Can the cooling of the red-hot (some say overheated) housing market cause problems for the broader economy? Nah, that's never happened before, right? ![]()
@LaMonicaBuzz has the latest recession warning bells, these ringing in the housing sector.
I trust the Ghost of Bernie Madoff @CNN @ABC @CBCNews @globalnews @frontlinepbs @CTVNews and legions of journalists etc knew I was the Hairy Prophet of Doom long before you assumed to have the title EH?
Chris Isidore
Senior Writer, CNN Business
Chris Isidore is a senior writer for CNN Business, where he covers the auto industry, airlines, labor and all other manner of breaking financial news. Over the last 30 years, he has covered most major US bankruptcies, including GM, Chrysler, Lehman Brothers, most US airlines and Sears, as well as the city of Detroit.
Could a housing slump threaten the stock market and the entire economy?
Updated 7:29 AM ET, Wed June 22, 2022
A version of this story first appeared in CNN Business' Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.
New York (CNN Business)The red-hot housing market is starting to show signs of cooling off. Prices have spiked to levels unaffordable for many prospective buyers, and mortgage rates have jumped following the Federal Reserve's rate hikes and a surge in bond yields.
But will the housing slowdown hurt the broader economy and lead to a further decline in the stock market? That's unclear.
Homebuilder Lennar(LEN), whose shares are down nearly 45% this year, provided a dose of good news Tuesday. The company reported earnings and revenue that topped forecasts and said that new orders for homes were up 4% from a year ago.
Shares of Lennar ticked up Tuesday on the news. Rival builder KB Home(KBH), which will report earnings after the closing bell Wednesday, inched higher as well.
Yet Stuart Miller, Lennar's executive chairman, struck an extremely cautious tone when describing the housing environment. This is a "complicated moment in the market," he said in an earnings release.
"The weight of a rapid doubling of interest rates over six months, together with accelerated price appreciation, began to drive buyers in many markets to pause and reconsider," Miller said, adding that Lennar "began to see these effects after quarter end."
Rising rates dampening, but not killing, demand for homes
Miller said "the Fed's stated determination to curtail inflation through interest rate increases and quantitative tightening have begun to have the desired effect of slowing sales in some markets and stalling price increases across the country." He added that "the relationship between price and interest rates is going through a rebalance."
This slump is having an undeniable impact throughout the housing industry. Online real estate brokerage Redfin(RDFN) and several other housing companies have started to lay off their workers.
Some experts are hopeful that a further slowdown in housing won't wreak havoc on the economy the way the bursting of the housing bubble and subprime mortgage meltdown did in 2008.
"Banks are in much better shape now, and they are not giving out loans to people with no credit or bad credit," said Michael Sheldon, chief investment officer with RDM Financial Group at Hightower. "If there is a recession, the impact on housing could be mild. There are not as many imbalances as we had before."
Home prices have continued to spike in many markets as well, despite the broader market and economic turmoil.
The National Association of Realtors said in a report Tuesday that the median home price in May topped $400,000 for the first time, hitting a record of $407,600. That's up nearly 15% from a year ago.
But existing home sales fell for the fourth straight month, according to NAR, dipping 3.4% from April.
Housing slowdown ... but not a crash
"Further sales declines should be expected in the upcoming months given housing affordability challenges from the sharp rise in mortgage rates this year," said NAR chief economist Lawrence Yun.
"Nonetheless, homes priced appropriately are selling quickly and inventory levels still need to rise substantially ... to cool home price appreciation and provide more options for home buyers," Yun added.
Realtor.com chief economist shares her advice for homebuyers and sellers02:07
But that may not mean that prices will suddenly plunge — demand for homes is still holding up reasonably well. The issue is affordability.
"We think the housing market is lining up to mimic the late 70s to early 80s when price growth skidded to a halt but did not crash," Brett Ewing, chief market strategist with First Franklin Financial Services, said in a report.
Yet many prospective buyers — especially younger people looking to make the jump from renting to home ownership — cannot afford homes.
Still, many current owners who are selling a property in order to trade up and buy another home are able to get deals done. So although the housing market may be starting to show some cracks, the foundation remains relatively strong. It may take a much bigger leap in mortgage rates to scare prospective buyers away for good.
"The average property sat on the market for just 16 days in May, which marks a new record low for this measure," Jefferies economists Aneta Markowska and Thomas Simons said in a report Tuesday following the existing home sales data release.
"This suggests that supply is still scarce and any new inventory put on the market is still moving very quickly," they added.
Up next
Federal Reserve Chair Jerome Powell testifies on the state of the US economy before the Senate Banking Committee. The hearing kicks off at 9:30 a.m. ET.
Coming tomorrow: Attention will remain on Powell as he moves over to the House Financial Services Committee.
— CNN Business's Anna Bahney contributed to this story.
Full Committee Hearing
Review of Current Investigations and Regulatory Actions Regarding the Mutual Fund Industry
Topic
The Committee will meet in OPEN SESSION to conduct the second in a series of hearings on the “Review of Current Investigations and Regulatory Actions Regarding the Mutual Fund Industry.”
Witnesses
Witness Panel 1
- Mr. Stephen M. Cutler Director - Division of EnforcementSecurities and Exchange Commission
- Mr. Robert Glauber Chairman and CEONational Association of Securities Dealers
- Eliot Spitzer Attorney GeneralState of New York
Bernie Madoff, infamous Ponzi schemer, has died
Updated 8:00 PM ET, Wed April 14, 2021
New York (CNN Business)Bernard Madoff, whose name became synonymous with financial fraud, died while serving a 150-year sentence in Federal Prison. He was 82 years old.
His death Wednesday at the Federal Medical Center in the prison in Butner, North Carolina, was confirmed by the US Bureau of Prisons. A cause of death was not released.
In February 2020, he petitioned the courts for an early release from prison, stating that he had terminal kidney failure and a life expectancy of less than 18 months. But the US Attorney's office for the southern district of New York said Madoff's crime was "unprecedented in scope and magnitude" and is "sufficient reason" to deny Madoff's request.
Madoff was the mastermind behind a $20 billion Ponzi scheme — the largest financial fraud in history.
Judge Denny Chin, who originally had imposed the sentence of 150 years, denied his request for release, calling his crime "one of the most egregious financial crimes of our time," and one that continued to take "a staggering human toll."
"When I sentenced Mr. Madoff in 2009, it was fully my intent that he live out the rest of his life in prison," the Chin wrote in his order last June. "The symbolism of a 150-year sentence was important: the public trust had been eroded by Mr. Madoff's ability to manipulate the system for so many years, he deserved to be punished according to his moral culpability."
One of the few kind words about Madoff Wednesday came from Brandon Sample, one of his attorneys.
"Bernie, up until his death, lived with guilt and remorse for his crimes," Sample said. "Although the crimes Bernie was convicted of have come to define who he was -- he was also a father and a husband. He was soft spoken and an intellectual. Bernie was by no means perfect. But no man is."
Photos:A look at Bernie Madoff's property
He had a legendary career on Wall Street, famously delivering astronomical returns for his investors, which included director Steven Spielberg, actors Kevin Bacon and Kyra Sedgwick and New York Mets owner Fred Wilpon.
He served as chairman of the Nasdaq for several years in the 1990s and amassed beach houses, boats and a Manhattan penthouse. But Madoff was arrested in 2008 and pleaded guilty to eleven felony charges in 2009. He had been using money from new investors to pay back earlier investors. He supposedly had a total of $65 billion under management, but two thirds of that money was a figment of Bernie Madoff's imagination. The rest was his investors' principle.
Madoff founded Bernard L. Madoff Investment Securities in 1960, but no one has been able to prove when Madoff began stealing from investors.
He told CNNMoney in a 2013 interview that it all started in 1987, but he later said the scheme began in 1992. Madoff's former account manager, Frank DiPascali, Jr., said in court testimony that financial misdeeds had been going on "for as long as I remember." He started working at the firm in 1975.
Read CNN Business' last interview with MadoffIrving Picard, the court-appointed trustee charged with recovering assets stolen by Madoff, together with the Department of Justice, had recovered $14.4 billion as of March of this year, of which $13.6 billion has been returned to Madoff victims. In addition, the Securities Investor Protection Corporation has provided $600 million in insurance to victims.
"The pain experienced by the victims of Mr. Madoff's fraud is not diminished by his death, nor is our work on behalf of his victims finished," said Picard. "My legal team and I are committed to continuing to identify and recover Mr. Madoff's stolen funds and return them to their rightful owners."
Madoff was born April 29, 1938, in New York City's borough of Queens, where he met his wife Ruth in high school. They had two sons, both of whom worked for their father's firm. Mark Madoff, the older son, died by suicide in 2010.
Madoff's brother Peter also served a 10-year prison sentence for his involvement in the scheme. He was sentenced in 2012 and was released from prison in November 2019, to home confinement. His home confinement ended in August of last year.
Five things you didn't know about Bernie Madoff's epic scam
New York (CNN Business)Editor's note: This story was originally published on December 11, 2013, and has been updated.
Bernard Madoff, the man behind the most notorious Ponzi scheme in history, died at age 82 while serving a 150-year sentence in federal prison.
He was arrested on December 11, 2008, for bilking thousands of investors out of billions of dollars. He pleaded guilty three months later to fraud charges.
Madoff was serving his term at the medium-security Butner Federal Correctional Complex in North Carolina and was slated for release on November 14, 2139.
The Madoff scandal has made headlines for years, but there is still a lot that people don't know about the biggest Ponzi scheme in history.
1. Madoff's victims are close to getting their money back.
Irving Picard, the court-appointed trustee in the Madoff case, has recovered more than $14.4 billion of the $20 billion in stolen assets. Of that, $13.6 billion has been returned to investors so far.
That includes the almost $850 million in cash advances to victims that were provided by the Securities Investor Protection Corporation.
The latest distribution in February 2021 gave each customer approximately 70% of their allowed claim amount, unless it was already fully satisfied.
Most of the money Picard's lawyers have collected came through settlements with former investors who withdrew more from Madoff's firm than they deposited. Even though many of these investors claim to have known nothing of the Ponzi scheme, the trustee is suing them for benefiting from it.
A separate fund from the Justice Department in December 2020 gave victims $488 million. The total payouts from the Madoff Victim Fund reached more than $3 billion, and the government plans to distribute the full $4 billion.
"The pain experienced by the victims of Mr. Madoff's fraud is not diminished by his death, nor is our work on behalf of his victims finished. My legal team and I are committed to continuing to identify and recover Mr. Madoff's stolen funds and return them to their rightful owners," Picard said in a statement following Madoff's death.
2. Even now, nobody knows when Madoff's scheme started
No one has been able to prove when Madoff began stealing from investors. Madoff himself has made contradictory claims about when the crime began. He told CNN Business in a 2013 interview that it all started in 1987, but he later said the scheme began in 1992. Some reports say Madoff's epic crime may have started as early as the 1960s, when he began working on Wall Street.
Madoff's former account manager, Frank DiPascali, Jr., said in court testimony that financial misdeeds had been going on "for as long as I remember." He started working at the firm in 1975.
3. Madoff didn't actually steal $65 billion.
His Ponzi scheme is often referred to as a $65 billion crime. In fact, he actually stole $20 billion in principal funds that were invested with him. His firm generated account statements telling investors that they earned returns worth a total of $65 billion, but those returns never existed. So as far as the people who'd entrusted their life savings with Madoff were concerned, they really did lose $65 billion -- it's just that two-thirds of that money was a figment of Bernie's imagination.
4. Lawyers have pocketed about $800 million cleaning up Madoff's mess.
Picard and his firm are tasked with tracking down Madoff's stolen assets and redistributing them to his victims. This is a massive, international undertaking, much of which has been outsourced to other law firms. But more than a decade into their task, Picard and his firm, Baker & Hostetler, had earned almost $1 billion total in legal fees, law.com reported in 2018.
5. Life in prison isn't so bad, said Madoff. But he still can't sleep.
In the 2013 interview with CNN Business, the 75-year-old fraudster said that he had a job making $40 a month wiping down phones and computers for a "few hours a day." He believed he was well-respected by his fellow prisoners and said he spent much of his time reading newspapers and novels.
He said he woke up early -- 4:30 a.m. -- not because he had to, but because he couldn't sleep. He was haunted, he said, by the suicide of his oldest son Mark, who hanged himself on December 11, 2010 -- the second anniversary of his father's arrest.
"I was responsible for my son Mark's death and that's very, very difficult," he said. "I live with that."
In 2020, Madoff petitioned the court for early release because of his medical condition. That was opposed by prosecutors and rejected by the judge who originally sentenced him to 150 years.
I guess I'm not the only ex-carny working as a journalist. Check out this story from Brooks Barnes
YO @chrisidore @LaMonicaBuzz @CNN @ABC @CBCNews @globalnews @frontlinepbs
@CTVNews Methinks Aaron Smith and his cohorts should grow some balls and talk to me sometime Nesy Pas? @VP @NightTimePod @ProjectLincoln @lil_grey_cells
youtube.com
Madoff haunted by son's death
CNN's Aaron Smith talks about his exclusive phone interview with convicted Ponzi scheme operator Bernard Madoff.
Madoff Trustee Passes Milestone as Baker & Hostetler Fees Near $1B
Irving Picard of Baker & Hostetler
As Irving Picard approaches 10 years on the job as trustee of funds recovered for Bernie Madoff's victims, he and his firm are getting closer to securing $1 billion in fees from the work.
July 05, 2018 at 03:22 PM
Almost a decade into his role as trustee of funds recovered for victims of Bernard Madoff’s notorious Ponzi scheme, Irving Picard and his law firm, Baker & Hostetler, have passed another milestone—securing more than $13 billion for Madoff victims in light of a $280 million settlement approved this week. And Picard’s firm is still racking up fees from the work, securing an award in April that brought its total to just shy of $1 billion, with another fee award likely to hit next month.
In a statement Thursday, Picard and his team announced the court approval of a settlement with Madoff “feeder funds”—investment funds that funneled money into Madoff’s Ponzi scheme—tied to money manager J. Ezra Merkin. Merkin and the funds, Ascot Partners LP, Ascot Fund Ltd. and Gabriel Capital Corp., had agreed in June to pay $280 million in a settlement with Picard, who since late-2008 has served as the Securities Investor Protection Act trustee for Bernard L. Madoff Investment Securities LLC (BLMIS).SURPRISE SURPRISE SURPRISE
As Big Law Profits Plunge, Financial Uncertainty Looms Over Associate Classes, Lateral Hiring
Profits per partner plunged by double digits through the first half of the year, and most firm leaders, in a recent survey, are now uncertain whether revenue can increase for the rest of the year. That represents a significant shift in sentiment, as more than half of survey respondents said they expected increases after the first quarter.
More than halfway through 2022, law firms have seen profits per partner sink nearly 11%, the Wells Fargo Legal Specialty Group wrote in an analysis this week. Meanwhile, analysts from Citi Private Bank’s Law Firm Group wrote that the high-water mark for financial gains in 2021 along with the uncertainty created by inflation, the war in Ukraine, and the ongoing COVID-19 pandemic, among other things, means it is “likely” many firms will see profitability decline overall this year.
CNN chief legal analyst Jeffrey Toobin will exit network after 20 years
Jeffrey Toobin
New York (CNN Business)Jeffrey Toobin said Friday that he will depart CNN, where he served most recently as chief legal analyst, putting an end to a 20-year run at the network in which he provided no-holds barred commentary and suffered a setback over a scandal in which he inadvertently exposed himself to co-workers on a video call.
"Friends, I've decided that, after 20 years, I'm leaving [CNN] after my vacation," Toobin wrote on Twitter. "Was great to spend my last day on air with pals Wolf [Blitzer], Anderson [Cooper] and Don [Lemon]."
Toobin, who was last on air August 4th, added, "Love all my former colleagues."
In his tweet Toobin, the author of a number of bestselling books, teased his next nonfiction work about the Oklahoma City bombing, which is due out in 2023.
A CNN spokesperson said, "We are grateful for Jeffrey's contributions to the network over the years and wish him all the best in his future endeavors."
Toobin did not immediately respond to a request seeking further detail on his decision.
Toobin was a mainstay on CNN's programming for years, appearing on the network's programming during some of the most monumental moments in American current events and politics.
Toobin's analysis was unflinching and he became something of a bogeyman of some conservatives for his outspoken commentary about former President Donald Trump.
Toobin generated headlines in 2020 after he accidentally exposed himself to colleagues at The New Yorker and WNYC during a Zoom call. He was suspended and then eventually fired by The New Yorker, and sidelined from CNN at the time of the incident.
But CNN gave Toobin a second chance, welcoming him back on its air eight months later. During his first appearance back on the air, Toobin spoke to anchor Alisyn Camerota about the incident.
In that appearance with Camerota, Toobin described himself as a "flawed human being who makes mistakes" and said his conduct was "deeply moronic and indefensible."
In the interview, Toobin also apologized to his wife and family, to the people who were on the Zoom call that day, and to his colleagues.
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