual Sees Housing `Near-Perfect Storm’ [Bloomberg]
(Photo:Maulleigh)

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  1. olderbudwizer says:

    So just what is “a near-perfect storm for housing” – and what does that mean for housing consumers? I read today about builders beginning to throw in tons of ‘extras’ just to move the inventory. 1-year hummer leases, country club memberships, etc just to name a few.

  2. foghat81 says:

    assuming you don’t think we’re still far from the bottom, this remains a huge buyer’s market! I’m jealous of a friend who is about to buy his first home.

  3. humphrmi says:

    I would be jealous, except that even in this down market my house would sell for significantly more money than I paid for it six years ago. So even though I bought my house during a time when you made an offer sight unseen and usually at the top end of their asking price, I’m still ahead of any buyers today.

    Of course that’s probably different for different markets, I’m in the Chicago suburbs, we don’t seem to be getting hit as hard.

  4. holocron says:

    I still think the housing in most, ALL?, markets is still way over valued. Here in Minneapolis i see these little 1.5 story homes going for $300K+. That is, IMO, about double what they are worth. Until housing prices get to reasonable levels, I’m stuck out of the market.

    And, I’m going to be really really pissed off if there is some sort of plan to bail out all these people that can’t afford their mortgages. Maybe what I should do is try and get a sub-prime, then let it go bad so I can get bailed out and get a free house.

  5. enm4r says:

    This is what we call “no shit.”

    Also for those who are into that sort of thing, while looking up evidence that Sylvia Browne was a nutcase, I saw her predictions in early 2007 that one of the best investments for the economy this year was going to be property. I was thoroughly amused.

  6. fhic says:

    @foghat81:
    But I do think we’re still far from the bottom. At least here in San Diego, the sellers haven’t started to panic yet. I think it’s going to happen, particularly for starter homes. At the moment, $500k asking prices have started to drop by 20-30k and still nobody is even showing up to look at the places.

  7. jeffj-nj says:

    @foghat81:
     
    If you wouldn’t mind explaining, please do. How can you be jealous of your friend who’s buying their first house? I’m scared to death of buying a home, and that fear has only been getting worse. Maybe ignorance is bliss, but renting.. well.. it doesn’t frighten me.

  8. ctan says:

    We are nowhere near the bottom. Consider this, the loans that are in trouble are the Sub-prime ARMs, The problem with this mortgage product isn’t THAT they adjust but rather HOW they adjust. Lets say somebody purchased a home, no money down, in April of 2005 with a sub-prime 2/28. Homes in my area at that time were appreciating at about 2-3% A MONTH and continued to do so until about September 2005. Now lets say this loan is fixed at 7.99% for the first 24 months and on the 25th month the rate jumps to 10.99% (that isn’t a guess by the way that is how they work, you have to understand these loans were designed to force the borrower to refinance after two years.)

    Okay fast forward to March 1st 2007, one month before the first adjustment. The SEC raids Freemont Investment, shutting them down and over night all 100% sub-prime mortgages disappear. Just that one act caused a sudden shortage of buyers in the market and values started to fall at a pretty good clip within about 30 days. How is our Sub-prime borrower supposed to refinance now? They try to make the payments for a few months until they realize that the rate is going to increase by 1% every six months until it reaches just over 14%.

    These are the homes that are defaulting now; we were hit hard in August because it takes a couple of months for the sense of hopelessness to set in. Now I told you that to tell you this, November is the best month of the year in the lending industry and 11/2005 was no exception. My point being that we have only begun to see the defaults.

    Not dismal enough? Okay consider this… It wasn’t until 3/1/07 that sub-prime 100% ltv loans disappeared and only then did values really start to drop. The loans written at 100% in 2/2007 are already upside down by a small margin and aren’t due to reset until Feb 2009. I have never had a crystal ball worth a damn but I’d say we are looking at 2010 before we can say we have seen the worst.

    To all of you that are hoping to see the streets run red with the misery of those Americans who, despite their circumstance, sought to provide a better life for themselves and their families; I’d say to you- You had better reconsider what you wished for.

  9. ctan says:

    We are nowhere near the bottom. Consider this, the loans that are in trouble are the Sub-prime ARMs, The problem with this mortgage product isn’t THAT they adjust but rather HOW they adjust. Lets say somebody purchased a home, no money down, in April of 2005 with a sub-prime 2/28. Homes in my area at that time were appreciating at about 2-3% A MONTH and continued to do so until about September 2005. Now lets say this loan is fixed at 7.99% for the first 24 months and on the 25th month the rate jumps to 10.99% (that isn’t a guess by the way that is how they work, you have to understand these loans were designed to force the borrower to refinance after two years.)

    Okay fast forward to March 1st 2007, one month before the first adjustment. The SEC raids Freemont Investment, shutting them down and over night all 100% sub-prime mortgages disappear. Just that one act caused a sudden shortage of buyers in the market and values started to fall at a pretty good clip within about 30 days. How is our Sub-prime borrower supposed to refinance now? They try to make the payments for a few months until they realize that the rate is going to increase by 1% every six months until it reaches just over 14%.

    These are the homes that are defaulting now; we were hit hard in August because it takes a couple of months for the sense of hopelessness to set in. Now I told you that to tell you this, November is the best month of the year in the lending industry and 11/2005 was no exception. My point being that we have only begun to see the defaults.

    Not dismal enough? Okay consider this… It wasn’t until 3/1/07 that sub-prime 100% ltv loans disappeared and only then did values really start to drop. The loans written at 100% in 2/2007 are already upside down by a small margin and aren’t due to reset until Feb 2009. I have never had a crystal ball worth a damn but I’d say we are looking at 2010 before we can say we have seen the worst.

  10. ctan says:

    woops :oP double post **grins sheepishly**

  11. humphrmi says:

    @ctan: I agree with you, but the worst of what? Certainly the investors who underwrote these sub-prime loans are unwinding their positions now, and I think for the broader market (e.g. the impact of the sub-prime “meltdown” on the hedge funds and equities) the adjustment will be quick and painful, but final. Certainly for the borrowers who have these loans, the market will continue to suffer for a while – both in the credit markets and the underlying real estate market. But, again, for most owner-occupants (e.g. 85% of homeowners) that won’t matter. In my opinion, only the following people will be affected by the ongoing credit market crisis:

    – Transient owners, e.g those people who need to sell due to a required move
    – Older owners who want to sell, e.g. near-retirees
    – People who have relied on the refi cash bucket to pay their bills or sustain their overspending
    – People who still hold sub-prime loans

    On the other hand, the average 40-year-old family man who has a 20-30 year fixed-rate mortgage and lives in his house and plans to do so until he retires or dies is in no trouble, except that perhaps his stock investments have recently taken a hit (but those too will recover before he retires). Ask this guy about the impact of the real estate market on him, and you’ll probably only get a shrug.

    My point is that it’s not doom and gloom for everyone.

  12. stanfrombrooklyn says:

    Can you give me an example of a 1.5 story house in Minneapolis selling for more than $300K. 1.5 stories in Minneapolis is right around 1000-1200 square feet. Most are selling for less than $250K. @holocron:

  13. FLConsumer says:

    @stanfrombrooklyn: 1000-1200sqft for a house? That’s an apartment here! Hell, my hotel room in NYC was 496sqft (admittedly large by NYC standards for a regular room). One of my condos down here is 2100sqft, for a high-rise condo… what are you guys living in up there, shoeboxes?

    @humphrmi: The problem may only directly affect those in the conditions you’ve outlined, but it could potentially derail the US economy. You’d be surprised how many people out there are living off credit cards/home equity loans, etc. These are most likely the same people who probably bought a home they couldn’t normally afford without an ARM with a low teaser rate. I know I have at least 2 friends w/families who are in bad shape with ARMs, while about 60% of my friends are living entirely on credit/spending more than they can afford. Not sure about you guys, but I’ve already pulled back on my spending in anticipation of a recession. I’ve already restructured my stock & investing portfolio based on what I foresee happening in the economy. I’m not expecting a Great Depression by any means, but there’s going to be some major “adjustments” in the stock market and consumer spending that needed to happen years ago. For the long-term investor, this really isn’t anything big. I’d hate to be entering retirement soon with the consumers & economy heading where they are today ‘though.