I love the style and content of this writing. There are perspectives and storylines that all meld together. And all the better to see the guests reaction regarding who the author was - and they're all reading it today, there ya go again, more imaginative thoughts. The reality out of all this fun is that RE is still looking down a long tube with little light at the end. And with CRE, and CC debt, and CDS/CDO and a plethora of mortgage/commercial financing resets coming in 2010-2012 - where is there ANY "growth" potential? I think the markets have been feeding off the author's expelled fumes (yes, that will make sense when you read the piece below - hahahaha!)
Cocktails and RE in Greenwich
I was invited to a swell cocktail party over in Fairfield County, 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.
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.
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