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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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An interesting article from SF Chronicle about Craigslist.
http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/07/21/CRAIGSLIST.TMP
Meeting at a department store to exchanged used consumer goods is kind of like real estate, almost.
Rate-Hike Odds Fall
By Tony Crescenzi
RealMoney.com Contributor
7/21/2006 10:24 AM EDT
Click here for more stories by Tony Crescenzi
Rate-hike odds continue to fall, with investors increasingly convinced that the economy is slowing enough to push the Fed to the sidelines. The market is priced for 34% odds of a hike at the Aug. 8 FOMC meeting, down from 47% at yesterday’s close and 90% following Wednesday’s release of the consumer price index. The market is priced for 50% odds that the Fed will raise the funds rate a single time between now and the Sept. 20 FOMC meeting and 58% odds of a single hike by the Oct. 24 FOMC meeting. Looking further out, the market is priced for small odds of a rate cut in the first quarter of 2007.
“….In the currency markets however, it is not the absolute value of the carry that matters but the future direction of the interest rate spreads. If the US rate hike cycle will indeed come to a halt at 5.5%, as many market players now anticipate, while the BOJ proceeds, albeit slowly, to push rates higher yen should continue to strengthen against the greenback. Tonight’s price action may be a signal that the USD/JPY up move is finally exhausted, as traders cast their eye to the future of shrinking interest rate differentials between the two currencies….”
from “To Hike or Not to Hike ‘Tis The Dollar’s Question
Friday, 21 July 2006 10:03:32 GMT
http://tinyurl.com/fhzr8
IMHO in order to keep trust in the dollar, the Fed will be forced to raise rates in August regardless of the declining economy. I am looking for a 0.50% increase in August. However there is a critical midterm election and Bernanke is a political appointee. Is BB going to burn the dollar and future prospects or bite the bullet to attempt to curb inflation? I hope the latter.
From Bloomberg this morning
… At Lehman Brothers Holdings Inc. in New York, chief U.S. economist Ethan Harris doesn’t buy it. “The Fed has a very optimistic view about inflation, and I think they will find out they are wrong and will have to tighten more,” he said. Lehman estimates the central bank will push its benchmark rate to 5.75 percent by year’s end, from 5.25 percent currently.
If Bernanke proves to be right in his forecast, Harris said, it would be “the first time in history” that the Fed stopped inflation “without imposing pain on the economy.”
http://tinyurl.com/g6s4v
Hoz –
This is quite interesting to me. The general public views the Fed as a puppeteer, controlling interest rates and the entire economy by pulling the strings. In fact, although the Fed clearly has massive influence, they often find themselves forced by unanticipated developments in the conditions that drive the global macroeconomy to follow the curve, lest they find themselves in the position of pushing on a string with no sway.
And as they govern by committee, they are vulnerable to the perception bias of group think on their assessment of where things are headed. I believe this group think dynamic renders the Fed highly prone to fooling by randomness. Since the futures markets set the odds on a future rate hike on the basis of Fed statements, and the Fed itself may not have a clear perception of the risks, I concur that the chance of at least a 1/2 point more FF increase by year end is higher than the sujective probability priced in by the futures market would suggest.
I see the Fed-bankers as the officers on the deck of a large ship where the steering wheel is disconnected from the rudder.
They make big announcements about the direction the ship is going, without knowing that they are drifting at the mercy of wind and current.
Or worse: they secretly know it…. did anyone say The Emperors new Clothes?
Did you see the “odds” of a 1/2pt increase? Less than 1%:
http://clevelandfed.org/research/policy/fedfunds/Index.cfm
Yes! I would rather bet that the Fed is looking at net foreign capital inflow/outflow ratios. see pgs 15 -18 (caution pdf) from the New York Federal Reserve Bank
http://tinyurl.com/j6z55
From the charts it appears that from the 3rd quarter last year thru the 1st quarter this year net outflow over 100 billion dollars and getting worse. Robert, I believe there are 2 more rate increases to reach 6%. Then I believe a raise every time the ECB, Japan, Korea, and China raise rates. (Or I’ll see your quarter and raise you a quarter). If you are curious about inflation you should look at the chart for consumer goods for the last year up 5.8% not including oil pg 10 of same report.
“…At the same time, because economic forecasting is far from a precise science, we have no choice but to regard all our forecasts as provisional and subject to revision as the facts demand. Thus, policy must be flexible and ready to adjust to changes in economic projections. In particular, as the Committee noted in the statement issued after its June meeting, the extent and timing of any additional firming that may be needed to address inflation risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by our analysis of the incoming information.”
From the Federal Reserve:
Testimony of Chairman Ben S. Bernanke
Semiannual Monetary Policy Report to the Congress
Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate
July 19, 2006
http://tinyurl.com/kogeb
It is definitely time for a clarifying luncheon with Maria Bartiromo, as the markets once again interpreted the Fed meeting outcome to signal a pause, and BB’s actual statement suggests nothing of the sort.
Amazing the way people can view the same thing and walk away with totally different takes. I watched Bernanke’s testimony before the Senate and was convinced a pause is in the offing. I’ll stand by that opinion, seeing how difficult the Fed’s decision to raise rates last time was based on the minutes from the meeting.
Suppose that Bernanke & company err on the side of prematurely pausing, resulting in higher-than-anticipated inflation. Will it make those who recently bought overpriced homes look smart in retrospect?
This time is different than the Great Inflation of the 1970s. During the 1970s, Arthur Burns, then G. William Miller spiked the punch bowl repeatedly and let inflation run amock. Homeowners whose pay was indexed to inflation through union contracts and whose nominal mortage payments were fixed for thirty years enjoyed roughly constant real earnings while the real value of their mortgage payments were eaten up by inflation. At the same time, high inflation rates increased the nominal value of their homes. The banks who loaned them the money and owners of long-term Treasury debt were hosed.
Fast forward thirty years to the present. Many recent Calfornia buyers stretched to buy unaffordable homes using 100%-financed ARMs whose payments represent over 30% of their monthly household income. Interest rates are already higher than they were last year, and if the Fed gets behind the curve by pausing, they will have to play catch-up later. The ECB, BOE, and BOJ will continue the tightening phase if inflation heats up (remember the inflation targeting rules that certain academic monetary economists have recently championed?), and if the Fed does not follow suit, the flow of foreign capital into our debt market could dwindle, again leading to higher interest rates. And the greatest extended period of home price inflation in US history had pretty much run its course by August 2005, leaving coastal housing generally unaffordable relative to the income base, suggesting prospects for future high home price inflation are dubious.
It is hard to envision a scenario where ARMs reset at a level which does not result in a large increase in monthly payments. And not many folks enjoy the benefit of an inflation-indexed union pay contract at a high pay rate these days. Finally, a new bankruptcy law was put in place last fall to protect creditors against borrowers who walk away from their debt. Where is the upside for FBs?
These are all good points and should be memorized for when the “history rhymes” dittoheads trot out what they claim to be comparable historical episodes. This cycle simply isn’t comparable to any preceding cycle for many of the reasons you outline above. It’s a whole new ballgame.
I happen to think Bernanke’s main objective is to keep the greenback as a key currency. To do that he has to limit inflation of the dollar against oil. Oil will become more expensive over time, no matter what happens, but it would be a disaster for the USD if oil appreciates against the dollar faster than against, say, the Euro. I happen to believe that the USD reserve currency status is perceived as crucial.
That means he’ll probably keep raising rates until he induces a recession since that’s the sure way to lower oil consumption. The party’s still on and the punch is still spiked.
A real estate crash would go a long way toward bringing on recession. And I think that one’s in the bag. The seller’s market psychology has a broken back and a wood stake through its heart.
“This cycle simply isn’t comparable to any preceding cycle for many of the reasons you outline above.”
Unfortunately, I strongly suspect this cycle is far more comparable to the Roaring 20s than to the inflationary 1970s, especially with respect to I/O financing with no skin in the game. I have read that I/O loans were the most prevalent means of financing home purchase in the 1920s. I am not sure if you could buy then with no downpayment, but the stock market had an analogous problem with highly-leveraged purchases on margin, which ended with the Great Crash of 1929.
The current persistently negative savings rate is highly worrisome — a sign that many believe high rates of asset price inflation will provide a third household income source forever. The negative savings rate of the 1930s is easily explained by high levels of unemployment; many who would have saved if given the opportunity had no incomes. What does a negative savings rate in a period of supposed prosperity portend? Time will tell.
GS and LJR - Nice assessments! Personally I believe it is rhyming with the 1890 - 1893 dollar collapse that resulted in the formation of the Fed (J.P.Morgan financed the country out of that collapse maybe Bill Gates and Warren Buffet can stave off collapse now).
“History doesn’t repeat itself, it rhymes” Mark Twain
Unfortunately, hearkening back to previous calamitous cycles is difficult, at best. Prior to the early 1970s we were on the gold standard, making comparisons to the Depression or other instances reliant upon symptomatic resemblance.
In other words, the fact that the US consumer had a negative savings rate leading into the Depression bears similarty to our current situation, but the necessary limitations inherently brought to bear upon credit by the mere existence of a gold standard negates a true ability to compare the effects of such a glut of credit to our current situation.
IMO, the credit bubble which has been propagated by the US and countless other economies under fiat currency has caused conditions which are worse than anything we’ve seen. The “welfare states” Alan Greenspan referred to in his 1966 essay are about to pay for their ongoing deficit spending. People can’t live that way forever and neither can governments. Sooner or later you must pay the piper.
At the time of the Stock Market Crash of 1929, total US national debt was 2.7x GDP. Now it is over 4x GDP. And it is not backed by gold.
Gentle Ben will likely err to the side of recession vs. runaway inflation. But if you listen closely you can hear the helicopter in the distance
Each year, however, Ben (and the rest of TPTB in the U.S.) loses control to foreign creditors in this global financial world. China and Japan wield lots of power, but for now they want to keep the dollar strong vs. their currencies (although W is trying to mask his massive spending by weakening the USD to make the irrationality look better). Just imagine if the communist regime in China decided that they were going to dump US Treasuries and unpeg the Yuan. The neo-merchantilist there will not allow it in the short term, but communist are a fickle bunch.
It seems that the choices are 1) don’t allow runaway inflation and crush the FBs or 2) devalue the dollar and screw those of us that actually saved money, while the FBs get bailed out (GSE bailout, helicopter Ben, devalued dollar making that $1M condo in Naples look cheap in euros).
I agree. The heart has been cut out of RE, but the economy beast keeps running (at least for awhile).
The only way todays buyers will look smart is if they can sell for a higher price to a greater fool. That would require higher wages since unaffordability appears to be the reason this whole ponzi scheme is unwinding, although it was also the higher rates and not just wage stagflation. So while it is conceiveable (although not likely) for rates to decrease again, I don’t see a possibility for wages to increase in any meaningful way while China is still in the mix, particularly if we go into recession. Unless wages increase, todays buyers are stuck being the greatest fool. My $.02
http://www.larouchepub.com/eiw/public/2006/2006_10-19/2006-17/pdf/09-13_617.pdf
Loudoun County RE Bubble is toast — here’s why (PDF article).
Loudon county has 10 months supply of single family homes: http://www.nvar.com/market/marketstats/jun06/index.html
Last year at this time it had 2 months.
But what’s interesting the most is the change in psychology. Last year the opinion of 99% of people was just buy and you can’t lose. Now the psychology is it’s going to stay flat. Wait until prices fall. That will be something.
Loudoun is toast.
Especially with stuff like this (http://www.washingtonpost.com/wp-dyn/content/article/2006/07/19/AR2006071900361.html)
going on (don’t know how to do a link.)
Gang drive by shootings happening in Sterling. What a shock. That’s why I moved out of Sterling.
Arlingtonva - Have you been tracking inventory…looks like July is going to be flat after the run up over the last six months. What do you think?
Inventory seem to have flattened.
Last year people were wondering if prices would rise, stay the same or fall. Now we know they won’t rise. So the question is will prices flatten or fall? and if they fall how badly?
Chinese buying overpriced US Condos through SFJack at 6% Commission! (Not for everyone)
It’s kind of fun to search craigslist for more affordable areas. I was just browsing Pittsburgh. They have townhomes for under $100K and SFH for under $200K.
Imagine how much something like this would go for in your area:
http://pittsburgh.craigslist.org/rfs/182975212.html
Pittsburgh has never really recovered from losing it’s steel industry. Most of the people here have left, and there are entire urban neighborhoods that are basically abandoned. Every once in a while a fire will wipe out a block or two. The county itself is bankrupt because:
1. The people who run it are a lively combination of incompetant and corrupt.
2. It’s left supporting infrastructure designed to serve 1,000,000 residents but only gets to collect taxes from about 300,000 or so, most of whom are dirt poor.
There’s no point in trying to sell a house for more than it’s worth in Pittsburgh. There’s plenty of abandoned properties that the county would be happy to just about give you.
Even so we still have our bubble areas, they’re just more well hidden. To make up for the tax shortfall the county tries to squeeze out extra cash everywhere, which leads people with high incomes to move right over the county line, which is where you’ll find our $300,000 hope-you-like-your-neighbors-you’ll-hear-them-all-day-townhomes.
However, to end on a positive note: most of the city is actually well taken care of, it’s my home, and the Steelers are awesome.
I had a case there about 5 years ago. All I saw was downtown and the airport, but I was impressed with both. There were some nice restaurants in the downtown area with views of the city.
And you know what’s even funnier? Pittsburgh has a lot more intrinsic value going for it (Carnegie Mellon, Univeristy of Pittsburgh, and a bunch of nursing schools, culinary schools, etc) than Boise, Las Vegas, or Gilbert AZ has where there’s really no reason to want to live there.
The universities have been attracting technology businesses here slowly. For instance, Google recently opened an office downtown because they were having trouble convincing PhD’s to leave the area.
Pittsburgh has a lot more intrinsic value going for it…
Different there. Got it.
It sort of is. You can have a decent place to live from 30-70K. The problem here is a bit different: finding a job that pays anything.
RE taxes there kill the fun
Believe me, there’s a reason it’s that cheap. Look where it is! 80 miles from Pittsburgh of which 20 is country road. 124 miles from Cleveland. I’m surprised they’re asking that much. It’s like one of those run down French chateaus. Buying it is just the start. No A/C and, speaking as one who grew up in that area, it’s hot and humid for much of the summer.
The point being - this house ain’t in Pittsburgh. It’s in loserville.
Funny you should mentin the ‘Burg. I’ve a 26 year-old buddy who just got himself transferred up there - his GF is getting a Ph.D. at C/M. I’d talked him out of buying a condo in DC last fall - was about to swap his $1,200 rental for a $380,000 condo. DC_Too disabused him of that, but, he’s making an offer on a 4 bedroom house, today, in the ‘Burg, for $150,000.
I’m happy as hell for him, but I gotta stick my nose in his business one more time and disabuse him of using an adjustable note. Pittsburgh rules.
I’ve lived in PIttsburgh for all of my 50 years.
Health care is great.
Education is fabulous.
The Arts are surprisingly advanced.
Housing is super-affordable.
Sports Franchises rock (well, just the Steelers at the moment).
Downtown is clean and a great place to work.
Airport is one the most convenient I’ve ever seen.
When Neil Young tours he always stops here.
The weather blows. Only Seattle has fewer days of sunshine.
lots of white folks !
Live Q&A with Maryann Haggerty today at 1:00 pm. Discussing “Whose market is it anyway? Discuss the economics of real estate.”
http://www.washingtonpost.com/wp-dyn/content/discussion/2006/07/07/DI2006070700991.html
Just went to the link to read the discussion. Gem from one of the posters:
“Your worst nightmare: Well, it’s time for the weekly running of the bulls. I thought I’d start the show early with a little insight into your buyer market.
I’m a very well paid professional, who just crossed into a six figure income last year. I have basically no debt beyond my student loans. I rent. I’d be interested in buying.
But you see, I spent the past five years listening to all of you blather on about RE. The smug attitude. The snotty “oh you rent” comments. We warned you that this was a bubble. We told you that ARMs, or worse yet IO ARMs were amazingly stupid on historical low interest rates (which can only go up). We told you energy prices were skyrocketing, driving up inflation (and eventually interest rates).
But still you bought the condo for a half mil on $80K income. And were condescending about it.
So now I’m sitting back, putting a grand or two a month away. I have no pressure. I’m ahead of the game. I just have more downpayment. Rates going up? Who cares? NOW is when you use ARM loans, when rates are higher and going up … by the time it resets rates are going back DOWN.
You on the other hand have an albatross. Those low, low payments die when your ARM (or god help your interest-only ARM, or worse yet your teaser) resets. Maybe you can afford it. Maybe you can’t. A lot of you can’t. Or you get a job elsewhere. Or whatever. The point being you are competing with desperate builders of new construction, and have a timeline. Or didn’t you notice the backlog of properties?
I can wait you out.
I’m not buying your overpriced place on some silly discount. I’m buying at 2002 or earlier prices. If not from you, then from your bank when you forclose. So keep dreaming about “soft landings.” All the greater fools already bought … the rest of us are those who could afford it, but weren’t willing to mortgage our futures on crazy loans and overpricing.
Maryann Haggerty: Who is sounding a little, well, smug and condescending now?”
“You on the other hand have an albatross.”
The albatross is the inflated purchase price, which was locked in until the sooner of repayment or bankruptcy declaration when you bought.
It’s a bit boring, so I’ll understand if nobody bites on this, but the personal savings rate is really in a bad place. Keeping in mind that mortgage debt is not included as an expenditure in the calculation, it is really scary to me that the rate is now -1.7%. People are using debt and burning off savings at a slow, but speeding up, pace. I’ve plotted the data back to the beginning of the dataset (1930 for annual, late 1959 for monthly). Anybody care to see what that plot looks like? I’ll summarize. Mostly 8% to 12% until the early 90s. Then it is linearly declining. We’ve been declining for a decade, with no signs of slowing. Here is a link to the table:
http://www.bea.gov/bea/dn/nipaweb/TableView.asp?SelectedTable=75&FirstYear=2006&LastYear=2006&Freq=Month .
The scariest thing to me is that increased debt service for ARMs will not show up on the savings rate, except that it does find a back door to make the numbers look *better* overall, due to the mortgage interest deduction yielding lower taxes and therefore higher apparent disposable income. People are even more hosed than it seems.
The negative savings rate is another reason why this time will be so much worse than the late 80’s boom/bust.
actually pretty interesting
tx
I think you are right that the negative savings rate is of no concern or interest to the average American. But it seems quite ominous that this condition has not persistently emerged since the 1930s.
Has NEVER emerged for a one-year run since the 20s. We’re now almost 19 mos. straight.
The savings rate data is very alarming. Mainstream economists and investment cultists such as Bob Brinker are looking through rose colored glasses which block out the combination of peak oil, low savings rates, a debt-driven economy, and outsourcing a lot of jobs that are not part of the R.E. bubble (false economy). Those with lots of cash and short term treasuries, maybe precious metals, will do okay. Especially if they either rent or their real estate is paid for (or almost paid for).
Paid off R/E and saving like crazy. No mean, no median, no impact. OMIGOD!
I was looking for a place to sheepishly admit an error in posting numbers from a source that ended up being inaccurate. I was using CNY.com to watch for escalating inventory and #s of homes with prices dropped for the week. I did post for a while that yes, here the numbers were going up too. The prices dropped category was also skyrocketing.
But I also noticed that homes that I knew were sold or taken off the market were on there too. So I finally contacted them last week to complain about their lack of updating their database. Earlier this week I logged on to see that “inventory” had dropped from close to 5000 to in the 2800s. Those numbers actually are not much higher than when I first started watching in February. They were about 2200. Things do sit in the winter as LLBean once printed in their catalog that Syracuse was the coldest city in the country. So I guess I’d have to backtrack and say things are still moving here. I’m not sure why…we’ve certainly had more lay-off announcements locally than new employer arrivals. But somehow things are selling.
Gary Watts emailed me here are his comments:
You should see a better 2nd half of the year with home prices continuing to appreciate. Rates are coming down, buyers will be entering the market and things will be just fine.
—–Original Message—–
From: Crispy&Cole
Sent: Wednesday, July 19, 2006 5:37 PM
To: info@impactre.com
Subject:
Gary -
Is the OC market still “in the bag”? Or have you adjusted to the new reality of Real Estate?
Concerned Citizen
What a JOKE! Does he really believe this??
I don’t think that it’s right that he is making his predictions on interest rates coming down . That’s really wishful thinking .
The Realtor Code of Ethics is a joke! No other profession can make these kind of predictions/guarantees without a page or two of disclaimers and caveats.
someone call Gary and tell him to take off his vacation auto-reply from last summer.
Or a very convenient excuse!
from the tone of his reply ;I think he believes that!
I rassed em too- I bet he hasn’t bough anything in over a year ,
dude, i really laughed at that one…lol
McMansion foreclosure on Cape Cod — the first of many of its kind.
http://boston.craigslist.org/rfs/184572674.html
That is a really awful location - some sort of tiny subdivision off of the wort traffic tangle in the area. Enjoy the views, and the lingering smell of exhaust!
Yes, that is one of the worst locations ever. The sagamore bridge is just one of two bridges spanning the cape cod canal, and connecting the cape to the mainland. In the summer, you can literally sit in your car for 3 hours waiting to cross these obsolete (where built when henry ford offered a wide variety of colors as long as it was black) bridges, and don’t even bother commuting into Boston, as you will have a traffic nightmare through route 3, then 93, and then the CLOSED big steal!
Imagine trying to keep that thing warm during Cape Cod winters.
You’ve got to be kidding me!!!
http://westpalmbeach.craigslist.org/rfs/184551640.html
WTF?
I looked it up on Realtor.com
It’s a little old cottage with a garage 18 blocks north of Lake Avenue (the main street) on .18 acres. With bridges and all, it’s 2 miles from the beach. On the plus side, it’s only to US Route One with tons of traffic and low end commercial. On Realtor, check MLS#R2653301
Florida is unbelievable. This is going to be groud zero.
The Washington Post has a real estate chat at 1 pm EST today, if anyone’s interest. This editor is the worst of ‘em, though.
http://www.washingtonpost.com/wp-dyn/content/discussion/2006/07/07/DI2006070700991.html
no mention of inventory, interest rates, inflation.
her RE bull/shill advice of the day:
“It is nearly impossible to buy a home on one income, especially in a high-cost area such as Washington. Not many people can do it. You don’t have to get married, but you may need to buy with a friend or relative.”
I suggest four families — one per bedroom — in a four-bedroom SD McMansion.
Despite recent weakness, or maybe due to it, HB stocks appear to have a long way down from here in order to reenter the atmosphere and touch down to Planet Earth…
http://finance.yahoo.com/q/bc?s=PHM&t=my&l=on&z=l&q=l&c=kbh,tol,dhi,hov
I’m on vacation in Alaska, my first summer vacation in 10 years since I am usually doing ecological research during summer.
The two biggest positions of my housing bubble portfolio (WCI and CORS) collapsed this week. It feels strange to be up $100 k for the week while on vacation. The builders and lenders may show a bounce if the fed pauses, but I think that long term puts (Nov, Dec) still have great reward to risk ratios. I am now buying Cors Dec 25 and Wci dec 15. It’s nice to have 300 CORS puts, mostly bought at the money when CORS was 32. WCI has gone down something like 14 trading days in a row. I guess that their strong exposure to Florida retirement communities and condos will lead to much worse earnings that note in their last warning.
I am also buying puts on banks with high RE exposure and have puts on nearly all of the major builders.
Bill, what do you think about stock in Bank of America? Of course, it has been around for decades. When the bottom falls out, will BAC stock drop quite a bit? I had a trailing stop on PCAR (Paccar builds trucks) that was activated yesterday and gave me a short term gain of $1,000. I could have had $2,000 if I sold a month ago, but I now have more cash and a modest 8% to 10% gain is fine with me.
I am buying put on several banks that, according to an article posted on Realmoney.com, have greater exposure to RE lending than recommended by the FDIC. Included in this group are BBX (my puts are up 50% in two weeks), NYB (my positions are flat), and RF (I’m down a little) . Bank of America will probably be hit by a crash, but I don’t see how the really large banks are as leveraged to RE.
My favorite has been CORS (Corus Bankshare) where >90% of its portfolio is in condo development. I started buying CORS in March and now have 180% gains on the original options (mostly Sept 30) and good gains on options bought in the last few weeks. Lately its lending has slowed marketly and I expect that it will be writing off loans by late fall. However, it also dropped big this week after fairly strong earnings–probably the street did not like future prospects.
I am looking at other lenders and recently have made good money on FMT and Lend. Unfortunately, I did not have TMA, which dropped 10% the other day.
I also have puts on CTX, WCI, KBH, BZH, DHI, RYL, TOL and SPF among the builders. Positions opened in May are up 200-300%. I am starting to take provide on these and to buy cheaper at the money options.
Since I think that RE will be much worse by end of the year, I am now buying at the money puts for Nov to Jan in the builders and in some case, out of the money leaps on the banks. These options are more expensive than one or two month options, but the longer term means that you don’t need to worry so much about short term bumps.
Last week I lost $30 k when the market rallied after Bernake’s comments and then gained 43 K the next day when RE lead the maket down. So, you need to have confidence , that I have gotten in part from this blog. When Citi came out recently and said that it was time to sell puts on builders, because the inventory issues were over blown, I had confidence that the Citi analysts were dead wrong. When I read that Bill Miller, the famous fund manager was buying builders (CTX), I also felt confident that he was wrong. After all, the only way to make money on the down side is when others are sliding down the “slope of hope” just has the time to make money on the up side is when the market climbs the wall of worry.
I’ve got puts on LEND and FED. Former has bounced up on me but I got time. Washington Mutual reported earnings this week - the largest S&L in the country - it’s mortgage unit’s profit is down a whopping 89% year-over-year.
I’m waiting for the cash to start flowing from my Wamu puts too. The stock is still pretty much at its all time high. I remember when Beazer was like that about 6 months ago. Complete disconnect from fundamentals, since resolved… Go WAMU!
WCI has also been my best position. I have dabbled in CORS, but the bid-ask is pretty big on the puts. I also am in and out of JOE, but it does not seem to want to roll over.
I keep selling all my puts, taking profits, and telling myself not to get greedy, but they keep going down. I had to re-enter at the end of the day Wednesday when the HBs rallied on bad news, but I sold most at the end of Thursday.
Check out BMHC; plenty of downside to go, though it is volatile.
Thornburg Mortgage shares down 13% at 24.67 - MarketWatch.com
Thornburg Mortgage is a leading single-family residential mortgage lender focused principally on the jumbo segment of the adjustable rate mortgage market.
hi from germany,
i heard the cc. they are tacking now even more risk with more arms and hybrids and option arms. they take their former maximum level from 50% arms, option arms out. their
riskreserve is around 15 mio$ for 25b!!!$ in their books. the only bride side is that they are in the lower ltw categorie and are not in the riskiest corner of the buisness. but the call was very depressing. it seems the “easy” lending could go on for a more few month.
Daily Reckoning
Who will pay the US economy debt?
…The real debt of the US government continues to soar in ways and amounts that are barely noticed and rarely counted. And so we turn to the point of today’s reflection; not who will pay our debt…
Bill Bonner
Fri 21 Jul, 2006
“…From this moment forward, the US government would work on a pay as you go basis – effectively fixing the present ‘fiscal gap’ at its current level, $65.9 trillion, and no higher. And then let say that the next generation was put to work to pay down this burden to zero, so that future generations would come into this life on at least as good terms as past ones – with nothing.
And let us stipulate that there are a total of 100 million people in this next generation. That leaves each of them with $659,000 to pay off. Assuming a working life of 40 years, that’s $16,000 per year, in principal alone. With interest, annual payments could be twice that much - or about the entire after tax income of the typical worker (inflation has been set aside for these calculations). In other words, this entire generation would have to work its entire life just to pull the country out of the debt that its parents and grandparents built up.
And to these figures must be added a thought. Like the Louies’ debt, it is not owed to ourselves at all. Seventy-five percent of federal borrowing in the last five years has come from overseas lenders..”
http://tinyurl.com/k32za
1989 -to 1992
how much did RE come down in your hood ?
N VA 22151 about 12%
Holy Crap. LA Times just dropped a nuke on Leslie Appleton-Young . . .LMAO
Housing Expert: ‘Soft Landing’ Off Mark
By David Streitfeld
Times Staff Writer
July 21, 2006
Leslie Appleton-Young is at a loss for words.
The chief economist of the California Assn. of Realtors has stopped using the term “soft landing” to describe the state’s real estate market, saying she no longer feels comfortable with that mild label.
“Maybe we need something new. That’s all I’m prepared to say,” Appleton-Young said Thursday.
The shift in language comes as debate over the real estate market is intensifying. The long-awaited drop-off is happening, but there’s little agreement about how brutal the landing will be.
Federal Reserve Chairman Ben S. Bernanke said in congressional testimony Thursday that the national housing downturn so far appears orderly.
At about the same time, however, D.R. Horton Inc. Chief Executive Donald Tomnitz was telling analysts that the home builder’s sales in June “absolutely fell off the Richter scale.” Horton, the nation’s largest builder of residential housing, has numerous projects in California.
For real estate optimists, the phrase “soft landing” conveyed the soothing notion that the run-up in values over the last few years would be permanent. It wasn’t a bubble, it was a new plateau.
The Realtors association last month lowered its 2006 sales prediction from a 2% slip to a 16.8% drop. That was when Appleton-Young first told the San Diego Union-Tribune that she didn’t feel comfortable any longer using “soft landing.”
“I’m sorry I ever made that comment,” she said Thursday. “When I get my new term, I’ll let you know.”
If there’s one group in California still unreservedly bullish on real estate, it might be the throngs lining up to take the licensing exams.
The state Department of Real Estate recently reported that the total number of agents in the state passed 500,000 in May for the first time. That’s one agent for every 55 adults in the state.
Appleton-Young had no qualms about predicting a hard landing here: “We’re expecting a fairly significant shakeout.”
http://tinyurl.com/j72pw
OlBubba,
I responded to your post in the other thread. You are right. I’m sorry.
This must be some kind of new scam. It’s on practically every Craigslist RE board
http://albuquerque.craigslist.org/apa/184620507.html
http://albuquerque.craigslist.org/apa/184620507.html\
“This posting has been removed by craigslist community.”
What was it?
Don’t know if the same, but I’ve noticed a scam on the Craiglist RE boards in various areas - all variations on “Take over payments on my house”.
Don’t take over payments on a house . The flipper wants to pass the liability on the loan . The lender would have to approve of taking over a note and the lender usually wants a fee for this,(and it has to be a assumable loan ) .The loan could be called due and payable if the lender didn’t approve of the assumption and they find out about it .
Who would want the flippers lousy loan anyway . It’s a ARM or IO loan with a pre-payment penalty on it .
An off-topid idea: A housing bubble parody song lyrics / titile thread.
Inspired by the recent version of “Major Tom” and various Britney song titles. I think we could out wierd-al Wierd-Al.
Hmm… “Heloc to Hell” or “Breaking the Law (the Loan Officer song)”.
Here’s an article from Forbes on the Top 10 Most Overpriced Places in the US. Two surprises, Tucson at #7 and Essex County, Massachusetts (that’s north of Boston) http://tinyurl.com/k3z3d
I’ve seen firsthand that Tucson’s jobs really stink and the pay is low. I don’t know how the people who actually have to work at some of these places pay for the overpriced houses.
The jobs that pay reasonably in Tucson are at Raytheon, yet they are not enough to prop up the R.E. prices of Tucson. Tucson is a beautiful place along the foothills of the Catalinas. But there are some trashy places in the lowlands. I rented a 1 bedroom luxury apartment for $650 per month 1997 to 2000. I thought my eyes were deceiving me when I looked at the rent price of that complex recently and found they start at $575 now. That apartment is in a very nice part of Tucson. I would not mind living there again.
I went to high school have family there and it boggles my mind that Tucson is in a real estate boom. There are nice places in the foothills, but much of the city is pretty ugly. As you say, nobody makes any money there.
A Pulte sales rep was transferred to Denton from Tucson and she says she has four rentals in Tucson on lease-purchase (all negative cash flow) that sold for around $200 per foot. Somehow I do not think this will end well for her. They are somewhere south of the city I had never heard of near Green Valley.
Here’s a topic who’s time has come: unabashed chest-thumping for those of us who called the Bubble a Bubble long before it became fashionable, i.e. since the middle of last year. I remember the struggle I had trying to persuade my wife while we should rent for another year instead of buying, after her Bunko group (what women see in that moronic game eludes me) had assured her, with bovine complacency, that prices here in Colorado Springs had only gone UP for as long as they remembered (collectively, for about ten years).
I had to endure a sneering lecture (or ten) from a Flipper at work, a young guy juggling four houses, when I told him we intended to rent (not buy one of his “investments”) until “the Bubble implodes.”
Now, the Bunko Babes are murmuring about their escalating mortage payments and neighbors in financial distress, and Flipper Boy spends a lot of his day in very testy phone calls (unrelated to work) as his schemes of easy money seem to be crashing down around his ears. And I, of course, have become sought-after by would-be homebuyers as the word gets out that my forecasts have been uncannily accurate. So, at the risk of sounding immodest, let me remind the Bubbleonians: I TOLD YOU SO!
How is the market in Colorado Springs coming along? My SIL just bought in the mountains, moving from CS proper, and I’m curious how things have fared. I am barred from the “I told you so” act when dealing with her, but it is still good info for me to have.
I’d say the market in Colorado Springs is holding its own, so far, but there’s some definite signs of trouble. The number of bankruptcies is increasing quite dramatically, and there is rampant overbuilding. The realtors are sticking to the “there is no bubble in CoS” party line, but privately, a couple that I know have indicated they’ve seen a major slowdown, as of the Spring, in business, as prospective buyers are starting to hold off in anticipation of lower prices. Inventory just hit a 17-year high and gives no indication of tapering off. I’m sitting tight in my rental house until next Spring or Summer at the earliest.
A lot of the Mountain McMansions have been sold recently for huge losses. With rising gas prices and a local burglary rate that exceeds NYC’s, the attractiveness of those isolated castles is really falling off for new buyers, as the supply of idiots (mostly California equity locusts) is drying up.
My sister is in one of those Bunko groups. Listening to that table of biddies is like nails on the chalkboard. What is the point of that stupid game?
Here is what Greenspan said in 9/5, very few paid attention, other than this board.
“Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low-risk premiums.”
I really miss these deftly coded delphic utterances.
Application to the case at hand:
1) Higher risk premiums = buyer reluctance to purchase overpriced homes whose values are falling.
2) Liquidation of the debt = sales by I/O Option ARM buyers who cannot make their resets, followed by return of proceeds to the bank that loaned them the money.
3) Unkindness of history = the sales proceeds will not be sufficient to cover repayment of the borrowed funds. Somebody comes up short in this game of musical chairs.
Get Stucco,
I agree in principle that this was one of the more prophetic utterings that Greenspan had. However, I disagree (although politely) that consumers were who he was directing his comments.
1. Higher risk premiums: this is evidenced when higher default rates appear than were previously anticipated. This means that MBS investors will require a higher rate to cover these losses. Mortgage rates = Risk Free Yield (US Treasuries) + Mortgage risk premiums. The fact that mortgage rates have average 3% higher than US treasuries, and they are now hovering around 1% higher, means at some time they will likely not only return to 3% higher, but perhaps even 5% higher (to correct historical imbalances and flush out risk)
2. Liquidation of debt. This is actually, once again MBS holders who will simply dump their bonds on the market in a flight from risk. This will translate into blazingly-fast interest rate change (like going from 6% to 8% in 30 days or less.
3. Unkindness of history: Those “dumping and running” will end up losing much more than if they just hold on for the long-term like the had originally intended to do. This means that instead of risk premiums being depressed in the long-term, he intends that risk premiums may remain elevated long, long after the liquidation occurs because people will have a really good memory of the event.
We call this the impending credit event.
John Doe
John,
Nice interpretation, and I do not disagree with anything you said, except for your suggestion that there is a uniquely valid interpretation of the Fed Temple Oracle’s prophesy. Like religious prophesies, delphic utterances are sufficiently vague to lend themselves to a variety of equally relevant contexts.
The interesting thing in the housing market context is that these various manifestations of the unraveling conundrum will not operate independently, but will rather act as mutual catalysts. I believe this is a hallmark of systemic risk — many mutually causal factors which add up to an impending event which is greater than the sum of its parts.
“Mortgage rates = Risk Free Yield (US Treasuries) + Mortgage risk premiums. The fact that mortgage rates have average 3% higher than US treasuries, and they are now hovering around 1% higher, means at some time they will likely not only return to 3% higher, but perhaps even 5% higher (to correct historical imbalances and flush out risk)”
John –
I agree with all of this in theory. Do you have any insight to explain how and why the markets are keeping risk premiums so persistently low, so long after AG identified the conundrum as a problem?
GS
Yeah, this is Bernanke’s “glut theory”, but I attribute it to several things:
1. Foreign Governments playing “hide the trade surplus” to keep from having runaway inflation of their own currency.
2. Debt Monetization (probably 2 of the best words you will learn all year)
3. ZIRP Carry-trade from Japan.
Oh, and if noone has figured out. If we have 8% affordability at 6% rates, the magic question is, what kind of affordability will we have at 9% mortgage rates?
We could have declining prices, and declining affordability. This is where asset prices go into a freefall. I believe strongly that we are not yet there.
But Joe six-pack will always jump at 1% teaser ARM.
Yes, unless some oversight group does not allow banks to offer these “deceptive” loans.
John
2002 or 2004 go w an arm loans
greenspin
Sorry,
http://socalbubble.blogspot.com/2005_09_01_socalbubble_archive.html
Wonder how much it would cost to schlep a houseful of furniture and doggies to Australia? This is cheap!
http://sydney.craigslist.org/apa/180224871.html
Immigration to Australia is difficult and expensive. Locations like that are extremely hot and dry and, in local terms, “yobbo”. If this place has a reliable water source then it might be a good deal, but chances are against that. This between city and capital location is kind of like the California Central Valley in all too many ways.
All places have charm, though. It might be worth getting a tourist visa to check it out, but there is sometimes a bit of a wait on those.
Well, well, well….looks like Seattle REALLY IS SPECIAL.
How special? Click my name to find out…..LOL. No bubble here folks.
This is kind of stupid, but funny. If it’s not funny, sorry, I’m drunk so it’s funny to me.
The Area-Code Plot to Kill L.A.’s Housing Market
Hey big spender, would you pay 310 prices to live in the 424?
http://tinyurl.com/kk9gk
Ayres is a talented writer, and that is a pretty funny piece. It also says something pretty insightful about the trivial BS that passes for status around here. I remember when folks in the Hollywood Hills had to suffer the indignity of their area code changing to 323: much wailing and gnashing of teeth.
This change is pretty insidious, though, because it is an overlay; meaning that once-privileged prefixes such as 456 and 457 (Malibu) can now be be replicated elsewhere on the west side. Hmmm… I just checked the MLS, and the double-wide trailer at 23 Paradise Cove Road is on the market for $435,000!!! The area code change has already given me an opportunity for Instant Equity!!!
Executive Twin Home in Savage MN? If you were an executive, you would not have a twin home in Savage.
Only $485,000
http://minneapolis.craigslist.org/rfs/184817480.html
For that price you can buy a mansion along the river 2 miles from downtown Minneapolis.
double you tee eff?
Now that the bubble has popped, is it already time to begin hoarding
land for the next bubble?
——————————————————————————————-
The Wall Street Journal
Saturday, July 22, 2006
Money & Investing
———————————–
The Rush to Invest in Land
By Jeff D. Opdyke
Word Count: 1,267
The real-estate market has a new cry: Land ho!
As the nation’s housing market cools, there’s a rush to snap up undeveloped property as buyers stake their claim on everything from New England creek-front parcels, to mountainous woodlands in Tennessee, to big-sky vistas in Montana.
Some people are buying dream lots now, while the land is available and prices affordable, with plans to one day build a vacation or retirement home.
Others are investing in recreational property they want to use today: In rural west Texas, for example, scrubland that wouldn’t even sell a few years ago has become so …
There has been a land rush in one rural part of California near a national park where I lived as a boy. Prices have increased by 200% in the last 3 years there. That’s of land. It’s above fog and smog, but fire danger every summer. I wanted to buy, but the prices became too out of reach. I prefer the equity locusts to do what they do outside of California so that CA prices will once again fall to affordable levels. The locusts are like a disease spreading coast to coast from large metro areas to small areas. Just like a stock market bubble burst is manifested by investors dropping one industry and propping up another, this will last 2 or 3 more years before the bottom really drops out. I guess I will have to rent a vacation home for a month at a time way out in the beautiful cool mountains or near an ocean. Hey, wait a minute! What a concept! It’s cheaper to rent something like that for a month than to have a vacation home sit vacant 11 months! Actually, that’s the wisdom my father told me decades ago.
Bill,
Thanks for the anecdotal evidence. 200% appreciation in 3 years supports my belief that land prices are even more bubbly than home prices, in contrast to the view set forth in the following passage from the article I posted:
“Land prices often don’t move in the same way home prices do. Despite the run-up in recent years in some housing markets, home prices are typically expected to rise alongside the rate of inflation. But with land, price appreciation is traditionally more closely tied to how much money it can generate from activiies such as farming or grazing. And in general, land prices, when cool, don’t tend to fall as much as an overpriced residential market might, largely because while a housing market can be overbuilt, land can’t.”
So unlike land prices, housing prices are closely tied to inflation, and have nothing to do with income potential from, say, what you could earn in rental income? Then what explains the 100%+ real gain in San Diego home prices since 1998 — quite a bit above the rate of inflation!
Further, a lot with a home already built there is a far more liquid asset than a vacant lot. The built lot can be sold in a week at the spot market price for housing, provided the owner is willing to settle for that price. The empty lot’s value is largely driven by the option to build a home there, and given the time it takes to build a home, under normal (non-conundrumish) market conditions, the empty lot is exposed to future fluctuations in housing market values, and thus should carry a larger risk premium.
For the above reasons, I suspect that speculatively-driven land values will fall harder than the housing market itself.
suspect that speculatively-driven land values will fall harder than the housing market itself.>
This is a given. Housing prices should equal land + construction costs. Buffet likened his sale of his Laguna home last year to selling the land for $20Mil/acre because of it. Houses are just replacement costs. There is nothing special about stucco here or stucco there except its replacement cost. Land, on the other hand cannot be transported or destroyed (in economic theory), it has a value based on centrality and transport. The fact that land moves faster in prices up and down is because replacement cost does not move much differently than inflation. Land prices took off the same as did houses in SoCal. Finding a buildable lot in Sherman Oaks last year was basically 1.1M. A 2000 sq ft house next door would sell for 1.5m. Building costs? 400K. Easy math.
meh!
To the savvy financial planners quoted in the article below, I ask, “How
should you think about your home equity cushion when home prices in
your local housing market are falling, and after you have already spent it on luxury good consumption through the magic of home equity cashout
financing?”
—————————————————————————————–
A house is not a piggy bank
Forget home equity as retirement solution — except when it’s the only solution
By Amy Hoak, MarketWatch
Last Update: 11:57 AM ET Jul 19, 2006
CHICAGO (MarketWatch) — The equity you build up in your home is not a retirement-savings account, although many Americans are tempted to think that it is. But the smartest way to think about home equity, financial planners say, is as a cushion, a spare tire in reserve just in case savings calculations are off or liquid assets run out.
Shelter is a necessity, and so many planners classify the home as a “use asset,” a consumer need in the same class as a car or sofa.
“It’s a place to live, not a brokerage account,” said Sherman L. Doll, a personal financial specialist with Capital Performance Advisors in Walnut Creek, Calif. “But try to convince a Californian of that.”
http://tinyurl.com/mcn8k
Here’s some schadenfreude for the boomer-bashers out there.
From the LATimes:
Fewer Elderly Paying Off Mortgages
“Welcome to a new era in home borrowing, where long-term mortgages and home equity loans are taking their place alongside AARP cards and pension checks as never before. About 25% of all Americans over age 65 have yet to pay off their home loans, up from 11% in 1983, according to a Boston College analysis of Federal Reserve Board data.”
“For people nearing retirement, paying off the loan was once viewed as a rite of passage that freed up cash each month and strengthened a household’s ability to handle the unpredictable costs of old age, such as for healthcare.”
“But increasingly, it is a milestone that people do not expect to reach. A new AARP national survey, for example, found that among workers 55 and older with mortgages, about half doubted that they could pay them off before they retired.”
From today’s NYTimes “Refinancing and Putting off Mortgage Pain”: http://tinyurl.com/sxv4m
I was just going to post that. It’d be great to see a thread on this, since the article seemed to brush over the reasons why never-ending refinancings won’t be an option for many (such as tightening lending standards, and the many “homeowners” in bubble markets with little equity-to-no in their houses.)
lalaland, I agree, I thought the tone was pretty cavalier, with the exception of a few paragraphs towards the end, which barely suggested some people “might” be in trouble “if” home values decline.
According to the statistics, Manhattan Beach has a YOY decline in prices. Inventory, already sky-high, is now approaching “ludicrous speed” (to quote Spaceballs). There are still a couple of GFs out there, but prices are being trimmed by about 7% so far in the past few months, and the rate of the haircut is accelerating.
Sunday morning TV had every real estate seminar coming this week to a hotel in the Los Angeles area. I thought some of these guys were dead. Some pitch they used 10 years ago, when market was tanking “Foreclosure” and “Make a Million in 18 Months” and “No Money Down or Cash Back at Closing”. Get ready in a spike for sales in low end areas, after these guys plunk down $7,000 for a guru course and motivation tape. PT Barnum was wrong “There are 100 suckers born every minute”
Chuck Wollery[spelling] is pimping some properties in NM to build on…”Angelfire” or something.
almost to 50 with the greatest hits of the housing bubble links. please post some good one’s that I may have missed.
#35 ALL BOOMS BUST!
#35 Suzanne Researched This Commercial(Video)
Agents of Change(this site)
The Nastiest Wife on
Television
#36 Housing bubble correction could be severe
#37 The boomer bust
#38 Of Bubbles Past: A Chronological Listing of News Headlines from the Last Housing Bubble in Southern California
#39 Rent or own? Don’t jump to conclusions
#40 Condo Prices See Significant Drop(San Diego)
#40b First Yearly Home Price Drop in a Decade
#41 Housing bubble(wikipedia)
#42 Fractional-reserve banking
#43 But This One Is Special
Each Developer Is Certain That Its Condos Will Sell
#44 New condos could become apartments as sales cool
John,
I think that the US Bubble page on Wikipedia is better then the page you linked as #41, althought they are both good.
http://en.wikipedia.org/wiki/United_States_housing_bubble
thanks
I don’t know what Chuckie Wollery is pimping. Maybe he is going to replace Erik Estrada as a paid real estate shrill for some way out place. I haven’t been to Angel Fire here in NM, but I have heard that it is a nice area to visit or vacation. Here is the link to the resort there. I have no relation, and just found it in Google.
http://www.angelfireresort.com/
Let’s read the tea leaves here folks:
1) Record homicide rates in Orlando, Fl
2) Serial killers loose in Phoenix, Az
3) Electrical blackout in Chicago, Il
4) Electrical blackout in parts of New York
5) Record heat wave across the nation
6) foreclosure rates on the incline
Yep, no better time to go house hunting!!
A little levity
http://independentsources.com/2006/07/12/worst-company-urls/
LOL!!
Check out this bagholder, 200 Marine Ave., Manhattan Beach, CA, former owner purchased in 1999 for 509k. Sold near the top of the market, March 23, this year, for $1.225 mil.
Now on the market four months later, for $1.5 mil.
From the bottom of the front page of today’s (July 22, 2006) Wall Street Journal:
New Headache for Homeowners: Inflated Appraisals
Rosy Valuations, Common In Boom, Now Haunt Sellers; ‘It’s Pay-the-Piper Time’
By James R. Hagerty and Ruth Simon
As the housing market cools, Americans are confronting a problem that was easy to ignore during the boom: Inflated apprasials of home values.
Critics inside and outside the appraisal business have long warned that many appraisals are unrealistically high. That’s partly because generous appraisals help loan officers and mortgage brokers, who often choose the appraiser, complete more deals. If a home is appraised at less than the buyer offered, the deal is likely to fall through.
Inflated appraisals didn’t matter much when home prices were rising at double-digit rates, since market values would quickly catch up. Now, however, prices are leveling off in many places and falling in some (like San Diego!). Some homewoners are finding that the market value is below what past appraisals led them to believe.
For sellers, that can mean being forced to drop their asking prices. Some people hoping to refinance, meanwhile, may be unable to lock in new loan terms because they have less equity in their homes than they thought. Lenders and mortgage investors, too could take a hit if it turns out the collateral backing their loans is worth less than expected.
Most homeowners have enough equity in their homes so they don’t need to worry much about whether past appraisals were realistic. But dubious appraisals are a risk for the hundreds of thousands of people who in the past few years have bought homes with little or no down payment, or used almost all of their home equity to finance home improvements or other types of spending. That has left these people with little financial cushion to deal with rising interest rates.
“Now it’s pay-the-piper time for people, and they’re finding out they don’t have the value in the house they thought they had,” says John Taylor, president of the National Community Reinvestment Coalition, a Whashington-based nonprofit that supports low-income housing.
Haves and Have-Nots
http://www.alternet.org/workplace/38981/
txchick,
Very good article about globalisation and its effects on poverty, the middle-class and distribution of wealth, capital and labor rights. Wonder if the dialogue will lead anywhere. Somehow, I doubt it.
9 is 6.
Yah, D.C. must REALLY be worth the money.
Fear and loathing on DC’s streets as summer crimewave reaches the elite
July 20, 2006 (The Guardian)
Widening gap between rich and poor blamed for rise in violence, with 14 murders in two weeks
Last week, Washington’s police chief, Charles Ramsey, declared a “crime emergency” after the city registered its 14th murder since July 1, and a spate of violent robberies around Washington’s most famous monuments on the Mall. As well as the steep rise in homicides, robberies are up 14% and armed assaults 18%.
For those Washingtonians whose live in a clearly defined quadrant of the city that is mainly white and affluent, Senitt’s killing exposed a vulnerability. But it was, say some, a warning that a city known to outsiders for its monuments and harbours has some of the cruellest inequality in America.
Notice how trendy it is to blame crime and violence on “the widening gap between the rich and poor”. Political slogans such as this one are just a convenient way to avoid discussing the real issues. Fact is, the standard of living for the “poor” in America is better than it ever has been.
sm landlord,
I must respectfully disagree with you. IMHO, it is absolutely the huge income/wealth gap which is causing this crime wave. It doesn’t matter if poor people have a “higher standard of living” than during the depths of slavery or the Great Depression. People determine their own postion relative to those around them. If everybody else is eating steak while they are eating moldy bread, there will be problems.
Most middle-class people are living paycheck-to-paycheck right now. The “poor” are even worse off. The wealthy will not escape the hard times ahead. Even if they are able to hold onto their wealth, they will be subjected to more property (and violent) crimes as the poor believe their poverty is due to the “rich” taking away all their resources.
Just MHO.
I am not in favor of a huge gap in rich and poor but really, the truth is, crime is caused ultimately by lack of self control and poor values. It’s very, very negative…sometimes evil when you commit crime. A person is able to commit a crime, steal from another, when they have totally pushed aside any feelings of consideration for others. Stealing from others is wrong no matter what…you will always reap what you sow.
I can prove it. I have known many poor people, without property and without much hope of gaining property, but would NEVER STEAL. Two I am thinking of are sweet and nice and GOOD citizens. We have all read about wealthy people who steal such as the Enron folks. If wealth really were the true indicator of criminal activity than all poor people would be very bad and all rich people all good..and we know this is not true.
It’s true that the flaunting of wealth could be a trigger for crime…it can only trigger an individual who has weak values and little self control.
Soliel,
I agree with you, in general. However, there is a difference between poor = being able to make it by reducing your standard of living versus POOR = literally cannot afford food, shelter or healthcare of any kind for yourself and family.
Both of my parents grew up in very bad circumstances. My father grew up on a chicken farm in the South during the Great Depression. Needless to say, his family was very, very poor. My mother was the illegitmate child (when that was NOT okay) and grew up during WWII in Vienna, Austria. Obviously poor as well. Both of them worked hard, got college degrees and did very well for themselves. They are not criminals. But…during the war, my mother (and her mother) did whatever they could to get food, shelter, etc. Many people stole. They HAD to. There was no other option. You need to talk to people who have lived through very, very bad times (war times or growing up in extreme poverty in countries without enough resources). Poverty does indeed cause crime. Oftentimes, it’s a matter of survival. I’m sure you don’t think that people will watch their children starve to death while their neighbors’ kitchens are overflowing with food. People quickly become very primitive when their (and their childrens’) survival is at stake. Whether it’s moral or not depends on one’s perspective, I suppose.
If people are hungry, food is always on their mind, and they might just take it when they cannot earn it. The poor today, however, suffer more from obesity than hunger; their problems seem to be different. What are they?
SMLandlord, I have to call you on this. You are obviously in the upper rank. I am in the middle class, even with a modest house paid off, and I wonder which category I will fall into in the years before my death.
Having limited capital to invest, it’s a stretch to reach for the higher category (why should I have to - is it class warfare?)
As far as the poor being wealthier? ROLFMAO!
The price of milk, gas, food, water (about 2% to 20% of your income?) can be an enormous hit to them with just a small rise. Surely you cannot forget your (obvious) education which taught us all how regressive taxes work and how the effect of increased commodity prices hurt the poor more than others.
That said, I am truly-pissed that my native-born sister will not get hospital treatment whereas an illegal can for free. If they actually admitted my sister, she would be dunned for years. Could we help? Of course we would try, but we don’t have deep pockets. We are on the precipice. My wife and I can likely move up, if and only if we ignore the pleas from our underemployed and underinsured siblings.
I have witnessed the eradication of the middle class at an ever-increasing pace. Be careful if one or the other constituencies prevail in electing officials. Pent-up anger may actually result in a further eradication of the shrinking middle class. Or mass revolt.
Rant off, but warranted.
Ok, I know this will sound like a bargain to some on this blog (CA folk for sure), but remember that everything is relative. In this area, this is a rip-off.
http://philadelphia.craigslist.org/rfs/169352368.html
I chose this listing because I actually checked this complex out back in 2001 when I was first house-hunting. These condos (which are no better than the apartment I currently live in) were selling for around $90,000 back then. $175,000 is more than a 14% increase in 5 years. For a glorified apartment?! Ridiculous.
And this is pretty much it’s best selling point, “This is a second floor unit NOT facing the parking lot!!!!!” so what’s that tell ya?
Duh, this should have said $90,000 to $175,000 in 5 years is an appreciation rate of over 14%. Clearly $90K to $175K is more than a 14% price increase.
http://ocregister.com/ocregister/money/abox/article_1219659.php
OC prices out today @ OC register. Up 6% - ITS IN THE BAG!!!
closethetag
tag closed?
Those sales volume numbers seem to generally show big negative numbers. And what are those negative signs doing in front of the double-digit price gain figures for some zip codes (Newport Beach, Dana Point, etc.)? Must be misprints…
Don’t worry about the California housing market, because housing prices never fall unless the labor market weakens first, and unlike the early 1990s, this time is different, right?
————————————————————————————————-
Financial hiring, construction down
By Dean Calbreath
UNION-TRIBUNE STAFF WRITER
July 22, 2006
Although California continues to add jobs, a monthly decline in construction and financial hiring suggests that the state is beginning to feel the effects of the slowdown in the housing market.
California added 11,000 jobs last month on a seasonally adjusted basis, according to data released yesterday by the California Employment Development Department.
That’s a slightly slower pace than the weaker-than-expected U.S. job market, which added 121,000 jobs in May.
“What the numbers show is that the economy is slowing,” said Stephen Levy, director and senior economist of the Center for the Continuing Study of the California Economy. “It’s not a recession, but the economy in the state and the nation is slowing, and I think it will continue.”
Peter Morici, economist at the University of Maryland, said the number of jobs added recently nationwide has been “well south of the number needed to keep unemployment from rising.”
In California, the weakest segments in the jobs market are two of the areas that have seen the greatest growth in recent years: construction and real-estate services.
http://www.signonsandiego.com/news/business/20060722-9999-1b22jobs.html
Another LA Times bubble aplogist piece.
http://www.latimes.com/business/la-re-market23jul23,1,7267583.story?ctrack=1&cset=true
“Most big builders, wanting to avoid a repeat of the ’90s — when they were stuck with unsold homes after the recession hit — now build houses only after preselling them.”
AH-HA-HA-HA-HA-HA-HA-HA-HA-HA-HA-HA-HA-HA!
Um, Earth to Diane Wedner (LA Times Staff Writer), as has been posted many times elsewhere, this is not true. If you’d like, I can dig up the references (as you should have done).
To all reporters: now might be the time for you to research your stories to make sure they contain actual facts.
Real estate agent gets shot going door-to-door
http://www.dailybulletin.com/news/ci_4076906