FDIC Q4 2008 Headlines
The FDIC's quarterly banking profile is out for Q4 2008. Here are some headlines with my comments:
Industry Posts $26.2B Loss. That's maybe $262 billion of lending power up in smoke.
Industry Posts First Loss Since 1990. The prior loss came after charge-offs had peaked in 1989.
Quarterly Net Charge-Off Rate Matches Previous High- The annualized quarterly net charge-off rate was reportedly 1.91%, equaling the high water mark reached in 1989. The year-over-year increase in quarterly net charge-offs was led by real estate construction and development loans at $6.1 billion as I had posited in my piece Bad Loans: Going to Extremes These loans are going bad really fast because so many were either for residential homes or condominiums or for new retail centers located near new residential areas. The severity is also very high (amount that is charged-off versus original loan amount) because depreciation of these assets has been so severe.
Provisions for Loan Losses are More Than Double the Year-Earlier Total. and despite this high level of provisioning....
Reserve Coverage Ratio Slips to 16-Year Low - This is indicates much more reserving activity is needed, especially with the accelerating delinquencies being observed. The charging-off of these reserves against loan losses is how a large part of the pile of excess bank reserves being held at the Fed are going to get used up. I discussed this in Excess Reserves Go Berserk as Lending Flatlines.
A couple of additional comments:
1) A lot of the losses to date have been concentrated in the very biggest banks, where big trading losses were registered. With the significant acceleration in loan delinquencies now being seen, smaller institutions, which up until this point have remained unscathed, are going to begin to be hit and their lending power will likely shrink significantly.
2) We have just started to see the fallout from the commercial real estate and business downturns. According to this FDIC report, there were $1.1 trillion of commercial real estate loans outstanding at the end of Q4 2008. Commercial and industrial (C&I) loans, which can be secured by commercial real estate, plant & equipment, receivables or other business assets was another $1.5 trillion. This compares with 1-4 family residential mortgages which totaled $2 trillion and home equity lines, constituting another $667 million, where loan delinquencies have been concentrated to date. So the commercial and industrial problems we face have the potential to rival those from residential lending, although the relatively more mild over-supply issues should mitigate the losses here somewhat.
Posted by lars
Fri Feb 27th, 2009 11:40 AM
For anyone still in doubt of the severity of what we are experiencing globally, you might want to read an interview of Prof. Niall Ferguson (Harvard). Though for the glass half full crowd there is something positive in the interview:
"We've discussed two reasons to non-suicidal. I'm trying to stay cheerful. One is that Chimerica is holding up. The Chinese don't seem to want to get divorced from their American spouse.'
"The other is that this isn't leading to World War Three or Four, depending on how many world wars you think there have been. There will be instability, but I don't see that instability producing something as huge as the 20th century conflicts."
Link to interview:
http://www.theglobeandmail.com/servlet/story/RTGAM.20090223.wferguson0223/BNStory/crashandrecovery/home/?pageRequested=1
Posted by truthteller
Fri Feb 27th, 2009 11:42 AM
But some who comment here, will jump right in and say, truthteller is a troll, or worse a renter.
My response: get real, what is happening to Manhattan real estate prices is simply the end of an illusion. Thanks to Mr. Bush, we have no real economic growth for eight long and awful years. All we have done is live way beyond our means on junk debt. This is unsustainable and the chickens have come home to roost.
So yes, prices here will plummet and anyone with some spare cash, will pick up trophy apartments for pennies on the dollar. And just wait until the option ARMS start exploding.
Posted by condo_shmondo
Fri Feb 27th, 2009 01:14 PM
ye old truthteller. You are too bullish. I really think will see NYC turn in a post-nuclear wasteland within the next 24 months. Penthouse co-ops on 5th Avenue will be left bare and be housed by homeless crack-addicts. It is coming, oh yes it is. Viva la Condo revolution.
Posted by condo_shmondo
Fri Feb 27th, 2009 01:15 PM
ye old truthteller. You are too bullish. I really think we will see NYC turn in a post-nuclear wasteland within the next 24 months. Penthouse co-ops on 5th Avenue will be left bare and be housed by homeless crack-addicts. It is coming, oh yes it is. Viva la Condo revolution.
Posted by truthteller
Fri Feb 27th, 2009 01:28 PM
Noah, any updates on Stella?
Please let us know.
condo_shmondo, I'm not suggesting anything at all along the lines you mention.
Regarding Fifth Avenue penthouses, are they really worth north of say $40 or $50 million dollars, where some of them traded before the crash? Not if you agree that this run up in prices was all an unsustainable illusion.
Is it criminal to suggest that these apartments are only worth a fraction of that? I think not.
Posted by HT
Fri Feb 27th, 2009 01:35 PM
TT maybe on something.
I am (currently) superbearish on the economy with further rising unemployment towards 10%, implosion of all kind of overleveraged positions (which maybe when initiated looked rather conservatively - there are stories floating around where Goldman guys conservatively margined their stock portfolio at 30% and faced now margin calls. Same has been reported about severeal CEO's which got cleaned out). This and the much smaller leverage allowed to the remaining players in Wall Street will mean for NYC a much lower tax base in future years. In previous recession I always counted the number of offered retail space on Madison Avenue which at that time was on my way home. That number starts to creep up again.
Point 2) in the stated report is coming through now.
Posted by Former Seller
Fri Feb 27th, 2009 01:37 PM
And there you have it folks, the chickens have come home to roost. All of us greedy owners just had it coming.
I bought my condo at the end of the dot com bubble, in spring of 2000 in the financial district. After 9/11 I watched as many owners rushed to get out of the market, spooked by the events and wave of layoffs that occurred. A year after I bought, the market slumped. Like many other owners I decided to stick it out. The thought of selling never crossed my mind because:
a) I wasn't over leveraged
b) I still had a better quality of life and best employment opportunities where I was living than in the burbs, other boroughs and other cities.
I moved out and decided to sell in 5/08 for reasons having nothing to do with the economic events, but haven't been able to sell due to the severely illiquid market of the past 8 months. My fiance and I recently decided to make a huge change to our medium term plans. I took it off the market and we're moving back in. Unlike most here I was green to the forces driving the market when I first listed, and by the time I became educated and informed (end of summer) it was too late. Yes- I blew through a load of savings paying carrying costs on an unused apartment and lost market value due to timing, but currently have about 70% equity and am not at all over leveraged. I also happen to really like the apartment and in many ways am looking forward to moving back.
I am now committed to riding this maelstrom out no matter how low it goes, market be damned. I've been through one already- relax, I'm not about to compare it to this one. On one hand I will admit that my selling experience (and the ending of it) is anecdotal. On the other, I have no doubt that there is a huge percentage of owners out there like me who aren't going to participate in a market free fall for the a) and b) reasons I gave above. Many will. I'm not being glass half full. I accept that we will see an unprecedented drop in RE prices across the board, and as Noah says it's too early to be talking about a bottom.
What's really of concern though is the degree to which some people celebrate what's happening. I'll be the first to agree that it makes sense for housing prices to be in line with median incomes- but if you want a steep, precipitous decline because you embrace this point of view, be careful what you wish for. We're already seeing small businesses and restaurants closing all over the city. It won't be so nice to live in your trophy apartment if you have to worry about getting mugged- on the way to a subway station much further away because service was cut to the closest one. Or if your employer's retail division can't generate enough revenue to keep jobs on the payroll- leading to yours eventually. Rooting for a massive decline is rooting against the city, the economy and probably the country.
Sorry for the long rant everyone.
Posted by jeff
Fri Feb 27th, 2009 03:04 PM
Former Seller
I for one am not rooting for the decline that is now upon us, please excuse Noah and I for taking a few laps of "we told you so's". We caught a lot of flack a year or so ago from bulls on NYC real estate who could not imagine a downturn....a tell tale sign. But neither of our businesses are benefitiing from the nuclear winter that is descending on NY. But like with all forest fires, the underbrush gets cleared away and makes room for new growth. That's something we can all look forward to. Our job at Urban Digs is going to be to alert you to the time when fundamentals improve enough to come out of the bunker, or value get so compelling that its okay to be early...we are not there yet.
Posted by Noah
Fri Feb 27th, 2009 03:11 PM
TT - ehh, not good my friend. Whatever it is its very aggressive, and spread past midline. Surgery not option. Waiting for biopsy results, but basically its keep her comfortable, eating, and happy for as long as we can.
Posted by lars
Fri Feb 27th, 2009 05:20 PM
Former Seller,
Free advice is worth what you pay for it.
That having been said, from your post you sound like you are getting married. If the apartment you currently own (and intend to hold on to) is not suitable in the long-term because of size or school districts (if you plan on having kids and not sending them to private schools) I would strongly suggest you consider these variables before deciding to keep your current apartment.
There is no question in my mind that the market is nowhere near the bottom and moreover, any rebound in real terms is many, many years away.
The worst thing you could do IMHO is keep your current place and wake up one day to be "forced" to sell for reasons associated with a growing family.
Something to consider...
Posted by Former Seller
Fri Feb 27th, 2009 06:23 PM
lars- thanks for the (free) advice. I've accepted that the biggest risk in our decision to move back in is in fact the possibility that the city/country enters into a depression that leads to TT/LovinIt wet dream prices across the board in Manhattan. My personal view is that this is possible but less likely than a deep recession we'll start wiggling out of very slowly at some point over the next 4-7 years.
I don't want to dredge up the whole seller pricing / anchoring / denial argument again, so I'm going to humbly ask that folks reading this trust me that I became very sobered by late September as to buyers' price expectations and priced extremely agressively to move the apartment, to the point that I'd become very unpopular among other owners in the building (some of them who also had active listings to sell!). Many came to view it, but other than one all cash buyer from China who changed his mind hours before going to contract, no offers came in, low balls or otherwise. My decision to pull from the market happened after having a conversation with my attorney (whom btw in my opinion is one of the best in the industry, I would use no other). I'd asked him about what he's been seeing out there and he put it bluntly: "you're not going to sell it this year unless you're forced to accept a clearing price".
As to the long term and size of the apartment, having kids, etc. you are right- but fortunately for us nothing is imminent and we can easily manage the monthly nut, albeit with a more disciplined budget. Part of the reason I decided to sell last year is that I bought a house in upstate NY from my father, and I felt comfortable with less overall exposure (PRE credit crisis btw). However, since the house is financed via a personal mortgage from him to me, if times get really bad the larger of my two creditors will be far more forgiving than the smaller.
So then- overall, I'm taking the gamble that down the road the market price for my condo doesn't end up plummeting past what its clearing price is today. I feel it's a good gamble for several reasons, the largest being that the building itself is in a family oriented community, and a very good value when you compare monthly maintenance to amenities- hoping of course that it remains that way.
Posted by truthteller
Fri Feb 27th, 2009 09:22 PM
First, has everyone seen Noah's update on Stella? It's not good news, and Noah has a huge crisis on hid hands.
Noah, our hearts go out to you, the illness of a beloved pet, is totally unbearable, we're with you dear friend.
To former seller, you could sell tomorrow morning and you'd even receive multiple bids, if your apartment were correctly priced. Since you haven't sold, it's because you are not grappling with reality. Drop the damn price 30-40% and I guarantee you'll sell.
Sell now, or forever hold your peace. Next to happen is a wave or tsunami of foreclosures are going to hit and really drive down prices.
What can I say, some of you don't like what Jeff, Noah, truthteller or LovinIt has to say, but don't shoot us for bringing everyone back to reality.
Like Jeff said, Manhattan is headed for a nuclear winter, you can thank Mr. Bush, greed and an era of junk debt for this.
And my last comment is, did you ever really believe your effing apartment was worth what idiots were paying at the height of the bubble?
Come on folks, get real.
Posted by lars
Fri Feb 27th, 2009 10:05 PM
TT,
The person to blame is Alan Greenspan. Bush is a distant second; his culpability was re-appointing Greenspan. Mind you I am not defending Bush. He has plenty to answer for, just on this issue, he is not the main culprit.
Posted by Greg
Fri Feb 27th, 2009 10:38 PM
This is just TOO depressing ... I think I'll go read Ilan's blog to cheer me up.
Posted by Greg_H89@hotmail.com
Fri Feb 27th, 2009 11:11 PM
Uh, how about Barney Frank, Chris Dodd, etc. who stonewalled attempts to reign in Fannie Mae/Freddie Mac? What about Obama, who sued Citibank and pressured them in making loan to uncreditworthy borrowers... There's a lot of blame to go around here.
http://www.youtube.com/watch?v=y4A0RuXhnQA
http://www.youtube.com/watch?v=_MGT_cSi7Rs&feature=related
Posted by Former Seller
Sat Feb 28th, 2009 01:57 AM
Well, thanks for your advice TT. I do wish you could guarantee that I'd get multiple bids and sell tomorrow by dropping the 'damn' price 30-40%. You know, I did drop the ask price 35% late last year (30% below most recent cookie cutter comp sale) but it didn't seem to guarantee me anything but visits from buyers (often multiple times); all but one were not willing to make even a low ball offer while a steady stream of bad economic news and outlooks disseminating from all forms of media reinforced their buying fears. As usual you're cherry picking the parts of Noah's blog that support what you want, but ignore how often he's said this market is illiquid.
And you know what else, no- I didn't believe my 'effing' apartment was worth what 'idiots' were paying at the height of the bubble. Quite to the contrary, I had worried all the while that skyrocketing RE appraisals would raise my taxes and/or maintenance fees. I would have been quite happy with modest appreciation in line with median income levels. I'd mentioned that at owner meetings multiple times. For the record, I decided to de-leverage in 2004 by converting my 30yr fixed to a 15 at a time when hyper-leveraging was all the rage (this decision btw has become a saving grace today).
I'll grant you this: I hadn't been 'grappling' with reality this past summer when I first listed it FSBO because I was mostly oblivious to the coming tsunami you mention. Even then I had a significantly lower ask than comps in the same building, and I had been looking to sell for a reasonable price near market, though I'm sure you'd call that greedy.
If Noah and Jeff truly do agree with yours/LovinIt's recent predictions and you're all correct, I fear everyone will suffer through the second Great Depression very soon.
If you / LovinIt get your prized depression, please don't move in next door to me; we don't need another reason for our condo values to decline.
Posted by Former Seller
Sat Feb 28th, 2009 02:04 AM
lars- the one that most deserves to be drawn and quartered is Phil Graham.
Posted by WestSideMan
Sat Feb 28th, 2009 12:34 PM
Noah - first off, my sincere best wishes and prayers for Stella, I know how difficult it can be when your beloved pet is struggling.
Second - does anyone have any insight into the slide in inventory over the last week? A 2.5% draw-down in a week might have been conceivable at the height of the market, but with the way things are now, it seems highly suspect. Does Streeteasy make adjustments to the data?
Posted by LovinIt
Sat Feb 28th, 2009 06:20 PM
ha ha ha FS! by the end of the year you won't get a plug nickle more than $250 psf for your worthless condo, probably less. lower your price to $300 psf now and you MAY get a bid. why won't you listen to truthteller, noah, jeff and I? we all know this is where prices will be before year's end but you won't listen! justice is being served to you and all the other idiots who attack us.
Posted by Orlando
Sat Feb 28th, 2009 08:06 PM
This pork filled stimulus is going to be worthless to the common people....
Posted by truthteller
Sun Mar 1st, 2009 02:40 PM
LovinIt, none of the apologists for the bubble want to hear from pragmatic realists like us.
You'd think we were calling their baby ugly, all we're saying is that they paid way too much for their ordinary condo. They bought for only one reason, they hoped there would be one more sucker on line behind them.
Those days are way behind us, either people sell at a valuation which would allow someone to get a mortgage of no more than 3 times income, or give the keys back to the bank. You know that million dollar one bedroom condo, it's worth maybe $350-$400,000.
And then, because they are so damn furious at the stupidity of their decison to buy into a a huge asset bubble, they call us pessimists or ever worse, we're renters. This is so pathetic.
Posted by OT
Sun Mar 1st, 2009 06:04 PM
Noah - you and Stella were on my mind this weekend. I hope she remains comfortable through this and wish you continued strength.
TT/LovinIt is a troll that lives on his mother's couch in Jersey. A month ago, prices were going to fall to 600 psft, then 500, now it's 250. Not sure what he has to gain from this as he is unemployed, broke, and will never live in Manhattan.
He also likes to talk about himself in the third person, because it is a little complicated remembering if you are posting as one or the other of your online personalities.
Best of all, he likes to think he is in the same league as Noah or Jeff.
TT/LovitIT: First of all, you aren't saying the same thing as Noah/Jeff, second, you have not contributed one meaningful statistic, data point, analysis, or even anecdote in the year that I have had to put up with your garbage posts. All you have done is jump on the coat-tails of the great work that Noah, Jeff, and others have posted and try to claim it for your own ("Told you so...").
Do everyone a favor and go post your garbage on StreetEasy. You add no value here. And no, I don't care that you think prices are going down (not a single person on here claims otherwise), or even how much they are going down. I care that your rants and raves come from half-baked prognostications (look it up) that don't make any sense and take away from the otherwise educational discussion here.
Posted by truthteller
Sun Mar 1st, 2009 06:57 PM
I don't need to justify myself to anyone, least of all to OT.
But, just to put your mind at ease, OT, I have been in the real estate business for over twenty years.
I am not LovinIt, though I happen to agree with much of what s/he writes.
So take a deep breath and lay off.
Posted by Former Seller
Sun Mar 1st, 2009 08:23 PM
TT / LovinIt- Apologists? Who posting here has ever said anything in defense of the RE bubble or those causing it?
Justice is being served to me?? I bought in 2000, *before* the RE bubble. During the market slump after 9/11, my company went out of business and I was out of work. it would have been an easy decision for me to sell at a loss during that decline and move away from the rubble strewn financial district but I stuck it out. The RE bubble that followed did nothing for me but raise my common charges and taxes, hit me with assessments for building renovations demanded by those who bought during the bubble, and put parking rates completely out of my reach. I bought because I wanted a decent place to live in, not to dump an overpriced asset on the next 'sucker' in line. If I'm stupid for not continuing to try selling it right now, at least I still think it's a decent place to live and that is why I'm happy to move back in regardless of what happens to this market.
If you are as pragmatic and 'truthful' as you say, why won't you answer OT's question and give data to support your sweeping claim that the majority of those who bought during the bubble were way over leveraged? Then maybe an intelligent discussion could occur.
Posted by OT
Sun Mar 1st, 2009 08:35 PM
TT/LovinIt - sweeping the floors in Newark tenements does not qualify you as having worked in the "Real Estate Business". If you held a real job in Real Estate, prove it by posting something meaningful that furthers the discussion.
Posted by cfranch
Sun Mar 1st, 2009 10:58 PM
this is staring to sound like a stock market board. we might as well twiddle our thumbs until the april condo auctions as the market will be frozen until then. nothing like the promise of clarity.
Posted by lars
Sun Mar 1st, 2009 10:59 PM
You children keep this up and Noah may have to have a hall monitor.
Posted by HT
Mon Mar 2nd, 2009 07:58 AM
I expect any day that a lot of sellers throwing in their towels. Dow futures minus 132 and bleeding towards 5000 - right now 6920.
If I would be a motivated seller I would try to get ahead of that freight train called DOW and APRIL.
I am a motivated buyer but see NO reasons to get in front of this. By fall sellers will kiss my feet just to see me checking out their apartments.
By then most likely Citi is gone, AIG has received another 100bn dolares and so on....
Posted by truthteller
Mon Mar 2nd, 2009 08:58 AM
HT, be careful what you say, now they'll call you a troll, or say I am HT and LovinIt.
You happen to be correct, HT. Today will be a very bad day on Wall Street. Soon, sellers will recognize what has happened.
Posted by HT
Mon Mar 2nd, 2009 12:25 PM
LOL
Question: I see on the stats top right this page (Street Easy) that the number of apmt for sale has come down. Are there any stats which show how many have pulled apmt off market?
Posted by HT
Mon Mar 2nd, 2009 04:09 PM
http://www.smartmoney.com/map-of-the-market/
View of Manhattan from 20,000 feet ;-)