March 16, 2014

People Tend To Behave As They Think

Readers suggested a topic on bubbles and the masses. “What does the lunch bunch or water cooler crowd think about the market in your area (with an example of a comment or two overheard maybe)? I’ve heard people who are. Normally cheerleaders saying that it is slowing, it is flat, and aware of the FHA limit drops. One of them has a condo to unload so he is vested in wanting to see the upside. But he ain’t seeing it.”

A reply, “Spoke with someone two days ago who lives in a neighboring city (and has lived there her whole life). She commented on how insane prices had gotten, being pushed by Facebook employees. Her husband said that ‘once they could clear $1MM’ on the sale, they should sell. Her response ‘we’re there’, but if they sold, she asked, where would they move? Her whole family (parents and siblings) and clients are still in the area.”

One said, “My lunch bunch (Denver) thinks that the sky’s the limit. They all trade stories about how their neighbor sold in 3 days with 5 offers, blah, blah, blah.”

Another asks, “What makes a bubble? I think the precursor of a bubble occurs when a type of asset starts consistently increasing in value. There’s a run up, but the insiders are keenly aware that the market could crash. A mature bubble forms when the asset becomes a ‘magic asset’ - something that conventional wisdom says has no credible possibility of going down anytime in the near future, and even if it does, it’ll just level off.”

“I think according to this, stocks are in a pre-magic-asset phase. They’ve inexplicably gone up, defying conventional wisdom. They’ve shown resilience. Once the muppets get involved and the conventional wisdom starts suggesting there’s no credible chance of the market going down - at best leveling off - then the muppets will be harvested.”

“It’s almost a Heisenberg-Principle state of being: Only when the public doesn’t see a bubble, can a mature bubble exist. Houses are typically a hybrid physical/financial asset, consisting of the physical object plus the promise-to-pay (mortgage). The government buys or insures nearly all new mortgages, and those issued in the past five years. So there’s no credible possibility of loss there. Which is a magic asset. As far as the physical object goes, if the herd continuously sees rapidly rising prices, it will set up a feedback effect which will feed on itself creating the conventional wisdom that house prices only go up, and thus becomes a two-factor magic asset.”

One had this, “I personally am aware of three businesses that have closed doors recently. On the residential market nothing above 300K is moving however larger homes at wishing prices are piling up on the real estate web sites. Syracuse NY is where I am and it is a great Oil city. We have some of the best pot holes in the Country, broken water mains, the fantastic crime rate and beautiful dilapidated moldy crack shacks. The city has a land bank with 3800 (and adding every month) properties for sale from owners who owe back taxes. The taxes would make anyone move here as manufacturing jobs are plentiful. It is an affordable city if you are a welfare recipient.”

And finally, “I think that to take a new bubble to that point we STILL have to fully pop the old bubble. We never have. We started to lance it and then couldn’t take the pain.”

The St. Louis Post Dispatch. “While home sales were up in St. Louis County last year, the region hasn’t returned to a ‘normal’ market where there are plenty of homes for sale. ‘Homeowners are afraid they’re not going to get the price they want, and they want the price to be back to what the market was (before the housing crisis),’ said Laurie Helderle, a real estate agent with Re/Max Best Choice in Mehlville.”

“Many homeowners resisted putting their homes on the market in recent years because they had negative equity. ‘If you were underwater, you are essentially locked into your house,’ said Svenja Gudell, Zillow’s director of economic research. ‘To sell your house, you have to bring money to closing.’”

The Signal. “There will be less economic uncertainty and stronger growth in the U.S. economy this year, said experts at the 2014 Economic and Real Estate Outlook Conference in Santa Clarita. Overall, pointing to a number of regional and Santa Clarita indicators, the economy appears to be back to pre-recessionary levels, said Mark Schniepp, director of the California Economic Forecast. When put in perspective relative to inflation, however, markers like income and spending power show that the economy is almost, but not fully, back to normal. ‘Optimism is good because people tend to behave as they think,’ Schniepp said.”

“After a turnaround in the residential market last year, homes now need to be priced and marketed well, said Neal Weichel, broker with RE/MAX. With the absence of distressed housing deals, investors have left the market and buyers have more options, Weichel said. ‘Sellers have unrealistic expectations as to what their home is worth,’ he said, referring to comparisons homeowners make using online websites that estimate the value of a home in a given area.”

From Delmarva Now. “Rehoboth Beach is Delaware’s biggest coastal resort. The coastal town draws many vacationers interested in owning beach homes or condos, and willing to pay high prices in a community that has seen the median sales price grow to $647,000 for a single-family home.”

“But the area is also seeing a rising use of food stamps, according to data from the state Department of Health and Social Services. In 2003, 260 people received food assistance in the Rehoboth ZIP code of 19971, which then had 10,000 residents. A decade later, the number of food stamp recipients spiked by 324 percent, rising to 1,104 people by the end of last year. The area’s year-round residential population grew as well, but only by 23 percent.”

“Ed Speraw, president of the Delaware Manufactured Home Owners Association, said many poor people he knows don’t have the resources to move from their current homes. For people who’ve lived in and around Rehoboth a long time, he said, the region simply changed around them, with a rising cost of living. ‘People are in a bind down here. They have a lot of money invested in their home and they can’t afford to move out,’ Speraw said. ‘You can see where food stamps come into play.’”

Bits Bucket for March 16, 2014

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