Weekend Bits Bucket & Craigslist Finds
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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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Name:Ben Jones
Location:Northern Arizona, United States
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Anyone else notice the extremely annoying and aggressive radio/tv ads humping the re-fi loans, the realtors, the debt “relief” companies? It’s non-stop! I especially dislike the companies that ask, “Tired of those telephone calls demanding your pay your bills? We can cut your bills in half! Call us”….
Like the consumer is a victim. I guess they were forced into buying those jet skis, $1,000 espresso machines, and Nutri-System plans!
aggressive radio/tv ads humping the re-fi loans,
Perhaps you mean hawking?
– a member of the Fraudian slip society
I like humping, it sings.
I like the ones that tell you to use a professional when selling your house. Too many FSBO’s and flat rate fee companies.
Consumers getting humped sounds about right.
oh, I meant humping. Although hawking is good too.
LOL. The Fraudian Slip Society hereby withdraws it’s comment.
I really dislike Wesley “and we’re nice people too” Hoaglund. Aaargh this guy it a total tool.
ads humping the…
Humping, hawking or whatever the situation, what I find amazing
are the sheer numbers of these ads. Since radio / TV
ads cost money, the business must be profitable.
Especially the credit repair or payday / paycheck or quick money
(home equity or “just your signature”) loans.
I think they are a very accurate proxy for what is really going on in the economy.
Spinmasters can spin whatever numbers they want, but these
ads tell a real story.
In the DC Area we have a really low-budget commercial that plays all the time.
(to the tune of row row row your boat)
Sell, Sell, Sell, your house,
Sell it really fast,
No commissions, no inspections,
Its really fast and fair.
Then there is another verse with something similar.
No I’m not even joking.
Hey, I can cut people’s bills in half too. Now where’d I put my scissors? Fourths will cost extra - I need to be compensated for the potential carpal tunnel I might get from making all those cuts.
http://www.census.gov/hhes/www/housing/hvs/qtr206/q206prss.pdf
Offtopic: Can someone please explain how the interest is calculated on a CD? If the formula is principal times interest divided by length of time of CD then I am not getting what I should be in interest every month. I think I am getting shortchanged and I have made many calls to the bank and noone can tell me why. I have waited a week for someone to call me back and explain.
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
Trying to figure out how banks “compond” interest is the challenge. Try this site.
Thanks, I just tried the cd calculator and it gave me the same interest as my bank. Thanks, I feel better now.
Ask them how they figure interest, simple or compound, and how they compound. There is a different accounting formula for each different method.
Desmo and Mort,
Wouldn’t compounding give me more not less of a balance? My bank compounds monthly.
Check the APY, too. I called my bank in a rage last week after the one year term ended and my balance showed over $1000 short of what I should have had. Turned out they just hadn’t credited the last payment to the account.
It’s worth paying attention to this kind of thing. Lots of companies lately seem to be trying to slip things by.
I spent a lot of time the first two weeks in July straightening out the interest rates at my accounts. Ameritrade was paying .1% on cash. Etrade payed 0.75% on cash. Ameritrade will give you market rates but you have to fill out a form and send it in.
Etrade was tougher - you have to get a negotiated rate. Fidelity did the right thing.
I’ve noticed that too. Lots of mistakes or automatic re-enrollments when none were asked for, things like that. Sometimes I think companies are counting on the fact that the average consumer is too busy to notice.
I want to know if all those vacant houses in Arizona are shut tight without the air conditioning running. If so, I’d like to see some EPA types go in and collect air samples over given time intervals to see just how bad pollution is. With all these formaldehydes, plastics, glues, etc, I think you’ll find these houses will be good cancer initiators for buyers.
Good point about empty Phoenix houses. I can not see a flipper paying for the 200+ electric bills while making the mortgage payments. I bet most have no power to them at all.
Phoenix?? What about the humid subtropics of Florida. There is really nothing that can describe smell of a Florida home that has been shut up with no AC for the hot months. Either you pay for the AC or you have to completely wash everything down and repaint all the walls.
I have to admit, I do love my $1000 espresso machine. The redeeming element here is that I paid cash for it. Nothing like sitting down to Ben’s blog with a perfect breve latte, brewed with Peets coffee ordered online, so that the beans are delivered days after they’re roasted. It’s my only splurge, really.
If anyone wondering what the hell I’m talking about, I meant to post this under Catherine’s comments above.
LOL!
How about a RNO report?
Sloooooooooooooooooow!
figured, thanks
nv,
I love my Peet’s too! My rants are fueled by it!
I have nothing against splurges … I just wonder how all these “debt relief” companies really work…and how it perpetuates the idea that when a person gets into debt, they’re somehow…victims…of the big bad bully retailers that want their goods paid for.
I recommend shorting Peet’s and Starbucks stock, and buying Trader Joe’s French Roast at 1/3 the price tag for the same quality coffee. The end of the home equity ATM machine will also be the end of overpriced coffee. But maybe the markets have already figured this out… I have not checked on Peet’s or Starbucks share prices lately.
I wouldn’t short Peets before Starbucks. Damn near everyone I know who drinks coffee prefers Peets over Starbucks. If there is a movement to an alternative, I think it will hurt Starbucks first and hardest.
I don’t know anything about Peets, but Starbucks is due for a big drop.
I very rarely drink coffee, think starbucks sucks, and LOVE Peetes. I don’t work for Peetes.
You all missed the point GetStucco was making. Over the next 6 months, both Starbucks AND Peets (and Seattles Best and Coffee Bean etc etc) patrons are gonna realize “holy s*#t, am I really paying $4 for coffee? COFFEE!!”. It’s not gonna matter which one tastes better.
I’m planning on hanging out at the local 7-Eleven for the comedy of it. All the Starbucks/Peets snobs come groveling for a 65-cent cup of joe. Asking the cashier “excuuuuuse me…where is your hazelnut syrup?”
Some 7-11’s I have been in already have the flavored syrups. heehee. Getting ready for the deluge i guess.
Time to invest in flavored beans — the kind they will sell at Target (Tar-zhay)…
Peets is coffee. Starbucks is burnt Pete’s grounds.
FWIW, there was a nice article in Cooks Illustrated a few months back comparing the taste of different coffees. The end opinion was that Starbucks tasted burnt, but when combined with milk, (as most espresso drinks are) it tasted “better” than the others. So, it appears that Starbucks is optimizing for their lattes and cappuchinos.
How is Starbucks when it is saturated with sugar?
Getstucco,
For last 8 mo i’m buying green coffee beans
and roast them at home.
It has great taste and much cheaper.
Guy –
Where is a good place to buy beans? And with energy prices through the roof, don’t forget about the cost of roasting — that strategy might work in SD during the cool winter months, but not so great when the temperature out is over 100 F with no A/C…
I have one as well - it has actually saved me money - no more $4 cappucinos. It monitors how many “shots” I have made and paid for itself in about 7 months.
Hey, perhaps my idea of a still isn’t out of the question after all!!!
didn’t faber or rogers mention buying coffee futures?
Exactly! My wife and I did the same math to make ourselves feel better about the purchase. Yes, we’re a couple of cheap bastards!
So what kind of machine? Brand? Details please
Saeco. Great product. I have Saeco’s “Digital Plus”, but the “Comfort Plus” is a good one too. Another nice thing is you can by Saeco’s product through Costco online at a great price (won’t find it in any of their stores), and we all know about Costco’s return policy.
I have a Gaggia, compact, fully automatic model - the espressos have been great! I think it cost about $900.
No bona fide member of the male species drinks expressos or $4 dollar cappuchinos, or, for that matter, pays $1000 for an expresso machine. Really, that kind of cash would’ve paid for a lot of grooming sessions for your poodle.
I find that Maxwell House brewed up in my $20 Mr. Coffee (or whatever brand it is) suffices just fine. When we have company or special occassions, I grind up some good Colombian or Kona beans.
If any of my male friends or colleagues ever comes swishing into my house and asks for a lowfat decaf lotte, I will club them like a baby seal.
I thought REAL men did, ate, drank whatever the hell they wanted to. Of course, they don’t have to kill baby seals to get a hard on either.
When you roast coffee beans it makes
coffee taste even better.
Too much time on your hands unless you have earned it and not HELOC’d it. If you haven’t, cups up!
Saw some guys working on a SFH in my neighborhood (Queens, NYC)
The said they bought it for $490,00 in May. The same house nearby sold for $550,000 in December. A real drop of 10% in six months. A year ago I saw this type house listed for $600,000.
These are real numbers, not “median price” bullsh*t.
By the way, new owners said they bought it to rent out, not resell.
Oh, that ought to pencil out nicely!
yes, pencil out and stick in head. it’s easier than calculating how much money you’re going to lose!
Check those guys out. They are probably the xpartners of Nina in Palm Springs. They are still learning! hehehehehehe
Here is the link in case anyone is interested. Evidently we are all just “mean.”
“Many of the people tracking the housing bubble are disgruntled renters, some are downright mean, and I’m sure more that a few are disappointed that this experience didn’t turn out to be the blood bath they predicted.”
Sitting Pretty Palm Springs
In a new report, Merrill Lynch declares that housing is in a bear market and that a “buyer’s market” for homes should last for “years.”
Do you have link to said ML Housing Report? TIA.
It was on the front page of this website (I dont have a subscription):
http://www.nationalmortgagenews.com/
every day i have to drive around all of SD county for work. 3 years ago you wouldn’t see a for sale sign up for more than a week. this week, i couldn’t believe the clusters of signs on street corners-seriously about 6-10 signs per block and growing. i want to open a side business planting ”for sale” signs for realtors-or start painting ”reduced” signs in my garage.
I was thinking of employing guerrila style tactics and create some
cards, roughly the same type/size as the ones that say “reduced” but put on there “overpriced” and drive around SD replacing the reduced ones at night. Anybody up for some mayhem?
me me!
ROFLMAO!!!! Count me in!
This sounds patently illegal.
Party-pooper!
Very much illegal, but SO tempting. I see “NOW SELLING” and think that with one big “T” the truth would show: “NOT SELLING”. Then again, maybe the best way to express that is to let them hire someone to spin the sign around like crazy.
LOL. Personally, I find it more amusing to rise early, find the open houses for that day, and chalk the outline of a body or two on the sidewalk, along with leaving some empty 40-oz malt liquor bottles and shell casings, right before the first customers of the day appear. The realtors act pissed, but deep down, I’m sure they’re laughing at the looky-loos’ shocked expressions.
better yet, try one of these….
http://tinyurl.com/hs5z9
from the L A Coroner’s gift shop.
foreclosure #s how do they compare percentagewise to 1990 ?
I think this is too early to compare with 1990, we are closer to comparing with 1989, I think, the foreclosures are barely beginning to rise.
Ditto (barely beginning) for
– inventory levels
– price declines
– desperation sales
– best buying opportunities
Here’s a topic that a lot here would like to go off on….have at it.
http://financialsense.com/editorials/fekete/2006/0726.html
I posted that a couple of days ago and no one bit. I thought it was very informative although given the present situation it is a bit like studying the brake schematic as the car is going over the cliff.
Agreed.
I didnt see it when you posted it. I did read it when I was cruising through the site. (part of my home study crash course) What I was able to understand made me feel queasy. I had no idea that the Fed was born and raised in such a criminal and arrogant manner.
I’ve read many of Fekete’s essays 2 or 3 times. Could he be viewed as one of the great monetary theorists of our time? Don’t know, but his essays on Gold basis and the inevitable collapse of the fractional reserve banking system makes for some thought provoking reading. I have printed this particular essay but haven’t had the time to lock myself in my padded bunker to read it as of yet. Glad to know I’m not the only one that reads this stuff though.
I recommend Rothbards “the great depression.”
Bought my copy used from the library. They were asking $2, I asked if they’d take a dollar since I know the ending. The lady laughed and said sure. Then she said “we’re in one now”. She was probably in her 70’s. I agreed. This was 3-4 years ago. Things have only gotten stranger since then.
I’m afraid that I’ve given up on Fekete. I can barely understand anything he’s talking about and what I do understand I disagree with.
Just in case anyone is interested, here are some links to Antal E. Fekete archives:
http://www.financialsense.com/editorials/fekete/main.htm
Pre 2003 essays can be found here in addition to some found above: http://shoemakerconsulting.com/GoldisFreedom/Archives/feketearchives.htm
I try to read everything he puts out because I believe he is probably correct in his theory (as far as I can follow, his writing is quite dense, or I am). Anyway, one item that he occasionally alludes too and always stuck in my mind was a piece he wrote a couple of years ago. He tells of an incident where just after he started writing about his theories pertaining to the credit bills doctrine and the gold standard he was invited to lunch by a high FED official and offered a bribe (er, grant) to study a completely different topic/field. The gist of the article was that in his opinion (Fekete’s) the FED essentially buys off and misdirects many economists/professors to further the objectives of the FED and its economic theories/views. Apparently the FED was fairly transparent in the attempt as well. Of course they just print the money since they are not audited or subjected to oversight so why not? Just thought I’d throw out a bit of “tin foil hat” for todays viewers!
Oliver Stone is going to get a hold of all this conspiracy theory material one day and just go off. The Fed, bubbles, market manipulation, media propaganda…….man, he’ll have a heyday.
I love my “tin foil hat”………
Too late, producer Aaron Russo (The rose, trading places) just produced a picture exposing the Federal Reserve and several other related conspiracies. It was aired at the Cannes festival (to a standing ovation) and just opened in several theaters around the country yesterday (28th). Go to http://www.freedomtofascism.com to preview the trailer and see the screening schedule.
auger,
I saw that on the SDCIA site. Looks very, very interesting! Planning on seeing it!
Broke-back yield curve –
- Ten-year T-bond yield = 4.99%
- Six-month T-bill yield = 5.14%
Wall Street parties on in high hopes for Bernanke pause…
Recession, anyone?
http://www.bloomberg.com/markets/rates/index.html
I think Bernanke is watching RE market closer than us, maybe he owns some investment properties!
He is “trying” to soft land this mess…if he fails, recession is probably a smooth word for what is coming…
“I think Bernanke is watching RE market closer than us, maybe he owns some investment properties!”
The Fed has rules against this sort of thing, in order to preemptively guard against a conflict of interest. Bernanke’s portfolio is rather plain vanilla — no real estate investments whatever. Besides that, given the scrutiny the public applies to the Federal Reserve Chairman position post-Greenspan, it would be utter folly for him to take any action which could be remotely construed as favoring his personal enrichment (not like, say the Prez and VP).
His most valuable assets at this point are the office he holds and his reputation, and if you don’t believe this, then check out how much money Alan Greenspan made from speeches given in his first few days after “retirement.” How many people do you think would be interested in paying money to hear Andy Fastow or Jeff Skilling make a speech?
http://www.indystar.com/apps/pbcs.dll/article?AID=/20060726/BUSINESS/607260383/-1/ZONES01
http://www.msnbc.msn.com/id/10878253/
Bernanke is a complete Dove inside even though he’s trying to put a inflation fighter face on outside. The markets fell a little and he changed his stance. He’s studies have been about great depression and he’s convinced it was due to restrictive fed so if housing / market falls a little its his nature to do the helicopter thing. so the dollar is doomed and the reckless borrowers (who are short dollar) get bailed out and the poor hardworking saver can watch their hardearned money become worthless each day. This is worse than Enron scam - HELOCopter Ben needs to get out of Fed to save the system.
Do you really think BB studied the Great Depression but ignored what history says about Arthur Burns’ and G. William Millers’ tenures at the Fed? I doubt it, especially given that like Burns, Bernanke is one of the more academically-credentialed Fed chairs to take the post, and he thus runs the risk of unfavorable comparisons to Burns, who was known as “soft on inflation.”
On Morning Edition on NPR this a.m. they played this extremely bearish story on the housing market, focusing on Boston. One of the final lines in the story went something like, “If you’re a buyer, take your time, because prices are only going down over the next year.” I almost choked on my coffee.
http://www.npr.org/templates/story/story.php?storyId=5588690
Media has realized that credibilty is at stake now.
I frequently watch the Business Weekly Hot Property blog. Yesterday they posted an artice titled “Housing Prices Stronger than you think”. The writer found it refreshing that they found some optimistic news from Michael Youngblood of Friedman, Billings, Ramsey & co. He developed a “new” economic model that calls for housing to go up in 378 markets with the exception of Honolulu which is experiencing a price bubble. He calls for a 51% increase the first quarter of ‘07 in Naples. I’m convinced that Businessweek must be backed by the real estate industry, as they seem to be in denial over there. I don’t think I would be as shocked if he said a 2% increase, but 51%?????????? Maybe I’m reading it wrong????
http://www.businessweek.com/the_thread/hotproperty
I just took a quick look. It’s rather unbelievable - this guy (Youngblood?) has not been paying attention lately.
All those home price gain predictions for late 2006 and early 2007 would look prescient if it were now 2002 or 2003 and he was predicting 2004 figures.
I subscribed to BusinessWeek last year, and found this blog as a result of a mention early this year. Other than that, I’ve found it to be a pretty useless magazine.
Businessweek is a poor facsimile of The Economist.
Actually, I got both because I had frequent flyer miles that had to be spent.
It is funny, the content of Businessweek is often the same as The Economist of 2 weeks ago.
I would pay to renew The Economist but BW, no way.
I like BW better than The Economist. At least it’s a little easier to read - the Economist is like getting a book in the mail each week. Many of the articles have an international slant where BW is more American business. I just started getting Economist 1 year ago but I’ve been a BW subscriber for 10 years.
It’s true — The Economist is targeted for a well-educated audience. Businessweek, on the other hand, is targeted for a typical American businessman audience…
I prefer the Economist because we are in an international economy and what happens in New Zealand interest rates directly impact US interest rates and inflation rates. The news organs of the US are stale.
Watch out below when the main-stream media unwittingly begins preaching deflation psychology!
When the main-stream media begins preaching deflation psychology, then the deflation will be nearly over.
Especially Time magazine. They “called” the top of the homebuilding index with their Home Sweet Home cover in July of 2005. When they have a cover article on how to beat deflation, you will know it is time to get into real assets again.
Yeah, when Time has a cover article about how everyone from GenX is now a renter because that’s where the best bang for the buck is, that’s when I’ll be buying, buying, buying…as much real estate as I can afford!
Oh? Is it different here than in Japan?
Prof. Schiller has always said that this bubble is in large part psychological. When the meme changes from “boom forever” to “it’s a bust”. Things really start plunging.
I am a math teacher but have a b.a. in psychology, as well -
This thing is ENTIRELY psychological at this point. The good financial points to buying a house ended years ago.
Psychology of decision-making. Ethics aside (would you rape a woman if there were no chance of being caught?), people evaluate decisions based on PERCEIVED probability of outcome coupled with magnitude of consequence (to the person).
How about this: I offer you a deal. I give you a particular preset probability of success or failure before beginning - you could either make 50k a year for the next 5 years, or lose 50k/year for the next 5 years. HOW CERTAIN WOULD YOU HAVE TO BE ABOUT THE PROBABILITY OF WINNING BEFORE YOU WOULD ACCEPT THE DEAL? I’m guessing that most people (including the dorks who are dabbling in RE investing) would want the chance of losing to be VERY low - like, less than 1%. Me? I’d want it below 1 in 5,000, just because the thought of paying 250k out of my own pocket and devistating my financial security is particularly disturbing.
Pay with the numbers all you want, but, the point being that IF it is true that most people would be very much adverse to the losing situation, HOW then can we justify the rampant investing in housing in the last 3-4 years?
Answer: People either BELIEVE that the chances of losing in real estate are virtually nil, or the thought of losing TWO HUNDRED FIFTY THOUSAND DOLLARS is not all that adverse. I’m betting on the first case.
The MOMENT this belief changes (read: mainstream media), this party’s OVER.
Fun game to play with FBers (family, coworkers). No need to bring in stats or numbers. Just do like Einstein did - offer easy to understand “what if” scenarios as a nice, neat educational experience. Somebody recommended a while ago here - and I used it with my brother - to ask the question: Would YOU buy YOUR house today at the price that YOU claim it is currently worth?
“Play” with the numbers all you want.
You don’t have to pay anything.
I play that game, but my verbiage is a bit different. I ask “COULD you buy your house today at the price that you claim it is currently worth?” Not one person (who bought in a rational market) has said they could.
Using “Could” very nicely illustrates why the bubble cannot continue and has seen its breaking point. Using “Would” helps illustrate why the road ahead will continue downhill for a lonnnnnng time.
I like both.
“Answer: People either BELIEVE that the chances of losing in real estate are virtually nil,”
It is a bit more confusing than this. It seems to me that in light of the emerging evidence, the notion that “real estate always goes up” has been qualified into “real estate always goes up in the long run.” I think many are buying on the “sure-thing” assumptions that
(1) they will be able to hold on to the home through any and all possible future economic conditions, and (2) price appreciation will eventually justify whatever risk they have assumed. If prices fall in the near future, that is of no consequence, because eventually, owning real estate will make them rich!
“I think many are buying on the “sure-thing” ASSUMPTIONS…”
Precisely. People BELIEVE that the chances of losing in real estate are virtually nil. It matters not one bit how people qualify this belief. They believe(d) it. When this ends, demand disappear.
I think we are arguing the same thing, with just a subtle clarification, yes?
Yes — we must both be math teachers!
Just like the stock market always goes up in the long run. Who hasn’t heard that one. And it is true, of course. It’s just that the long run can really be looooooong. (and in the stock market an individual stock may never recover from a decline, but individual houses probably will…eventually, if you can wait that long without having to sell.)
Yeah - or maybe after 150 years like this one in Punxsutawney!
http://tinyurl.com/hr4dg
> an individual stock may never recover from a decline, but individual houses probably will
Houses are deteriorating over time. Land prices, however, might recover from a fall, if the neighbouring acres are sought after.
I like your thought process, but a couple of points to consider:
1. Borrowers (not buyers) place even less concern on losing the $250k than in your example, because they are putting 0% or 2% down, and view that as their exposure. In their opinion, they are buying a lottery ticket. They may view the chance of losing their 2% as greater than nil, but unfortunately, they view their max downside as 2% (which may or may not be right, depending on the laws of the state in which they are buying).
2. Lenders (actually brokers of debt) have been selling their loans as quickly as they can, so their perceived downside was very limited, as they are assuming that they won’t be holding the paper if there are any housing issues.
3. Secondary MBS market (the real buyers) are so separated from the reality on the ground, the only way they can justify buying the paper is to assume that diversification will save them. They didn’t believe in a broad housing slump–small chance.
The actual bearers of the risk of loss that you are describing are about as far away from the actual real estate as ever before in the history of borrowing and lending. Fundamentally, that was/is a major contributor to the problem we all now face. Once lending tightens, it all comes to a screeching halt.
First we need to reap the inevitable bitter harvest of this weed-field full of risk.
Next we need to witness who gets stuck with the costs of cleaning up the mess — if history is a guide, count on the US taxpayer to chip in a good deal.
Then we need to experience the rounds of fingerpointing and the Congressional investigations to get to the bottom of the problem.
Finally, we will see the recent discussions of tightening lending standards go from the planning room into legislative action, but that is three or more years up the road…
I’m not sure I agree with MBS buyers holding the bag entirely. MBS buyers pay a “guarantee premium” to the lender, on the order of a half point, so that interest will be paid on the MBS even in the case that the homeowner defaults. Now, whether the lender self insures and just pockets the premium or whether there exists a secondary insurance market for this I do not know. But the lenders are responsible for paying interest on the security.
Or maybe I am entirely wrong. We need an MBS expert on the blog to come tell it like it really is.
In either case, when the risk associated with MBS becomes known, the whole house of cards will fall.
I’ve made the argument on this blog that housing has been a psychological phenomenon for the past 2-3 years, having eclipsed its economic fundamentals then. I continue to argue in favor of gold, based on the psychological changes people will undergo as they lose faith in stock markets, housing, investing, the federal reserve, etc.
I’ve made the argument on this blog that gold has been a psychological phenomenon for the….
Are you saying you would rape a woman if there was no chance of being caught? Please tell me I am misinterpreting what you wrote.
Honestly I think the question was an ethics question, not that they would do so. i remember a teacher in highschool using a question like that to stimulate a discussion to highlight the differences between ethics and actual actions. Cant really remember too much about it though. It was a long time ago.
Manias are always psychological, which is exactly why the downside will be at least as brutal as the upside was breathtaking.
Especially with this fu*king retarded herd! I wouldn’t be at all surprised to see every last one of them run off the cliff after watching their performance on the run-up!
I have been frustrated in my attempts to figure out who all the sub-prime and exotic loans are being sold to. The best answer I could find is to Wall Street investment banks. I think that means the big pension plans are the ultimate bagholders, does anyone have a chart or something to show where the $2.5 trillion ARMs and such are ultimately being held?
I answered my own question. Who owns MBS? Almost everbody.
http://petropestlaunchpad.blogspot.com/
Sorry about the shameless plug.
Check out the assets of any major bank, BofA, Citibank, Wells Fargo, any of them. If you dig deep enough in their annual reports, you will find an enormous amout of their “assets” are MBS - 30-60% or more.
It is what it is, a huge amount of mortgage backed assets. I’m sure a portion is garbage (i.e. helocs, second mortgages, etc), but without going crazy digging into obscure stuff, it’s hard to tell what is good and what is crap.
I dumped my bank CD’s, and am going with cash and gold at this point. Since I can’t really figure out what the banks assets are, I find little point in investing in their CD’s, stock, etc, FDIC insured or not.
For a bank to hold a MBS it has to pass certain criteria. They cannot hold CMO’s at all unless it passes the criteria. Banks can hold PAC 1’s and certain other types of securities but cannot own the toxic paper such as REMIC’s that are not FFIEC qualified.
http://www.chicagofed.org/news_and_conferences/conferences_and_events/files/2006_bsc_lucas.pdf
Here’s a good link that will explain in painful detail.
Hope this was helpful
Wow, what a treasure trove of information. It will take some time to digest - thanks very much.
Homes rising out of reach
Sales slide as many first-time buyers are priced out of metro market
BY Gita Sitaramiah
(St. Paul) Pioneer Press
Alyssa Ford and her husband, Chris Shields, finished college, launched their careers and did what many couples do: Set their sights on buying their first house. A town home in St. Paul’s Frogtown caught their eye. Incentives promised to knock the price below $200,000. Then they ran the numbers — and hit the brakes. Their monthly payment would have been nearly 2½ times the $700 rent they pay for their Grand Avenue studio apartment. “That really scared us off,” Ford said.
Having given up on the Frogtown town home, Ford and Shields still plan to buy a home someday. However, they won’t look again until they make more money.
After years of home prices rising faster than incomes, a growing number of prospective buyers are reaching the same conclusion. That means fewer buyers at a time when a record number of houses are on the market. Real estate experts say it’s a key reason why sales have slowed.
The Minneapolis Area Association of Realtors says high home prices are a key reason for a 10 percent decline in home sales in the Twin Cities during the first half of this year.
The association notes that the median home price has increased more than 160 percent since 1992 to about $230,000. Median household incomes have grown 51 percent during that time — to $77,500 at the end of 2005.
“I’ve been telling all my first-time buyers, this is it,” said Todd Shipman, president of the Minneapolis Realtors association. “You should buy this year if you’re planning to buy in the next few years.”
Full story at
http://www.twincities.com/mld/twincities/business/15140400.htm
He forgot to add:
”Bring your shovels-you can dig your own financial graves in the backyard-plus there’s plenty of granite countertops that can double for tombstones!”
Txchick — Is the chance to unload those HB stocks you recently purchased now presenting itself?
http://tinyurl.com/n49cp
If she was a trader (and she looks like one judging from what she writes), she would have dumped it awhile ago.
She bought pretty late into the crash…
For Fed Watchers
http://www.clevelandfed.org/research/policy/fedfunds/Index.cfm
“I’ve been telling all my first-time buyers, this is it,” said Todd Shipman, president of the Minneapolis Realtors association. “You should buy this year if you’re planning to buy in the next few years.”
What a greedy bastard. Yes, you should hurry up and buy NOW so you can have negative appreciation over the next 5 years! Must have graduated from the Lusk school of Real Estate…’Econ 101-the laws of physics do not apply to real estate’
housing shortage??? From the Census Bureau, the homeowner housing vacancy rate hit 2.2% for the second quarter of 2006. According to Bloomberg, this is the highest rate since the Census Bureau began keeping records in 1956.
http://www.census.gov/hhes/www/housing/hvs/qtr206/q206prss.pdf
“Affordable” housing shortage — the qualification makes all the difference, especially if you factor in the cost of owning while prices are dropping like a rock!
Can we get some updated predictions? That is, how much will certain markets drop (I’m particularly interested in SD, but any market will be of interest to someone) and how fast (that is, perhaps, saying something like “It’ll be down 25% by December 06″ or whatever).
Predictions about the Fed rate for the next year or so, and mortgage (traditional 30 & 15) rates would be good too.
A separate thread for these would be great. I know they sometimes appear with some of the comments, but I’d like to see them in one place.
Thanks!!
Last November, I bet the econ teacher at my school that SD will fall 50% from its peak by this coming Christmas. The stake: one nickel. I think I may lose that bet - but I am still confident that GetStucco will owe me a bloomin’ onion in ‘07.
Though, I forget the terms of the deal. Damn hefeweisen strikes again!
I talked about this with one of my econ professors. He seemed surprised to hear there was a housing bubble and then told me he didn’t see any way that prices would decline. When I told him about the insane numbers of people taking neg-am or i/o loans he just looked confused….
CME expectations for San Diego RE prices are down again:
http://www.cme.com/trading/dta/del/delayed_quote.html?ProductSymbol=SDG&ProductFoiType=FUT&ProductVenue=G&ProductType=hng
The index for May ‘07 is now 236.60
Late May this year it was 250.60
House prices in the San Diego neighborhood that I’m familiar with have been falling for a while. Three houses have sold within a few doors of each other in the last two years. They are almost identical, being built as part of a tract community.
Summer ‘04 one sold for 560K. Spring ‘06 one sold for 500K. Summer ‘06 one sold for 475K.
Prof. Schiller has always said that this bubble is in large part psychological.
~
People can’t afford houses at the current prices. That’s not psychological.
“People can’t afford houses at the current prices” (and “high” interest rates)
Excellent. What are the three most important words in real estate?
1. Affordability
2. Affordability
3. Affordability
:Prof. Schiller has always said that this bubble is in large part psychological:
~
“People can’t afford houses at the current prices. That’s not psychological.”
BUT, people couldn’t afford houses at 2002 prices either. So, the continuation of the bubble IS psychological.
Many differences between 2002 and 2006 matter greatly:
1) Interest rates are higher now.
2) Word is spreading about the risks of I/O Option ARM financing and subprime lending, especially given a growing foreclosure rate and widely publicized concerns about the massive wave of ARM resets due to take place in the next couple of years.
3) In 2002, everyone knew that real estate prices always go up,
and now hard evidence is emerging to contradict this belief.
4) Since 2002, we have had a four-year price blowout, which has pushed affordability down from already-low levels.
You might argue that the root causes of 2) and 3) are psychological, but all of the above imply serious erosion of the willingness and ability of buyers to pay the unaffordable prices which sellers are asking.
Thank you for agreeing!
The continuation of the bubble was psychological (WILL HAPPILY PAY).
The end of the bubble was financial (CAN NO LONGER PAY).
The continuation of the decline is, and will continue to be, psychological (WILL NOT PAY).
Might I add, the whole thing was precipitated by lax lending standards. The affordability issues would have come to the forefront a couple of years ago without Option ARMs, I/O, 0% down payments, etc.
Sorry Get Stucco, I have to point out some differences of opinion on a few of your above comments.
Point #1: I purchased my present home in 2002 w/6.75% 30 year. Wells Fargo was lower than about 5 other banks I contacted. Central NY interest rates ran higher than those I left behind in MA. What is the interest rate today? I’d say we’re neck and neck, not higher.
Point #3: In 2002, everyone knew prices always went up.” Well…..I lived on Cape Cod and 6 mos after 9/11…everything had come to a screeching halt. We moved off Cape in March ‘02. Real estate did not resume on the Cape until the summer that year in which case it did skyrocket. But in early 2002, many were still wondering in our neck of the woods if our economy was going to recover.
When I moved in 2002, many year-rounders were already leaving the area as renters were being forced out by rental owners doing “upgrades” or condo conversions”. One very talented co-worker and his mother ended up living in someone’s basement after being asked to move 3 times (all upgrade situations). They then gave up and moved to CT. That was 2001. The speculators moved in and pushed the infrastructure level out. Rumors on the Cape abounded about the area becoming desperate for teachers, medical techs, policemen….and then we moved away. I wish there was a lurker or poster that could share what has happened there in the last 4 years. The truth on Cape Cod, Get Stucco, is it was all happening before 2002.
Thanks — I welcome any and all differences of opinion, as I have the last word on none of what I discuss. Regional differences matter — even in the Bay Area, where I was living in 2002, prices were steadily rising in the East Bay while they were falling (or had fallen) by a substantial amount in Silly Valley.
GS - I looked up 2002 interest rates a 30 year fixed conforming loan was 7% today a 30 year fixed conforming loan is 6.75%
they haven’t been able to afford them for a few years, yet sales have hit records. so why did they buy homes they couldn’t afford? bubble psychology. even though they couldn’t afford a home, they could take out an exotic mortgage and refi later because homes only go up in price. appreciation will bail them out. buy now or you’ll be priced out forever. don’t you know, they aren’t making anymore land. start building equity. why pay off someone else’s mortage? buy now or you will always rent. you’ll never own a home.
But, in their mind, since someone was willing to lend them the money to buy the house, they WERE able to afford the house
And still are. How many times a week are you offered a “no brainer” on TV, radio, direct mail, or in a newspaper or magazine?
John,
The financially conservative (us, on Ben’s blog) could not/would not afford them a few years ago, but the risk-taking, nothing-to-lose, kamikaze borrowers HAVE been able to afford buying these homes — in their own minds — see, they are living in those homes right now.
In SD, the ability of these borrowers to borrow ever-higher amounts hit a ceiling in 2004, even with the suicide loans. That’s why we have the “high plateau” here. But they’ve still been buying — that’s the psychological part. I imagine a nice credit contraction would go a long way in turning this psychology around.
The bubble is psychological, though, in that people were willing to stretch as much as they did (exotic loans and very high DTI ratios).
I think a lot of people know they can’t afford to buy a home, like a lot of you guys. the problem(and difference) is psychological. they irrationally think housing will only go up, bailing them out of a loan they know they can’t afford, even if they don’t admit it to people. lots of people here didn’t by into the psychology of priced out forever. these people are buying out of fear. they couldn’t afford NOT to buy.
think about your average greater fool. he couldn’t afford a home in 2003 w/o crazy loans so he doesn’t. so he buys spring of 2004 he’s looking at the same homes going for 20-30% more, he feels like it’ll never end and he must get in now.
think about someone in socal/SD, where the median is near $500,000. suppose they do wait and watched median homes go, in say 14 months, from $315,000 to $425,000. he couldn’t afford it at 315 and now feels priced out forever, so he finally capitulates. that’s how it works. these are the people you read about with toxic loans. I’m sure there are people who didn’t buy in 2000 because they were priced out and got in in 02, 03 or 04. they panic bought in the face of an almost doubling of their housing costs.
remember this, this person is surrounding by housing boom reinforcement every where. neighbors, friends, relatives and coworkers. they are all saying buy, verbally if not non-verbally. the worst is probably the non-verbal signs- the friends with the heloc motorcycle/boat/BMW. they relative who lives in a nice house. the coworker who gained $200,000 in equity while you were renting.
I came very close to being a FB. It wasn’t fear or greed that would have pushed me into buying. It would have been the old “lifeplan” that my family followed that would have pushed me over. You know, graduate, get a job, start a family buy a house. Lucky for me my mind was still in the stone age about lending. I really thought it was still like when my mother and father were buying. The inspections, the interviews, the w-2’s, the nosy questions (did they do probes too?) so I never even tried to go and secure a loan. I know now that if i had someone would have qualified me and it probably would have been my bank. I would have done it too because I was still in the stoneage. If the bank is willing to lend to me, then obviously I must be able to afford it, or they would have politley escorted me out of the office before laughing. So some people I am sure thought the same thing.
John L.,
Yes, got your point. You are correct.
It was especially psychological for lending underwriters, who seem exclusively focused on the endogenously low loan default rates during a period when rising prices make it easy for buyers to undo a mistake, and the ease of dressing up paper and selling it on the secondary market in such a rising price environment, while conveniently ignoring the steady march to the bottom of the subprime barrel as the market runs out of qualified buyers willing to compete with flippers and suicide borrowers.
Apologies in advance if this has already been posted. The following quote is from a Letter to the Editor of the Las Vegas Review-Journal. A local real estate pro disagrees with the rosy picture painted in the Friday, July 21 Review-Journal article that was referenced on this blog :
“I and others who work full time professionally in the real estate business are amazed at how these ‘experts’ manage to put a positive spin on the reality of the real estate market here. You can do anything with the right manipulation of statistics, but ‘from the trenches’ we see things much differently…The reality is that prices are dropping all the time — real prices, what people actually pay.”
You can read the entire Letter to the Editor here. It’s the first letter on the page:
http://www.reviewjournal.com/lvrj_home/2006/Jul-26-Wed-2006/opinion/8673096.html
The original article is here:
http://www.reviewjournal.com/lvrj_home/2006/Jul-21-Fri-2006/business/8609328.html
Check out this 690k desert $hitbox: http://inlandempire.craigslist.org/rfs/187354445.html
“for Hosting or Just Impressing Others” LOL.
Nina, come see the house. Nina, come buy the house. Nina, come flip the house.
It makes me curious about the “entire house painted inside” comment. Maybe it’s just me but I kind of expect that it will be…
What do you mean “$hitbox”?
The “Entire home [is] painted inside”
Doesn’t get better than that, does it?
True, and how about those fireplaces? Surround sound pre-wire, single slab granite, and mirrored wardrobes, ooooooohhhhhhh! Definitely worth six hundred and ninety freaking thousand dollars.
Here’s a good little article on the bubble:
http://www.minyanville.com/articles/index.php?a=10856
Folks, we are now at the pinnacle of the long climb up this roller-coaster, and are just about to witness the big plunge on a very steep incline. Wheeeeeee! Try not to pee in your pants as it could be scarier than you think. (Mark the date: Friday, July 28, 2006)
Could this be the news on which the HB share prices are rallying?
————————————————————————–
1. Taking a Plunge
I keep a spreadsheet of new orders for five homebuilders: D.R. Horton (DHI), Beazer Homes (BZH), Toll Bros. (TOL), MDC Holdings (MDC) and Meritage Homes (MTH).
* The bottom line is that the last four quarters y/y orders for the five companies combined reads as follows: +21.1%, +9.5%, +1.7%, (17.8%).
* The 17.8% plunge took place during the 2Q “spring selling” season, the most important three months of the year. In the words of DHI’s CEO, orders “fell off the Richter scale.”
And, Stucco, it is going to get worse. A lot worse. Now is the time to sell the homebuilders short. Some of them are going to be bankrupt before the end of 2007. The stock prices will go to near zero or zero when that happens and the others will plummet in sympathy.
Great opportunity!
Be careful. Don’t short this sector en masse, or at least keep tight stops. This sector has been plummeting for 7 months. Study the balance sheets and pick the small handful that might go bankrupt.
Quick — before clicking on the above link — can anyone identify the real estate bear who made this gloomy prediction?
“If there is a sudden unloading by speculators, or if interest rates go up more than a few points, it could spark a quick reversal…Estimates suggest that as many as four out of every ten purchases in some places were by investors, some of whom…are depending solely on appreciation to float their boats and not even renting the units…The downside to the economy resides largely within the housing sector.”
David Seiders, chief economist of the National Association of Home Builders.
I cheated and have CRS syndrome. I’ll bet you remembered though GS!
Mark the date
Interesting you should say that - I’ve been thinking about how people here predicted that July 4th would be the turning point. I think it was.
MjM
OK, I’ll go with July 4th. It does seem that there has been a definitive shift in sentiment/psychology in recent weeks, doesn’t it? July 4, 2006. Man Law!
July 4, 2006 = Housing Bubble Independence Day
“I’ll try to remain as open minded as possible (it’s crashing), not to influence your conclusion (it’s crashing) and simply present you (it’s worse than crashing) with some data that compares the current environment (crash) to past crashes:”
Love the “Mr. Subliminal” bit!
IF YOU HAVE NOT READ THE THURSDAY AFTERNOON WHISKEY & GUNPOWDER BY “MISH” YOU ARE MISSING OUT….WHAT A QUICK TURN OF EVENTS IN ATLANTA…
* What I do know is that according to Census data, 85% of households with income above the national median already own a home.
* I also know that housing affordability for the remaining 15% of households is at the lowest level since late 1990, a time when the real estate market was at the depth of that particular collapse. Back then affordability began regaining its footing only after prices fell 20% from the 1989 peak to the 1992 bottom.
* My sense is that, for now, the possibility that real estate values might “correct” 20% is still not taken seriously by anyone except those segregated to the perma-bear camp.
——————————————————————————-
This is a beautiful example of how the untutored masses can get “fooled by randomness,” especially when it comes in the form of endogenously frenzied systemic risk!
I regularly receive polls from Zogby. Today the poll asked if I thought the housing bubble had burst yet. I believe the options were “no”, “yes”, or “will burst in the next three months.” The poll also questioned what the best investment right now is - stocks, bonds, or real estate. I’ll be interested in reading the results when they send the next update.
I’ve just noticed that other housing blogs, namely bubblemeter have posts from “bubble deniers” or “bulls” or whatever you want to call them.
Any idea why there seem to be none here?
MjM
I’ve just noticed that other housing blogs, namely bubblemeter have posts from “bubble deniers” or “bulls” or whatever you want to call them.
Any idea why there seem to be none here?
Mainly because we don’t care what they have to say and they are predominantly dolts?
(all kidding aside, they are welcome as long as they pack along some facts to back up their assertions. Mostly they are molested as soon as they post so they tend to just lurk).
This blog was overrun with a couple of very aggressive bulls/trolls. 5-10-15 consecutive ad hominem attack posts, followed by complainst about editing.
At least twice Ben had to stop taking any comments.
I bet that Ben has screening software that provides some filtering service with trusted, semi-trusted and full review capabilities with IP filtering.
There are cheerleaders that post in here from time to time. I think part of the issue with Bubble Meter is that it is a local blog, this is not. Because of that, local real estate agents, investors, whatever, are far more threatened by Bubble Meter.
Ben’s place is more theoretical - Bubble Meter actually posts pictures of ridiculously overpriced sh*tboxes and what not - the realtwhores get really wound up about it. I mean, if you see one of YOUR listings being lampooned, it gets really personal, not to mention the occasional chiding (I would never do that) in the comments about real estate agents working at Walmart, etc.
The fellow that runs Bubble Meter also has a full time job - it’s harder for him to keep it clean.
DC-Too is correct about Bubble Meter. I would also add that I do not have as much filtering options as Ben Jones’ blog. I wish I did. It can be diffucult fighting the trolls, but it is worth it.
David
Bubble Meter Blog
Wow. On further reading, it turns out that having both “bears” and “bulls” on the same blog is rather, um, tempestuous!
MjM
Yep, it kinda doesn’t work, just check out the “lively” moderated blog at OCR.
My lesson from that debacle is don’t try to teach a mule to play the violin. It annoys the mule and sounds bad.
Back before Ben’s blog was up, a number of us used to post on the WSJ blog (some still do). You should have seen the mess that was, with one particular idiot claiming all renters were wife-beaters, etc. It really degraded into a kindergarden scream-fest.
This blog is by far and away one of the best around, largely because Ben doesn’t allow idiotic posts from emotional bulls (or bears — notice the Lingus isn’t here anymore?).
Agreed, I wasn’t complaining just explaining.
SSBG,
I know you weren’t complaining. Sorry if my post seemed to imply that. I was just adding to your response.
I still miss lingus’ rants. Always good for a laugh
Agreed! I miss the Lingus as well. Lightened things up a bit around here.
Poor angry Lingus, and to think I’m getting ready for my annual VT/ New England vacation.
I frankly do not miss Lingus’s rants. There are somehow few imaginable things more irratating than a self-righteous, angry, knee-jerk liberal, posting political rants on the wrong blog. I hope he has found a suitable alternative blog where he can share his many enlightened opinions with like-minded members of the Godless Church of Liberalism
i remerber sighted. haven´t heard from since the burtsing of the bubble…..
from germany
jmf
You don’t teach a bull to play the violin. They tell everyone how great they play, but when they get out their instrument and put it under their chin, it is rather like wetting their pants — no sound, and highly embarassing …
Link for above
3196 Van Dyke Ave, San Diego, CA 92105 $345,000
We have financing available with just 5% down payment and the payments would be approx. $2519 per month
3 bedrooms 2 baths single family home. This is a modular home on a permanent foundation.
Loans for those in dire straits…
————————————————————————————————
Loans to bridge troubled US housing waters on rise
Fri Jul 28, 2006 12:59pm
By Lynn Adler
NEW YORK, July 28 (Reuters) - The shifting foundation of the U.S. housing market is sticking buyers with their old homes for longer, pushing many to slash prices and take on even more debt in the form of so-called bridge loans.
The danger is that loan terms vary and can be costly. The low rate for a top-quality borrower matches the prime rate, or 8.25 percent — well above the 6.72 percent average 30-year loan from mortgage-finance company Freddie Mac.
“These loans are more for the individual who is in dire straits, who has bought a house and can’t sell” the existing home, said Bob Moulton, president of Americana Mortgage Group in Manhasset, New York. “That person ends up carrying the new house, the old house and the bridge loan. I’m seeing the reliance on bridge loans now more than ever.”
http://today.reuters.com/investing/financeArticle.aspx?type=bondsNews&storyID=2006-07-28T165852Z_01_N28253190_RTRIDST_0_ECONOMY-MORTGAGE-BRIDGELOANS.XML
“While the MBA hasn’t collected data on bridge loans, the slowing market may be an impetus for some pickup in this loan type as borrowers see their current properties stay on the market longer,” said Doug Duncan, chief economist for the Mortgage Bankers Association, an industry trade group. “It may be a productive strategy if the cost of the bridge loan is less than the foregone profit from lowering the sale price and selling the current property faster.”
Doug —
Don’t forget why you and I both are renters — it is because we both know that prices in the owner-occupied market are falling and will continue to fall for the forseeable future. Bridge loans may be a self-destructive strategy if the cost of the bridge loan plus the downtrend in market values while waiting for a greater fool to buy your home at a level above market value is greater than any potential loss from lowering the sale price to a level where it will sell currently. But your constituents (mortgage bankers) would probably prefer that I not mention this downside to the desperation bridge loan strategy…
No, they’re rallying because I, “the great fred”, called the pinnacle of sentiment at 10:28:18 today. Check the charts if you don’t believe me.
The above was posted in response to GetStucco’s question “Could this be the news on which the HB share prices are rallying?”
These contrarian rallies always leave me flummoxed…
Graphical documentation of the birth of plunge protection?
http://en.wikipedia.org/wiki/Image:Black_Monday_Dow_Jones.png
http://www.newstatesman.com/200607310033
This seems worth a close look. HedgeFundAnalyst, would you care to comment? HedgeFundAnalyst???
Keep in mind while reading this what Warren Buffet calls derivatives: “Financial weapons of mass destruction.”
And whether or not it is intentional, the following statement resonates with history:
“Hedge funds are private investment funds, primarily organised as limited partnerships - in essence, betting syndicates for the very rich.”
If I recall correctly, then “investing syndicates for the very rich” were one of the factors that led up to the Great Wall Street Crash of 1929…
——————————————————————————————-
Sell-out: Why hedge funds will destroy the world
Janet Bush
Monday 31st July 2006
If hedge funds were a country, it would represent the eighth-biggest economy on the planet. They can sink whole economies, and have the potential to crash the entire global financial system. Yet they are beyond regulation. We should be very afraid.
——————————————————————————————-
Something ominous is going on in world finance - again. On 11 May, the US Federal Reserve, America’s central bank, raised rates and hinted that it might do so again. Wall Street wobbled but stock markets in the emerging economies fell through the floor. Since that day, Colombia’s stock market has slumped by 42 per cent; Turkey’s by 38 per cent; Pakistan and Egypt by 28 per cent; India by 25 per cent; the Czech Republic by 22 per cent.
Why? These fast-developing economies have been the recent darlings of the world’s mobile capital, acting as magnets for multinational corporations seeking new frontiers. Yes, the US economy is still the biggest in the world and changes in US interest rates affect the entire global financial system. But there is something very dark indeed at the heart of this story and it is called the hedge-fund industry - lords of havoc who, a consensus is building, have the potential to be responsible for the next great crash - and nobody knows what to do about it.
Howard Davies, then chairman of Britain’s Financial Services Authority (FSA), admitted in 2000 that hedge funds were not very well understood by policy-makers and regulators, but then added: “That is not astonishing in one sense, in that if we do not regulate it, we need know less about it. But it is clear that if we are interested in systemic stability, we cannot ignore a sector which can mobilise around the same volume of assets as the US commercial banking sector.”
When Dr Ben Bernanke, chairman of the US Federal Reserve, the most important financial supervisor of all, was quizzed by the US Senate banking committee about whether derivatives - complex financial instruments liberally used by hedge funds - should be regulated, he commented: “Derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and use them properly.” This statement came pretty close to admitting that regulators don’t have a clue what is going on and are therefore powerless to regulate the funds. Given their sheer size and increasing influence, this is stunning - and scary.
Hedge funds are private investment funds, primarily organised as limited partnerships - in essence, betting syndicates for the very rich. The amount of money they handle, in so far as anyone can estimate this, is mind-bogglingly large. The IMF’s best estimate is $1trn; industry professionals reckon $1.5trn. If hedge funds were a country, it would be the eighth-largest in the world. To invest in one of these funds, you have to put in a minimum of $1m, although that initial investment is chicken feed compared with what can be earned - if that is the right verb for what amounts to global-scale gambling. The US Institutional Investor Magazine reckons that the top 25 hedge-fund managers in 2005 earned on average $251m each in 2004 - compared with $10m for the CEO of a typical top 500 US corporation.
From the “It’s all YOUR fault” department…
Spending Less? You’re Helping Slow the Economy
By Molly Hennessy-Fiske, Times Staff Writer
July 29, 2006
http://tinyurl.com/po9c7
“Belt-tightening by consumers like Pittman is a key reason the U.S. economy is slowing. Inflation-adjusted economic growth fell to a surprisingly sluggish 2.5% in the second quarter from 5.6% in the previous three months, largely because of slower consumer spending, the Commerce Department reported Friday.”
…
“The cooling housing market does present a risk, and may be undercutting overall consumer spending as fewer people count on rising home equity to finance trips to the mall. Consumer spending grew by only 2.5% in the second quarter, down from 4.8% in the first quarter, mostly reflecting declining purchases of big-ticket items such as autos, according to the Commerce Department report Friday.
“People were selling part of their house to finance dinner at Olive Garden,” said Dirk van Dijk, director of research at Chicago-based Zacks Investment Research. “You can play that game as long as the price of housing is going up. You take that away and it becomes a scary proposition.”"
…
“Cohen said these new “economies of scale” allow consumers to keep buying what they want even though they’re earning less on average. Wages have failed to keep pace with inflation, although they are showing signs of rising, adding to inflation concerns.”
…
And…
“Shoppers who earn $75,000 or less are switching to retailers such as Target”
Where were these people shop before, Needless Markup (Neiman Marcus)? Our family income is, ummm, quite a bit over $75K a year, and *we* shop at Target (and other discounters). I guess without a Hummer H2 in the driveway, we had less need for our clothes and school supplies to be ‘upscale’?
To emphesise:
“Consumer spending grew by only 2.5% in the second quarter, down from 4.8% in the first quarter”
That’s almost a 50% drop in spending, one quarter to the next! Is this a seasonal thing, or is this the long awaited closing of the housing ATM?
Sorry…”Emphasize”.
No, it’s almost a 50% drop in the growth of spending. Adjusted for inflation, that may be a drop of one or two percent.
Oops, you’re right. I shouldn’t post at 2am any more.
I’m in Las Vegas for the weekend…I can’t believe how many construction cranes there are over here, both on and off the strip. Time to take some pictures…
Would anyone like to comment on the Naples area? Where do you think prices will be by the end of 07 and what is your view of the current market situation?
Real estate’s Net turf war
Liniger, who founded Re/Max in 1973 and became wealthy enough to try adventures like flying a balloon nonstop around the world, said the average annual income of a Re/Max agent was $112,000 as of 2002. Today, he said, the average income has climbed to $130,000.
“People not in the real estate business think we’re overpaid–in reality we’re not,” Liniger told an audience of hundreds of real estate brokers. “You think we’re overpaid? Let’s start investigating attorneys.”
http://news.com.com/Real+estates+Net+turf+war/2100-1038_3-6099762.html?tag=nefd.lede
Not the best of comparisons. Attorney’s do go through a wee bit more schooling than Real Estate Agents do.
Sorry, but I think incomes over $100K to show homes and write up contracts is being overpaid.
You’ve got to consider the source. Dave Liniger is regarded as a visionary in the real estate brokerage business, but has become somewhat of an embarassment and buffoon the last year or two. The average gross income for a person with a real estate license is under $35,000 nationally. And he fails to mention that his “$130,000 income agent” pays about $25K to Re/Max in desk fees, a couple of thousand in licenses, board and MLS fees, and pays for all of the advertising and marketing done on each listing. Not too long ago Liniger stated that agents were overpaid at an appearance, but backpedaled off that statement when there was a big backlash from his agents.
Ummm, the real estate agent I used, recently, showed how valuable real estate agents are! He knew a lot about how homes are built, how to fix them, etc….
The assumption that you make is that “documented schooling” is “more important” than experience.
When I told the agent how wonderfully talented he was at quickly assessing the condition of the house, he looked at me and gave a very spiritually filled “thank you” look.
The problem is, perhaps, some real estate agents don’t know much and, then, yes, they are over paid. The trick is getting an agent that is worth their fee. Unfortunately, my real estate agent’s assessment convinced me not to buy the house. However, because he did such a great job, I’ll be sending him gift certificate for dinner because I want to reward such honesty and good work.
The newest issue of In Business Las Vegas contains an interesting tidbit in the Real Estate section.
“Prices [in Las Vegas] rose double digits from February through June in comparison to the same months in 2005. The new home median price at $337,250 is up nearly 13 percent for the year.”
But at the same time…
“Only one-third of those who purchased homes believe that economic conditions will improve. That’s important because it’s a 12 percent drop from the first quarter and the lowest level of consumer confidence…in the history of the survey dating to 1994.”
Apparently it doesn’t take a drop in home prices to knock the confidence of home owners. Could the problem be high monthly housing costs? And why is SalesTraq using the five months from February rather than the six months from January? Makes me think that the figures would not be as good if January were included.
The complete article is here. You have to scroll half way down the page to “In Other News” to see it:
http://www.inbusinesslasvegas.com/2006/07/28/realestate.html
Hi everyone. I have a general economics question if someone could answer it I would appreciate it. I am reading a book called Hidden order in everyday life, by a gentleman named Friedman. I am following along slowly.(I have mentioned before that I have been a slacker the past 10-15 years and am trying to wake up) He mentioned that one of an economists greatest tools is simplifying the problem then applying the answer. Is this why so many economists sound like they have their heads up their butts? (besides incompetence or corruption) Do they simplify then forget to bring the complexity back into it before opening their mouths? In the book they used housing as an example. If house values go up or down, it is a wash for the owner and nothing happens, since if values go down so does their taxes and insurance and if values go up then when they sell they get more money. Threw me, since shouldnt the loan type, heloc, job situation be thrown in too? What world do they live in? Why is my world so very very different than the world they talk about?
Ponzi schemes require lies. Without lies Ponzi schemes implode. Those who own and run Ponzi schemes employ economists. They pay the economists to lie to you. Economists who tell the truth soon find themselves out of work.
Economists who tell the truth soon find themselves posting to blogs.
http://www.financialsense.com/fsu/editorials/2006/0728.html
Craigslist find from Columbus, Ohio: http://columbus.craigslist.org/rfs/187653198.html
Not that they’re asking too much or anything, but the second of two photos of the property seems out of place. Unless it’s the most awesome lawncare shed ever.
My rant for the day. I am sick of people in the Re biz and MSM saying it’s a Buyer’s Market
IT IS NOT A BUYERS MARKET!! Sure the buyer has more leverage than he did a year ago. He no longer has to promise to “feed the squirrels”. But who cares. As longer as sellers still ask 05 prices for their piece of crap boxes, it is not a Buyers’ Market.
When prices and affordability return to the historic mean (40% to 50% of today’s prices) then it will be a Buyer’s Market.
Here, Here! You are so right!
There’s a NH Public TV show on housing right now. The professor says that we don’t have a bubble but that you shouldn’t buy a house for investment and that prices should be flat for the next five years. Don’t buy a house if you’re going to be here for a short time but do so if you plan to be here for 20 years.
He mentioned the strengths of the state economy as reasons why housing prices should be stable here.
“Don’t buy a house if you’re going to be here for a short time but do so if you plan to be here for 20 years.”
This professor obviously subscribes to the “real estate always goes up in the long run” school of investment advice. I wonder whether he has considered how such advice would have situated a household buying in the US in 1929, or in Japan in 1989? Because once a critical mass of sheep believes in this kind of nonsense (including the “experts” like this professor), then its veracity paradoxically becomes self-annihilating. A related example is the advice to 401(K) plan participants to shovel as much dough as possible into equities because the stock market always outperforms over the long run.
Expect to hear more and more of these long-run investment promises from realtors. I heard them throughout the early 90s during the last downturn. The problem was that people rarely stay longer than a few years in the same place, especially in California. And there’s nothing more frustrating than seeing a newcomer to your neighborhood get a better deal.
That is another problem, besides the other one I mentioned (eventually, after prices have been driven to near 0% affordability, they will not go up, even over longer periods than a few years…).
Here is a nice slab of red meat for bubble bloggers’ Sunday dinner, brought to you by staff writer Roger Showley of the San Diego Onion-Tribune.
I have a related question in mind which has been lingering unresolved for some time, although I have my hunches, which is “Why do builders prefer incentive discounts to outright price reductions?” My hunches are as follows:
1) It is cheaper to offer incentives than price cuts for the same market value.
2) Price reductions screw up the comps, reducing the future sale price of the rest of the builders existing and incipient inventory.
3) Incentives fool existing home sellers into listing their homes at prices where they cannot compete with new home sellers, as they price off published sales prices, not the value of the sale after factoring in giveaways valued at $100K.
4) Buyers are (collectively) more likely to purchase a home if offered an incentive of equal value to a given dollar amount of price reduction.
Economists will reject theory 4) out of hand, because a given dollar amount of incentives is generally worth less to any particular buyer than the optimal collection of purchases he could make to satisfy his personal preferences, using an amount of money equal to the cost of incentives. For instance, if I hate pets and don’t own any, then the value of pet tie-ins is nill to me…
P.S. The byline is really boring. A catchier and more appropriate title would have been: “San Diego Housing Market is Going to the Dogs”
————————————————————————————————–
Battling the home-buying slowdown
Incentives include pet tie-ins and discounted upgrades
By Roger M. Showley
STAFF WRITER
July 30, 2006
San Diego County’s new-housing market is beginning to look like the TV game show “Let’s Make a Deal,” or the incentive-driven new-car market, as builders throw in offers that include spiffy appliance packages, pet services and even a set of new wheels.
One builder is offering no mortgage, tax and insurance payments – albeit for six months, not the life of the loan.
Perhaps the most innovative come-on has been Con-Am Group and Colrich Communities’ “Yorkies & Friends Spa Day,” held last weekend at the developer’s 58-unit condo project, the Lodge at Bankers Hill, just north of downtown.
Potential buyers – and anybody, for that matter – could bring their pooch in for a grooming, photo, free doggie toys and treats and more, with no obligation to buy. Except the builder hoped the pet fanciers would take long enough to tour the models and perhaps think about living at the development.
…
Marketing consultant Gayle Falkenthal said the dog tie-in wasn’t an effort just to grab media attention, but was aimed at empty-nester renters.
“Dogs are their kids,” she said. “As renters, they sometimes find it difficult when they own a dog. That’s a very powerful motivator to buy. So why not attract buyers with a view to an amenity like that?”
Alexander Bolante, 26, and his wife Katrina, 25, said the pet theme at the Lodge at Bankers Hill attracted their interest during a search for a house that began in June.
“It’s awesome!” said Alexander Bolante, a security consultant, as he held onto Kimo, his Japanese Chin-Maltese mix, in the project sales office. Now living in a rented La Jolla condo, he said dogs always present a problem when meeting with property managers.
“Everywhere we go, they try to put restrictions (on the size dog allowed),” he said.
But as a homeowner, he would be free of the landlord’s bark. The couple is looking for a home for less than $400,000.
The developers also cheered the event that attracted some 200 people, and their dogs, who braved the stifling heat to visit the property. The sales staff filled up their calendars with appointments.
So you might say that San Diego-area builders and their marketing offices have a new way to cope with the dog days of a changing housing market.
http://www.signonsandiego.com/uniontrib/20060730/news_1h30newhome.html
Almost forgot hypothesis number 5):
Greater fools are more likely to own dogs.
The problem with people in their late 20s buying condos is they are all going to need to sell en masse in a few years because they will likely need more room for growing families (and pets, I suppose), and they are not going to be able to sell.