Wikinvest Wire

Barbara Corcoran: Then and Now

Tuesday, September 19, 2006

There is something about Barbara Corcoran that is both lovable and maddening at the same time. Well, maybe lovable isn't the right word. Maybe harmless is a better word to go along with maddening, but then anyone taking her advice regarding the future direction of real estate prices last fall would surely object to the selection of this word as well.

To be sure, she is [fill in your adjective here] and maddening.

Her most recent appearance on Cavuto on Business was a demonstration of why this is so.

Regular readers know that the only real reason to watch Cavuto on Business is to see Jim Rogers. Viewing this program normally consists of fast forwarding past the introduction and news update to see if the familiar mug and bow tie show up, and if not, quickly dismissing the recording to the virtual trash can inside a Tivo that has been faithfully recording and playing back countless hours of programming for what seems like ten years now.

[It's hard to believe that Tivo still exists as a company these days given all the competition from cable companies amid the growing popularity of HDTV. Tivo now has an $800 HD Series 3 recorder available and they are wished well.]

Anyway, on this past weekend's program, there was a full house - Jim Rogers, Ben Stein, a couple of other regulars, and occasional guest, real estate expert, and subject of ridicule at this blog, Barbara Corcoran.

Spotting Barbara's smiling face was cause for immediately tightening the grip on the Tivo remote as palms grew at first clammy, then sweaty, in anticipation of the words to be offered up by Ms. Corcoran.

We'll get to that in a minute, but first some background.

In the Beginning

Barbara first appeared in the pages of this blog last November when she introduced a tiny part of the blogosphere to her Super Bowl Real Estate Sales Theory, which seemed to leave both Jim Rogers and Ben Stein dumbfounded.

Corcoran: It's funny what's happening right now - there's so much uncertainty in the market, and everybody's been spooked by all the media coverage that's out there that it really is a great time to buy. It's a great opportunity right now, and I don't think it's going to last very long.

I think come January, everybody who doesn't buy the house right now for the price that they could afford is going to wish they had because they are going to be paying more in January.

This "bubble babble" is baloney, and it's scaring people away and making buyers "think about it", and while they're "thinking about it", the house prices are going to go up, and I truly believe that.

Rogers: But Barbara, what's going to make them go up in January? Why are buyers coming back in January?

Corcoran: In January, you can count on it. You can set your watch to Super Bowl Sunday.
Stein: And as to why you can set your watch to Super Bowl Sunday, I'm totally mystified. Usually, people have to have a reason for something. I'm not quite sure what Barbara's reason is. Are interest rates going to suddenly turn down on Super Bowl Sunday?

Corcoran: Can I address that? First of all interest rates are not high, they're low. Even though we've had five big hikes by the federal government, what has it done to mortgage rates? Barely nothing.

But about Super Bowl Sunday, what I mean is by Super Bowl Sunday, this whole media "bubble stuff" that's out there is going to get old, boring - the media is going to move on to something else, and guess what? People are going to be back in the market in droves.

Shortly thereafter it was learned that the Superbowl Theory was meant to explain the rush back into the real estate markets in early February, immediately following the Super Bowl, after the full effects of holiday shopping and merriment had worn off.

This year's rush occurred right on schedule, however, it was dominated by sellers.

Hope Springs Eternal

Just before winter turned to spring, after the media had latched onto the new hot real estate topic of "bubble sitting" (selling your house and sitting on the bubble waiting for prices to go down), Barbara was at the ready for Charles Gibson when Good Morning America investigated this trend.

The obvious benefit of selling real estate in March of this year was that you could have locked in real estate gains at still lofty prices during a period when inventory was high, but not yet freakishly high. But still the optimist, after detailing the penal transactions costs associated with selling real estate with no guarantee of lower prices in the future, Barbara was ready with a list of more reasons not to exit the market six months ago.
Corcoran: And, should I mention one more? I have my whole list here. Is that OK? I'll keep going? Interest rates typically go up, they typically don't go down. So everytime, when you're sitting on the sidelines and interest rates go up by one percent, your mortgage payment is going to go up by 11 percent. That's what it translates to. And so you've got to factor that 11 percent loss into your profit idea as well.
After a few heart-felt words about being happy in life and not spending too much time worrying about the value of your home, viewers were once again urged to forget the whole bubble idea and just be happy with the house that you have.

The Fall

It's been a while, but once again Ms. Corcoran showed up on Cavuto on Business and she didn't disappoint. In fact, when asked about the current condition of the real estate market, she got right to the point.
Corcoran: I don't think that people are aware that every housing statistic out there right now reflects closing prices. The deals being made now won't come out in the statistics for another three months. If you look at the actual sale prices, the deals that are happening now, prices have already come down, and they've come down by a lot.
This was stated in a very matter-of-fact way, as if she was doing viewers a public service by leveling with them - as if she was the voice of reason in an otherwise confusing media barrage of real estate statistics and opinion.

Little attention is paid here to the accusations leveled by the many housing bubble bloggers against the likes of David Lereah, chief economist at the National Association of Realtors (e.g., see David Lereah Watch).

After listening to Ms. Corcoran's about-face and having a look at the most recent entry at David Lereah Watch, maybe more notice should be paid.
"If you paid your mortgage off, it means you probably did not manage your funds efficiently over the years," said David Lereah, chief economist of the National Association of Realtors and author of "Are You Missing the Real Estate Boom?" "It's as if you had 500,000 dollar bills stuffed in your mattress."

He called it "very unsophisticated." (Los Angeles Times Aug 28th, 2005)
After writing today's post and thinking about how others may have been affected by the expert opinions of real estate professionals with such big mouthpieces in the mainstream media, many of whom were cheerleaders one year ago but who are increasingly level-headed pragmatists today, you can't help but feel sorry for those who heeded their advice when real estate was still booming.

Sometimes you have to wonder how these people sleep at night - both the real estate experts and those heeding their advice.


plymster said...

How do the "RE gurus" sleep at night? On a bed of money.

How do the "RE sheeple" sleep at night? In a cardboard box behind the liqour store.

Seriously though, you can only blame so much on the talking heads. Sure, they're not helping, but they didn't drop lending standards to pre-depression levels. They didn't blow a series of bubbles, ending with a the largest credit bubble the world has ever seen, and then retire. They didn't trumpet unheard of RE gains without question or investigation.

These guys are only a thread in the tapestry of ignorence and criminality that help make up this bubble.

Anonymous said...

There will be plenty of blame to go around

john_law_the_II said...

the problem is Greenspan and the mortgage CEOs aren't at the house when it's sold. it's the real estate agent who is most people's authority when they go to buy a house.

apollo3333 said...

Did you notice that later, BC said prices were coming down, and hence it's a good time to buy.


TulipsAllOverAgain said...

Excellent summary! 100% accurate too. The Super Bowl theory and her latest confessional are two of the truly outstanding moments of the late great real estate bubble. Part of the problem with these authority figures is they aren't called on the carpet. For example, Cavuto, Stein or Rogers should have jumped all over Babs for the, er, bad call on the Super Bowl theory. But they didn't and the show goes on.

desi dude said...,1375,VCS_226_5007144,00.html

Countrywide may cut jobs by 10%

Countrywide blames housing sales slowdown

By Jim McLain,
September 20, 2006

The end of the real estate market boom is forcing one of Ventura County's largest employers to cut 5 percent to 10 percent of its work force over the next few months, a top executive told workers Tuesday.

Countrywide Financial Corp., the country's largest mortgage lender with about 5,700 workers in Simi Valley, Thousand Oaks and Westlake Village, instituted a 60-day hiring freeze and plans to reduce staffing in several areas, Dave Sambol, president and chief operating officer, said in a memo obtained by The Star.

The memo does not mention layoffs, but several workers leaving the company's Westlake Village office as security guards roamed the parking lot declined to discuss layoffs or said they were told not to talk with the media.

A Thousand Oaks woman who did not give her name said she received two weeks severance pay after working for the company the past 2 years. She clutched a packet she said contained information to help her find another job. She added that layoff rumors that had been swirling on the Countrywide campus for weeks were confirmed Tuesday morning.

"You found out because your vacation time on your paycheck was gone," she said.

Countrywide officials did not return The Star's repeated calls for comment.

The Calabasas-based holding company, which offers a range of financial services, has more than 56,000 employees and some 900 offices nationwide. That means the cutbacks might directly affect as many as 5,600 workers.

From boom to normal market

Sambol's memo says the real estate industry is undergoing a challenging transition from a boom to a more normal market, with home sales down sharply, inventories of unsold homes increasing and property values flat or down in many areas.

"Given the early results of several organizational assessments, it is clear that our administrative functions have grown at a disproportionate rate and current staffing levels are not appropriate in the current business environment," Sambol wrote. "Therefore, we are beginning a process to reduce staffing ? in all areas, excluding our sales force and operations personnel necessary to support production activity. We expect some of the reduction to come through usual attrition, as well as counseling poor performers out of the Company."

Gary Wartik, economic development manager in Thousand Oaks, and Brian Gabler, economic development director and assistant city manager in Simi Valley, said they had heard Countrywide was planning job cuts but had not been told anything specific.

Fourth largest employer

The UC Santa Barbara Economic Outlook 2006 ranks Countrywide as Ventura County's fourth largest employer behind the county of Ventura, biotech giant Amgen Inc. and the military.

The real estate slowdown was evident in the company's operational report for August — mortgage loan fundings were down 24 percent from the previous year to $40 billion, and home equity loan fundings were flat at $4.1 billion.

Average daily mortgage loan application activity for the month fell 17 percent to $2.6 billion, while the mortgage loan pipeline totaled $64 billion on Aug. 31, down from $78 billion a year earlier.

Ventura County's median home sales price has edged up so far this year, but incrementally, not the double-digit increases of 2004-05.

Meanwhile, sales have plummeted. DataQuick, the real estate information service, reported the August median price Tuesday at $598,000, up 1 percent from the previous year, but sales were down 31.8 percent, from 1,578 to 1,076.

For Southern California, sales were down more than 25 percent, and the median was up 2.7 percent from a year ago. It was the industry's slowest August since 1997, DataQuick said.

Facing sharp sales declines, new-home builders nationwide are offering costly extras such as upgraded carpeting and kitchen appliances for free or at steep discounts to lure buyers, one expert said.

The number of new construction permits also is down. Individual buyers and sellers are at a stalemate, with sellers refusing to cut prices and buyers demanding reductions. All that is putting jobs in the title insurance, mortgage lending and other real estate-related businesses in jeopardy.

‘Bloodbath levels of decline'

"Sales of single-family homes for the year through July were down 27 percent, condos are down 60," said economist Mark Schniepp of the California Economic Forecast Project in Goleta. "These are bloodbath levels of declines. I don't see how you can call that kind of a market healthy. ? There are direct casualties from this downturn."

But Thousand Oaks' Wartik said interest rates have fallen since midsummer and remain low by historical standards. Demand for housing is still high, he said, and many in real estate continue to predict that 2006 home prices will be 5 percent to 6 percent higher than 2005.

"That has to tell you that the bottom has not fallen out of the market. Anything but," Wartik said. "It's returning to what it should be. The good news ? is that even though it's slowed down substantially, the appreciation rates of 2004 and '05 were not sustainable, not good for the economy."

Countrywide, founded in 1969, is a member of the S&P 500 and Fortune 500. Its 2005 revenues totaled $10 billion, according to its Web site, while earnings hit $2.5 billion.

The company's stock shot up last week when co-founder, Chairman and CEO Angelo R. Mozilo, 67, said he expected to sign an employment-extension contract with the company's board before the end of the month. His current contract expires at the end of this year.

Drop in volume to continue

Sambol's memo says the real estate sales slump has caused a drop in Countrywide's mortgage origination volume, which company officials expect to continue through the end of this year and into 2007.

The company has been working for months to reduce expenses, the memo says, but cannot achieve adequate savings without reducing staffing, its biggest budget item.

Sambol emphasized that Countrywide's long-term prospects are bright, but said much depends on its ability to change and adapt to changing markets.

"I am confident that together we will meet these industry-wide challenges head-on and unleash the next phase of growth and success for Countrywide, our shareholders, our customers and our employees," he wrote.

— Star staff writer Jean Ortiz contributed to this report.

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