Bits Bucket And Craigslist Finds For July 10, 2006
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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KB Home, Dominion Homes issue negative views on housing.
Not good for HB….
Quite honestly, I was expecting a gap down and a steady slide all day for the HB’s on the Dominion “sales down 46%” story. I was absolutely amazed to see — again! — that they gave day-trading shorts an entry roughly 1% above the previous day’s close in the first half hour of trading. That’s been the case more often than not for the past month.
dhom is just too small to have a massiv impact.
the management is one of the worst.
wait untill pulte, tol or hov are bring this kind of news.
Does zillow actually work for anyone? Every time I try and use it, it thinks for a few seconds and then I get the message
We’re sorry. We encountered a problem performing this search. Please wait a few seconds, then refresh the page or search again.
I just assumed that the whole thing was horribly broken in some way or another, but I suppose it could be that my browser is filtering something that this site needs.
I just tried it for ya’…it’s working…
Thanks. There is apparently something about Firefox that doesn’t play well with this site.
I’m using firefox 1.5.0.4 and Windows XP home and Zillow works for me, OK.
Same here, also using 1.5.0.4.
I just tried it and worked for me OK. I tried zip 78613 (Cedar Park TX) and came up with a map & prices for the city and I was able to zoom into our previous home.
Zillow is estimating a house I was watching at 750K and it wouldn’t sell at 689K this Spring in Northern VA. A similar model is on the market for 650K.
I find Zillow to be all over the place in its estimates. Some are spot on, while others are way off (usually too high).
That sounds like a Bell curve.
except that it almost never seems to under estimate prices, so half the bell is missing..no? thoughts?
Zillow’s going on previous sales. I assume it’ll adjust soon. In our neighborhood, there were only three resales in the 700’s last Summer and Fall. Since then, nothing has sold. (I think 8 have been on the market). A stalled (folks around here call it “dead”, not realizing it’s the price) market with low volume doesn’t give the true “market value” of a house.
To run Zillow requires JavaScript and possibly some other stuff as well. Turning off JavaScript or using safe browsing features seems to muck it up. The only way I can get it to work for me is to turn all that on and let it blast ads at me, and then the ads take so much bandwidth that Zillow only gets a tiny fraction and barely functions. Searching only for broad areas like towns or zip codes and then scrolling around instead of giving specific addresses seems to help a little bit. The last time I checked my house there it had gone up another $30k and I got completely disgusted, though based on comps it seems to me that the Zestimate is almost creepy in its ability to pinpoint where the market was recently in a Heisenberg kind of way.
I use Firefox 1.5.0.4, with Adblock + Adblock Filterset.G, and it all works fine.
BTW, I didn’t even know Zillow had advertising, cuz I never see it.
More or less the same thing I am using, and it never works at all for me. Adblock doesn’t show any javascript being blocked, so it must be something else.
I guess I can just use IE when I want to go there.
I use Firefox 1.5.0.4, with Adblock + Adblock Filterset.G, and it all works fine.
BTW, I didn’t even know Zillow had advertising, cuz I never see it.
My experience exactly. Zillow has ads?
I use Firefox 1.5.0.4 w/Adblock, works fine.
Try removing all the cookies, cache files, etc, via Tools/options/privacy menu. Also enable all the checkboxes in Tools/options/content menu.
I never knew zillow had ads either, Firefox Adblock works very well.
Did David Lereah go to school here?
The University of Nevada, Las Vegas, initiated a real estate curriculum within its business college in 1989. The program was endowed by the Lied Foundation Trust and, in 1991, became the Lied Institute for Real Estate Studies.
It looks like reality is starting to hit a little in O-town…
http://orlando.bizjournals.com/orlando/stories/2006/07/03/story2.html
“ORLANDO — Orlando’s condominium-hotel market is rapidly becoming overbuilt, with at least 17,300 competitive condo-hotel rooms in the pipeline, a study by a national group has concluded.
The study, provided to Orlando Business Journal, suggests the market is ripe for serious financial difficulties for buyers looking for a quick buck.
…
The study calls Orlando “the seasoned host” in the condo-hotel market, with more development projects embracing this form of ownership format than any other U.S. city.
However, “the question remains as to whether there will be sufficient new demand for hotel rooms to absorb all the new supply.”
Alexander cites Orlando’s attractions, climate and growth as positives, but offers words of caution.
“I can’t think of a better market for condo-hotel sales in the long term,” says Alexander. “But in the short term, it’s going to be painful, especially for those who don’t understand what they are buying.
“Orlando has absolutely no investment potential for the next two to four years.”
‘Taking a great risk’
Jack McCabe, CEO of McCabe Research and Consulting, has a similar view. “There’s no data to suggest the Central Florida market can absorb that number of units for sale.”
He predicts Central Florida is six to nine months behind South Florida, where high-demand hotels such as The Shore Club and The Delano are announcing higher rates and lower revenue, which equals lower occupancies. That level of hotel room competes directly with high-priced hotel-condo units.
…
Abe Pizam, dean of the Rosen College of Hotel Management at the University of Central Florida, says the study confirms his hypothesis.
“I’ve said for a while that this is a bubble that will burst, and people are taking a great risk.”
Pizam believes many condo-hotel buyers have had unrealistic expectations, and it appears they are making a prestige buy for bragging rights instead of making a rational investment decision. “
If someone wants to own a hotel, why not just buy a REIT that specializes in hotels, resorts, etc.?
or buy a TIC that does the same…
I have a question. Friend of mine was looking at condos this weekend (against my advice, of course). Her realtor was showing her the cheapest in the area because she has no money and will have to do 100% financing (cringe). I ran the #s for her on Friday before she left just so she could see what she’s up against right out of the starting gate.
So I see her this morning and she’s all depressed because the lowest priced condos are crappy - and she can’t even afford those! I told her to hang in there because things will change (she and other co-workers are subjected to my bubble rantings whenever the topic of real estate comes up). She replied, “Yes, but prices are only going to come down on the really expensive homes.” That was clearly realtor-speak she was parroting. But it got me thinking . . . am I deluding myself in thinking price adjustments (assuming they do occur) will be across the board? I am a lower-end-of-the-market buyer so if I am deluding myself, a bursting bubble will mean nothing for my plight. I know most of the talk on this blog is about the higher priced homes, but what about the other end of the spectrum?
IMO, there has to be some sort of compression effect if the top comes down substantially. Think about it, if a million dollar home drops to $750,000, wouldn’t that have the squash the price on most every home under $1,000,000 and drag homes over $1,000,000 down some.
I would sort of compare it to cars. If new car prices dropped by 25%, would that make all of the used cars worth a whole let less?
If I could buy an S500 Mercedes for $50K (new), why would I buy a Lexus for $50K. The Lexus would have to be much cheaper to be competitive.
Agree?
The Lexus will probably be a nicer ride with equal quality, IMHO.
If what you write is true, then the median prices should stay relatively high. However, I do not think so. It’ll be interesting to see how many of those suicide loans to made to what kinds of homes (pricewise). I’m willing to bet that more people on the lower end of the price range have more of the bad loans than the higher end, so as the interest rates reset higher, the defaults, foreclosures and BK will start in earnest among the lower and mid priced homes [and take down the median price, too].
When the economy turns south, job losses will really stress the home prices as people will be forced to sell/give up their homes and keep taking down the median even lower. No jobs will be immune, since tax base will deteriorate [lower property values mean less taxes, job loss means less income tax and less property tax payments] and many government workers will be out of jobs, too. Don’t think that [municipal and corporate] pensioners will be exempt either since all those mortgages turned into MBS which pension funds have bought into.
And don’t be surprised if I’m being overly optimistic….
I wasn’t suggesting that mediam prices would stay high. Actually, quite the opposite, I think they will slide down the scale. I think all price levels will be impacted either pushed/pulled down. I don’t, however, think we will ever see $100K starter homes again, at least not on the coasts.
Prices of “assets” always swing to the extremes and we’ll see how far “below value” the homes will get, even in the coasts. I don’t know about 100K level but unless we get hyperinflation, a depression will really depress the prices to unknown levels, I would think…
I agree in an “all bets are off” scenario, but at that point it’s time to find a Guns and AMMO blog….
Pen, start looking…
Replacement cost, especially the cost of materials, would seem to dictate that. I do, however, foresee labor cossts for RE coming down.
From what I read, at least here in the South, foreclosures are greatest in quantity and percentage at the lower-price end, not the higher. Since they are just an advanced form of owners-in-trouble, it seems logical to expect pricing adjustments all the way on down the food chain, probably in roughly equal proportion. Thirty years ago, a smaller percentage of low-end buyers would be able to get the type of no-doc loans available today; now, it seems, anyone and their dog can get one.
From the ground level in Boston, I am 31 and have a large number of friends who have bought condos around the city in the last 4 years. Those who bought are now all hitting the same dilema, they have met Miss Right, it’s time to think about kids, and it’s time to get out of the city.
The problem is, there is no one to buy their condos. They see how many condos have been sitting on the market for a year and are starting to get very nervous. I can’t tell you how many people/couples I see in this position right now.
Generally they all say the same thing, “we can handle a baby in the condo for maybe 1-2 years, but then, we have to get out.
So in short, I think first time homes/condos will come down in price, barring massive inflation, etc, etc.
I think your friends are stuck, especially if they have low equity. Do they have much equity? They should put the condos on the market now, sell them (if they can), move into a rental, so they gain flexibility. This is not the time to be saddled with multiple mtges/properties. By doing this, they do take on some risk in the prices could go up…you never know….
I don’t know what’s worse: taking the loss on a condo in Boston or paying for private school tuition. What kind of condos are these? Are they new construction or the old buildings along Commonwealth Avenue?
I’d have to think that issues like parking and winter in Boston would get kind of old after a few years.
Mostly older, brownstones or converted two families. Both building offer these two problems for a future family:
1. Bringing a baby stroller up 2 flights of stairs twice a day.
2.We have absolutely no room for family or friends to visit and spend the night.
Also remember that quite a few of us are following coastal California real estate; and here, the MEDIAN house price can be in the $500,000 to $600,000, and the MEDIAN condo price can be $300,000 to $400,000. So when we throw numbers like these around, we are talking “run of the mill” houses and condos for these markets.
When we bought our “starter house” in 1997 during a buyers market that was supposedly well underway, we found it very difficult to get a good house in our price range (which was pretty low, since we only had so much cash and wanted to avoid PMI with 20 percent down).
We looked for over 6 months and put in at least 5 bids that we lost before ending up with a pretty undesirable house and a very motivated seller (she had had two previous deals fall through). This was when mortgages were about 8.5 and we thought that was good!! A lot of people had sob stories about how they weren’t making any money on the sale, etc. etc. I remember there being a LOT of houses available in the higher ranges, plus a lot of really horrible looking former rentals in our range. Every time we went to look at a house, we’d know we were close to our listing when the neighborhood went south really quick.
Anyway we ending up buying in Philadelphia, a twin in Roxboro, put nearly no money into it (cos we just didn’t like the house/neighborhood), refi’ed down to a 15 year a few years later, ended up with it nearly paid off, and sold it for 3x what we’d paid in 2003.
We probably could have gotten a lot more a year or two later. That’s when we knew things were crazy - this house was in a very poor location, let’s just put it that way. We are lucky to have been able to sell it.
I think that decent starter homes in good locations will ALWAYS be tough to get into - the prices might go down (probably will in most cases), but there will always be a pretty large pool of people trying to get into the good ones out of a bad bunch.
It also depends where you are, we were looking in Philadelphia/Delaware County/Montgomery County.
MontCo/Bucks, PA myself. I’d be ok buying a condo or townhouse vs. SFH - but they’re priced pretty much the same at this point.
The hope is that with all the new townhome construction, that will mean that unlike when we were looking, there are more “starter homes” available period. We looked at a lot of older homes where the sellers were retiring/getting away from high property taxes - to us they were starter, to them they were home, they’d raised 5 kids there.
We saw a lot of houses with creeks thru the basements in MontCo, a lot right by highways or trains. We saw a lot of really trashed SFHs that had been rented for a while. In DelCo it was mainly kind of old, little red brick 3br/1ba Colonials.
A lot of this housing stock is just gone, either updated or torn down. So hopefully this “buyers market” will be a lot better for you than the last one was for us!!!
I could have afforded what I’m seeking now back in 2001. But I lost my job then and after getting a new one ~ homes had run away from me. So if we can get back to at least 2001, I’d be ok. Of course it’s a much more important goal to me since having a child between then and now…
Keep in mind this is a CREDIT bubble as much as a housing bubble. When the credit dries up it will affect the lower priced homes just as much.
Your friend’s problem when the time comes to buy will not be prices, it will be financing.
Also keep in mind you’ll hear realtors say “higher priced homes won’t drop because rich people don’t care — it’s only the low end places that will go down” They will say anything to their mark to sell their crap.
When the credit dries up it will affect the lower priced homes just as much.
Try more — a lot more. Lower income groups are much more dependent upon credit, given their low level of true discretionary cash flow. The lowest levels are also the first to lose their jobs in a downturn.
I have a friend who has lived long enough to see a few CA bubbles and he told me this a few years back. He said that the higher end homes will come off by 40% - 50% and the mid range homes could come off in price by 30% - 40%.
Clearly that is one persons opinion, but a person who has seen it happen more than once.
One other thing which others here have pointed out is that the level of risk that borrowers have assumed this cycle is much higher than previous times. And as this thing continues to unwind there is, IMHO, a high probability that there will be more distressed owners/sellers at the mid level because these are the folks who stretched to buy more house than they could afford.
Finally, the disparity between the PITI cost and rent for same type properties is very large and there are a great many people who believe based on basic economic fundamentals that PITI will revert to somewhere near rental costs. With “near” taking into account the MID and property tax writeoffs.
The bottom line is that we will not really know until we see it and though it is easy to get depressed about something that may happen I would not base my level of optimism or lack thereof on anything that a RE agent says because you know that if their lips are movin, they are lyin to ya.
How can so many people think 10% - 30% appreciation is sustainable? Did they ever hear of the Rule of 72? At 10% homes would double in price every 7 years, at 20% less than every 4 years. I think the low interest rates, liar loans, etc. allowed for the first and second doubling over the past decade or so, to be “absorbed”, but I don’t think there is anything that would allow for the third doubling.
For example (using 10% doubling every 7 years), if a house sold for say $200k in 1990 and then $400k in 1997 and say $800k in 2004, how could that house possibly be expected to fetch $1,600,000 four or five years from now?
I just can’t see it.
People in general are linear (at best :)) thinkers, they don’t understand the medium/long term implications of exponential growth.
That’s why the MEDIAN 10 year compound growth expectation for stock-based personal retirement funds in 1999 was 27% IIRC.
Yep, as I wrote a few days ago, people have to take out a tip card to calc a 20% tip on a $20 bar tab…
i tip 5 bucks on 20$ tab
but then you have to carry the one, and add it to the…wait I need to take out my HP fin’l….
just foolin….
Is there a relationship between losing a home due to not being able to make increase ARM payments and divorce or suicide.
Debt always causes stress:
How one deals with the stress will show up in one’s life and/or relationships. And people will look for easy “solutions” like suicide and divorce to deal with the stress rather than tackling the real source: greed and envy….
Strong correlation, and it applies to any family financial crisis, not just that one scenario.
Also domestic violence at all levels :(.
Show me a husband and wife with money problems and I ‘ll show you a couple that’s heading for divorce.
It depends if the couple loves money and having stuff more than each other. If they stay committed to one another then they can get through their money problems and probably be more happy. But the sad fact is you are right for probably 99% of the cases.
Expect stress even for those that can make the payments.
Spending via the “wealth effect” has no doubt smoothed over a lot of marital problems, and the growing equity has to have alleviated many worries about retirement, too.
Here’s one from the Yahoo message board: a guy cancelled out of a Lennar home a couple of months ago, but Lennar called him back last week and let him apply his “lost” earnest money to another house?
will “earnest money” go the way of the dodo? i’ll put down a dollar and call it “frivolous” money… or “kiss my a**” money, however the realtor wants to record it.
Amazing, if true!
these are numbers from mellissa data for zip 90274. (0274 is Palos Verdes Peninsula high above and to south of LAX.
A one week snapshot of sales might indicate median is $817,000. NOT. lower prices are for condos and one for 1.6 most most likely was a fixer upper built in 1953!!! numbers can be misleading.
From 6/27/2006 to 7/4/2006, there were 5 homes sold in ZIP code 90274 for an average price of $817,000.
1) $811,000 on Cottonwood Cir
2) $1,640,000 on Eastvale Rd
3) $780,000 on Via Majorca
4) $422,000 on W Estates Ln
5) $432,000 on W Hidden Ln
wouldn’t the median here be closer to the $780,000?
Sure looks like it. $780,000 is the median. $817,000 is the average. Still, that’s such a small sample size that it’s hard to say if the data is all that meaningful anyway.
totally agree on the sample size..
just wanted to check for affirmation on the median vs. avg thing..thanks..
Actually, the “average” in statistics is called the Mean and the mid-point of the range (half higher-half lower) is called the Median. I always wondered why NAR reported median instead of mean (or averaged) prices. Anyone know?
A more stable statistic?
I went to a few open houses over the weekend in the Pittsburgh area. Fortunately my area has not been too overvalued as a result of the housing bubble. It is definitely a buyers market here, so I think it is relatively safe to buy a home to live in.
One of the homes just yelled out flipper!! Brand new bottom of the line stainless appliances. remnant granite countertop and a very amateur paint job. I will not be making an offer on this one.
For the sake of the rest of us, you should make an offer. Just make sure that the offer is what you would be willing to pay, ie a low number.
The more low offers people see, the faster their adjustment to the new market will be.
BOSTON (MarketWatch) — Kimco Realty Corp. said Monday it has reached an agreement with Pan Pacific Retail Properties Inc. to acquire all Pan Pacific stock for $70 a share in cash in a deal worth about $4 billion, including debt assumption…..The equity value of the deal is $2.9 billion, and Kimco is assuming about $1.1 billion in outstanding Pan Pacific debt. Both Kimco and Pan Pacific are real estate investment trusts focused on shopping-center properties.
Kimco, based in New Hyde Park, N.Y., expects the deal to close in the fourth quarter. San Diego-based Pan Pacific has a portfolio of 138 properties…..
Nina has done it. She flipped the Palm Springs house. She has comments on but moderated. I have a post with moderation turned off.
$613,000 Sales Price – July 2006
$475,000 Original Purchase Price – August 2005
$138,000 Subtotal
Minus Costs:
$75,000 Improvements (show before/after)
$31,000 Agent commissions
$32,000 Total Proceeds
The monthly carrying costs (mortgage, taxes, insurance, utilities) are not included in these numbers. If you factor in these then you can call it a “break-even” venture. But we used the house & pool on the weekends so we maximized our dollars and enjoyed the time in Palm Springs.
Looks like she found a GF!
Arrogant to the end, and barely got out with her butt intact. Wiish we could see her try that now.
She did not include the loss on income on the cash from the money invested in the property and the improvements for the
time she held the property . So if you include those costs she went neg.
Oh wait , I don’t think she included the escrow, title closing costs etc. .
And her time is apparently worth $0/hour.
Oh wait, maybe not that much.
Ooops, don’t forget capital gains Nina. Deduct another 25-30%. I do love Palm Springs weekends from Oct-May though.
“used the house & pool on the weekends”
Hmmm, Palm Springs is great during the winter, but blows as a summer spot (115 degrees). It would have been better to rent a beach house for a few weekends.
But still, you have to give her kudos for finding a Greater Fool willing to pay $613K in today’s market.
The problem is, there are still many, many buyers (fools) out there. One thing I have noticed is that while sales are down YOY from 2005, there are still A LOT of houses selling, and for PREMIUM PRICES. I know, mine just closed 2 weeks ago (Phew). 2005 was a huge year, and it is obvious that sales cannot continue at that frenetic pace, but is this year still a fairly busy year for real estate? Seems to me like it might be. It is going to take some time for this to play out. Not enough buyers are paying attention to the trends. A lot of people are still hell bent on owning, trying for some of that instant equity. Unfortunately, that continues to prop up the market (or at least that is how it looks to me). I am no real estate pro, but just a guy who remodeled and sold my house to start my new adventure, and I feel like I got out at the top.
She and her friends travelled there and worked on the house. If the cost of that labor is included, it was a loss making deal $$ wise. They would have gained a lot by way of experience. So did I!
Frankly I am surprised they could sell the hosue for that price. Did she sell it to her rich uncle or family friend who fell in love with the house while vacationing there for FREE?
What is the best way to profit from this? I constantly tell everyone around me what’s going to happen and they just think I’m always doom and gloom… Time to put my money where my mouth is.
I’m think of buying puts on Lennar, Toll brothers, etc… I’m thinking maybe $5000 split among a few builders on Jan 2008 puts. These stocks have GOT to tank by then… I’m not into shorting as the market is very funny. You can get some serious leverage in options as well that you can’t get shorting.
You could also look at it as an analogy to seat belts. Wearing one might cause you not to lose — a different view if winning.
Actually I own a house.. so I could still lose. However, I only paid $95,000 for it and put 20% down. I could lose a large percentage of the home value and still not lose much of my net worth. Also, I don’t own it as an investment (I would like to live there 10+ years) and my cost of ownership is LESS than if I were renting. That is how people SHOULD buy homes… Conservatively. Obviously this is not possible in many parts of the country but it seems that’s why many people here are renting.
So I guess by purchasing naked puts I’m really hedging against the value of my home falling (which I expect to happen.)
With options, you have to be right not just on price but on time too. The HB’s have hardly budged in five weeks if you don’t count movement interday. Great for day-traders, tolerable for shorts, a loser for put holders.
That said, I wrote the other day that I think this “consolidation” period is just about over. A couple of lousy quarterly reports (starting this week I believe) and a couple of warnings could start us down the road to another 20% below current levels.
I think that medium term puts are the way to go. I bought Sept and Oct at the money puts in May and they are all in the money now. Now I am buying mostly Dec and Jan puts on HB’s and some leaps on over leveraged banks. for the medium term puts, I think that it makes sense to buy at or a little in the money. For leaps, at little out of the money looks good. Yes, I think that the added leverage makes puts a better deal than buying short.
Syracuse– yup, puts can be a good way….BUT… please make sure that you understand how options work first. Pop quiz– define delta, gamma, theta, strike, spread, butterfly, covered write. Score 100% and you’re ready to trade.
If not, spend some time reading on options strategies first. It’ll keep you from “DOH”, and can help you make more $.
The Tol Dec puts look like there’s a little bit of volatility premium on them right now (FYI)
Homes are a function of income and interest rates and have some error term I’d label investor sentiment tacked on. Interest rates are mean reverting: if the long term average rate is 8 percent and yesterday rates were 12 percent and today they are 14 percent, we expect rates to eventually be 8 percent, not 20 percent. Unfortunately I forget the proper way to define this, something like they’re not lognormally distributed or summin’. Therefore, since over the long run, interest rates will revert back to the mean, the most significant factor in home pricing one should consider is income. If incomes do not support the low end houses costing 250K, then the low end houses, in the long run, will not cost 250K. The factors that could change this are rapid and significant wage inflation. While a possibility, I believe this would harm both the economy and the investors/banks/corporations whom the Fed is most likely more interested in protecting. Wage inflation would only benefit home debtors. And no, presuming logically behaving participants, the “superrich” would not suddenly buy up all the homes and rent them out to some “renter” class, as … guess what, rents are a function of income too. Therefore, those renting out the houses would be wasting capital in an underperforming asset by renting below the cost of carry. And likewise, if instead all rents were so high people had to bunch up, you’d then have unrented homes which would ruin the asset class again, causing rent price drops until they all returned the same rate. Sorry, cannot see any situation where this balance won’t eventually return to the market.
well put…
do you think lending standards, flexible loan products, down payment, etc.?
True, but thankfully once again this should be a mean reverting item also, as ultimately any lending standards outside the long-term sustainable parameters should either make lending so infrequent in the case of overzealous ones that people will drop their standards to a market balancing rate or, in the case of the super duper low ones and ridiculously exotic products that exist today, they will have repercussions and investors, being loss averse, will force the retrenchment fo the standards at a higher level… Down payment percentages, option arms, no-docs, etc should all fit into some overarching “lending environment” type category…
Sensible, but our trade deficit demands no reversion to the mean when we are determined to continue as the world’s default (highest legitimate interest rate) currency.
A bit of history:
THE DAY LOS ANGELES’S BUBBLE BURST
From the NYTimes, December 8, 1984
Check it out…
Very funny. That article was written near the bottom in 1984 prior to the big run up to ‘89/90. It would have been a GREAT time to buy.
In the early ’80s, much of the USA was in a deep recession. In some states, unemployment was around 20%.
Excellent find! Highly recommended.
“Every day, home buyers would look at the prices and say, ”It can’t go on.” But every day, for five years, it did go on. Middle-class families were priced out of the market, and the brokers said, ”But the rich will always be able to buy.” Ordinary rich people were squeezed out of the market in some areas, but the brokers said, ”Never mind, the music business people will buy anything.” The music business fell into a depression in 1979, and the brokers said, ”The foreigners are buying. Compared with Paris or Teheran, real estate in Holmby Hills is a bargain.”
Everyone wanted to get in to the game, get the down payment on a house, somehow struggle with the payments for a year, then sell out and get rich quick. Inflation pushed housing prices into the stratosphere. But even when inflation stopped, brokers said, ”The prices have nothing to do with inflation. Everyone on earth wants to live in L.A. The price will go up forever here, no matter what else happens in the rest of the country.” ”
Is this THE Ben Stein (professor, actor, financial commentator)?
Yup, it’s one and the same…
Ben Stein the actor, Valedictorian from Yale Law school, speechwriter/lawyer for Nixon/Ford, professor, economist, and writer. A very brilliant man.
That would be (actor) Ben Stein’s father the economist Benjamin Stein. (I believe.)
Were the Spellings from Paris or Tehran, I forget?
Heres an update from Phoenix. The girl I play golf with still has not sold her house in Cave Creek (North Scottsdale). She has reduced the price from 419K to 364K and has not had even one offer. None. I have checked the other listings in the area and she has priced her house 30K below the competition. Then I heard from one of her friends that the first mortgage company she went to would not give her finanacing because less than 30% if the condo’s have sold. She bought a Toll Bros condo, 1200 sq ft for 400K! When she bought they were having lotteries for the right to buy a unit. Now they have sign twirlers and ballons trying to get people to come into the sales office. I want to know what she does when they start to lower the price of the units around her. This girl kept bragging about her house going up 10K a month and what a great investment RE was. Ha Ha
With some luck your golf friend will only be responsible for her previous unit. Tell her to be late on her credit cards and then she certainly will not be approved for the new condo and take a double loss. LOL
This guy is getting more and more desperate:
http://washingtondc.craigslist.org/nva/rfs/177687602.html
That place is a dump. I like the “college” furniture.
Ha - posting Craigslist links to stupid deals seems to be the kiss of death for them — increasingly they are pulled soon after appearing here on Ben’s blog, as this linked one seems to have been.
http://washingtondc.craigslist.org/nva/rfs/177687602.html
“This posting has been deleted by its author.”
So…what did it say?
All around the world the bubble is bursting.
From July 10, 2006
JoongAng Daily
Apartments in south Seoul failing to sell
July 10, 2006 ㅡ Reconstructed apartments or those slated to be reconstructed in the glittery Gangnam area in southern Seoul are selling slowly even when the price tag drops as much as 200 million won ($210,000) due to strong government real estate regulations and seasonal factors.
Real estate agencies said yesterday that the market value of reconstructed apartments and those waiting for reconstruction in Gangnam will likely drop further.
According to the agencies, a 112.2 square-meter (1207.7 square-foot) apartment in Jamsil, southeastern Seoul, whose market value went up to 1.1 billion won recently is now up for sale at 980 million won. A 118.8 square-meter apartment in the same neighborhood, which was earlier traded for nearly 1.5 billion won, was listed at 1.2 billion won.
Yet neither of the apartments sold. “The apartments would have sold in a moment recently but today no one wants to buy them,” said a real estate agent.
Other apartments in Gaepodong and Duchondong are suffering a similar fate.
“The number of apartments for sale has been increasing since many are concerned with falling apartment prices and the increasing interest burden with the recent rise of interest on mortgage loans,” said another real estate agent.
“But buyers are barely moving to buy even at such bargain prices, since buyers are worried that the government will likely tighten their regulations on reconstructed apartments in the area,” the agent said.
Starting this month, the safety inspection of apartments surveyed for reconstruction will be much stricter. This will make it more difficult to get government approval for reconstruction. Additionally, at the end of September, owners of apartments for reconstruction will have to pay part of the hiked market price of the apartment after the reconstruction is completed.
http://tinyurl.com/oqdga
Wasn’t the government of Korea very recently talking about increasing property taxes (guess they are national there), as a way of cooling off the housing market?
Yes and from the above it means an end to flippers.
… Additionally, at the end of September, owners of apartments for reconstruction will have to pay part of the hiked market price of the apartment after the reconstruction is completed.
Someone just made a point on a different message board. You know the issue of “debt reflief income”….i.e. getting 1099′d for walking away from your house.
If there is a depression, housing prices fall, incomes fall, a person could be on the hook for 100K’s to the IRS (on depressed incomes) forever………
Slavery or?
I have not heard this aspect (depression in cominination with the new tax rules) mentioned much.
Am I missing something?
Since IMHO debtors 1099 tax problem are going to occur (and possibly is occurring) and the possibility of a 40% average RE drop in the US, then the only possible relief is tax amnesty (which would require a change in the tax codes). This has been discussed periodically in the last year.
New selling strategy: get potential buyers tipsy enough to sign on the bottom line.
http://sfbay.craigslist.org/nby/rfs/179435544.html
Yup, you know they are counting of very little traffic if they’re giving a whole bottle of Mad Dog to each visitor. The agent must assume it is a safe bet that only Craigslist readers know of the offer. Bet it’s not in her local newspaper ad, unless there’s an asterisk re limited quantity.
Proximity to a golf course entails 24/7 exposure to harmful pesticides and herbicides. No thanks.
“Hey honey! How could you possibly have contracted cancer? You don’t drink or smoke and eat all organic foods!”
Things that make ya go hmmm..
OC readers:
Lansner’s blog has someone impersonating me.
The fill in moderator isn’t doing his job.
The bulls must really be frustrated.
What’s your impersonator saying?
A nice little article this afternoon from Bloomberg on bursting asset bubbles.
Smithers Sees Earnings Worldwide Peaking, Undermining Stocks
July 10, 2006
…`Soft Landing’
Indeed, Smithers said that “soft economic landings are rare.”
To pull the world out of the 2001 recession, major central banks adopted easy money policies and governments ran up big deficits. The result was an explosive rise in stock, bond, gold, property, art, housing and other asset prices. The policies also led to low savings rates and consumption booms — especially in the U.S. and U.K. — as well as a record high U.S. trade deficit, and heavily indebted societies. …
…Takeovers and stock buybacks should prevent an immediate collapse in share prices, said Smithers. Yet given his pessimistic prognosis that equity markets “could easily halve,” investors should sell when stock prices rally, he said.
“This would likely lead to a period of stagflation, with a prolonged period of poor profits and rising interest rates,” said Smithers. That’s what happened in the 1970s and early 1980s, following the first and second oil crises, he said.
http://tinyurl.com/h7qng
Elliot Wave International is having a free week coming up starting on Wednesday. The advertisements are on this page. I am a subscriber to some of their services, and I find them very interesting and helpful, although they are not always right and often early on their bearish stances. This free week includes more services than usual, they have them several times a year, but they don’t always include the short term update and the theorist. Those of you who are interested in the stock market who haven’t already checked out a free week should check it out, they really have the same services I pay for for free for one week.
Mortgage giants avert potential disaster
By MARCY GORDON, AP Business Writer
31 minutes ago
WASHINGTON - A potential financial disaster that could have shaken the housing market was averted because regulators discovered accounting failures at Fannie Mae and Freddie Mac, the new head of the agency that oversees the mortgage giants said Monday.
ADVERTISEMENT
The government-sponsored organizations appear to have gotten the message that they need to reform, but it still will take years to repair their internal problems, James B. Lockhart said in an interview with The Associated Press.
“The housing market is so important to this country,” said Lockhart, who has headed the Office of Federal Housing Enterprise Oversight for about two months. “And to have it built on what turned out to be a shaky foundation could have caused significant financial problems.”
Problems were averted, he said, because the regulators acted to identify and order corrections at Fannie Mae and Freddie Mac, which together stand behind some 40 percent of the $8 trillion U.S. home-mortgage market.
(cont at link)
http://news.yahoo.com/s/ap/20060710/ap_on_bi_ge/mortgage_giants
Something stinks about this, but I’m not financially savvy enough to figure out what - anyone want to share?
It’s probably the time of year when high-up feds get nominated for big bonuses.
In other words, nothing’s new — it’s just time to get the words onto paper for those awards.
This was on the best of Craigslist. It’s a long winded rant from a renter in Boston about his difficulty finding an affordable apartment in Boston. Be warned that it contains some salty language.
http://www.craigslist.org/about/best/bos/177040375.html
Twice in the last week, a half-gallon of milk went bad before I could finish it. (And I don’t normally need more than 2 or 3 days to finish a half gallon.)
I know it’s a stretch — but I wonder if gas prices are getting so high, that the refrigerated trucks are being set at a higher temp… and things are just not keeping like they used to.
Ask the dairy produce guy. They would know. It’s worth looking into.