Bits Bucket And Craigslist Finds For August 1, 2006
Please post off-topic ideas, links and Craigslist finds here!
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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HOUSING BUBBLE, RECESSION, AND THAT 70′S SHOW
http://www.freemarketnews.com/Analysis/201/5729/Bubble.asp?wid=201&nid=5729
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I’d like to know why the median price is used as a comp of housing prices year over year rather than $/SQFT. It makes no sense to me.
Calculate each in your zip code. Tell me how long each calculation takes.
The numbers already exist in db form. It is as simple to calculate as the mean.
They are being withheld.
Whoops: should have put “median” instead of “mean” in the last post.
That’s my point: calculating the median price is very easy. I’ve not seen any easy (non-time-consuming) way to calculate $/sf.
Sorry, the point I was making was confused by the bad wording.
The numbers for each sale etc are kept in a database with address/asking$/sold$/sqft etc.
It is no more difficult to calculate the avg sq ft than it is to calculate the median.
(I hope I’m not double-posting here, as my computer froze last time, but…)
In that case, got a website address for the $/sf info?
Zillow.com
Like I said, the database exists. The query of the database is trivial. However, the picture is not as rosy if you are incentivized by total-dollars-per-transaction, and so the numbers are not being published, and the median is used instead.
Again, it’s not that the numbers don’t exist, it is that the numbers are being withheld.
OK, thanks.
Hi JP:
I don’t know where you live, but you can go to dqnews.com for $/sq ft data in southern CA + the Bay Area (San Fran, not Florida). Data Quick has been (of course) reluctant to publish anything negative, but you can still cull a few details from them. Specifically, they list the y-o-y change in median price, but not the y-o-y change in $/sq. ft. If you haven’t been saving their web pages for at least a year (and I haven’t), then you have to order a “custom report” to get last year’s data, then calculate y-o-y change yourself.
PS
Dear bakabeikikujin: I think jp is merely complaining that, while the NAR most certainly HAS price data and sq ft. data, they are not publishing the sq. ft. data. Price per sqare foot is calculated by simply dividing the price by the square footage of a house. That takes about a second in an Excel spreadsheet if you have the data.
Some states actually provide price per square foot right on the listing, along with exact dimensions of every room.
Texas, is one state.
It takes essentially zero computing power to calculate “price per square foot.” Realtwhores are hiding the data from consumers, and in many cases, hiding even the address of the property, so you’re forced to waste your time (and theirs) asking about a house you have no interest in, once you know the address.
Some states actually provide price per square foot right on the listing, along with exact dimensions of every room.
Texas, is one state.
It takes essentially zero computing power to calculate “price per square foot.” Realtors are hiding the data from consumers, and in many cases, hiding even the address of the property, so you’re forced to waste your time (and theirs) asking about a house you have no interest in, once you know the address.
Sorry if this is a repost, but try dqnews.com. It only gives data for southern CA and the San Franciso area.
Thanks… Big V is correct about my complaint. The numbers exist (and are compiled), but they are not published.
Thanks for the pointer to DQ, but I’m interested in other areas…
Gotcha, I guess what I’m saying is that it is pretty easy on realtor.com to go to the 142nd of 284 houses in a zip code and pull the median price, it’s another thing entirely to go to each of the 284 listings and divide price by sf.
Gotcha, I guess what I’m saying is that it is pretty easy on realtor.com to go to the 142nd of 284 houses in a zip code and pull the median price,
But think about the calculation that is going on behind that query: The sales are being sorted (efficient algorithms for this are the stuff of computer science) and then the 142nd index is pulled.
An average of sq ft would not even involve the sort function!
Realtors® are Realtors® because they failed math in grade school.
Bwwwwahhhhhaaaa, Funny but don’t think so!
In a trade-up market, the median price tends to rise, which encourages more trading up, and higher medians. Consequently, the median price measure is ideal for a bubble market–it feeds the mania.
Speaking of trade-ups. Local wife and mother decide to knock down paid off beach block house and build duplex in late ‘05. The plan? Wife is realtor and works in law office. Pre-sell top unit for fortune and live in bottom unit. Husband is against plan but it’s MIL’s house.
Fast forward to today. Builder / friend of family can’t complete on time. Goes bankrupt and absconds with dough. Seller backs out due to completeion date clause and fact that similar houses are 100k less now. Wife and mom can’t sell for any profit now nor can they afford to live there.
Bottom line they traded up from a paid off beach house to having nothing and 500k+ in debt.
OUCH!
what town is the beach house in? just curious. that’s a fugly story.
hey - waaahoo - what town is the beach house in. that’s a fugly story.
The point isn’t the trade up. The point is that a $/sqft would more accurately reflect what is happening to prices year over year. Currently the median price comparison is a completely useless indicator that only serves the realtor misnomer that prices always go up.
Median is a good figure because it isn’t affected by the size of the home, just what people are spending on the home. $/s.f. can easily change if builders start building bigger or smaller homes, or if the alter what they are spending on finishes. I can build a home for $175/s.f. or I can build a home for $1,500/s.f.
There is no perfect figure, but the median price gives the best picture of what is happening in the market, especially when compared to median income. Averages are easily pulled around by the outliers, medians are not. What would you use for an affordabilty metric if you looked at $/s.f., average income? I think that would skew heavily towards the “affordable” side.
How about the price of the median home sold / sq. ft. of the median home sold.
Seems simple enough.
Median is a good figure because it isn’t affected by the size of the home, just what people are spending on the home.
But that is exactly why sqft is interesting, because it normalizes the price in a way that allows you to compare big and small homes.
There is no perfect figure, but the median price gives the best picture of what is happening in the market
No. That has been covered ad nauseum in these forums.
What would you use for an affordabilty metric if you looked at $/s.f., average income?
You can perform the long-term correlations to $/sq ft just as easily as median$. The units differ, that’s about all.
If a particular segment of the market drops off (say, the low-end), then the part of the market that is still moving will show you the decline in $/sqft sooner than the median.
Of course, serious declines would not be in the best interests of the data-takers, who are paid by people that are incentivized by $ per transaction.
Big and small homes are not easily comparable. On one hand you have higher $/s.f. for very small homes, and on the other you have higher $/s.f. for very large homes. How would you weight $/s.f., by dividing the total price of all homes sold by the total square footage sold, or by averaging the $/s.f. of each sale? Different results.
You seemed to avoid the issue of a metric for affordability. If you are using a $/s.f. instead of a median, how are you going to measure affordability? Using median income, or average income? It is a bad idea, statistically, to start mixing medians and averages in your calcs, and average income is fairly useless.
You also ignored the skewing of averages by outlying data points. A change in the luxury end of a local market can wildly skew the $/s.f., while leaving the median barely changed. To most people, the median will better reflect the market they face.
If you insist on $/s.f., perhaps the best way to look at it is the $/s.f. of the median-priced home. Kind of a happy median, if you will.
One of the big reasons is that measures of floor area tend to be inaccurate and inconsistent. Being off by 10-20% is not all that unusual and throws all the numbers off when it is corrected.
Imperfect data is better than no data.
That does not make any sense. As was said, these numbers are there and anyone who wants to can work with them. They are part of what makes the Zillow Zestimate so accurate, or not in some cases. The reason that was stated above for wanting them was in order to make more accurate predictions, so getting there starting from extremely noisy and inaccurate data could be a challenge. People don’t emphasize public square footage estimates because they tend to be useless and throw everthing off. Run the numbers yourself and you will see. If you look carefully at Zillow you can also see examples where small variations in square footage result in huge variations in price. My house and similar comps are among the few houses in my area that have not been expanded since built in 1950, yet Zillow shows all of these unmodified and identical tract homes with different square footage estimates that vary the prices by more than $50k each way. If analyzing specific properties then accurate measurements may be possible, but for whole markets this is just not going to work.
OT, but kind of sums up what several of us on this blog feel is going on.
http://news.goldseek.com/StewartArmstrong/1154444460.php
OT again but one more interesting article on PPT.
http://www.financialsense.com/Market/wrapup.htm
The Shultz piece on Marketwatch suggested the bizarrely high degree of correlation in returns across risky asset classes traditionally viewed as diversified was a symptom of government manipulation. Does anyone else see this connection, because I admittedly do not…
I don’t know much about the causal factors, but I have a hunch that when the conundrum unravels, the correlation in returns across these overvalued high-risk assets will be very large, the sign will be negative, and the magnitude large, as risk premiums make a comeback, and the equity (and gold and bond and housing) premium puzzles are simultaneously resolved…
high degree of correlation in returns across risky asset classes traditionally viewed as diversified
Link?
FWIW: a claim that something is diversified without performing a correlation calculation is just sloppy.
As I understand, diversification does not necessarily results in low correlation of returns. Diversification simply means that there are no direct causal factors between assets’ performance. But diversification cannot help you if a common and direct causal factor does appear, such factors can be either an unexpected systemic risk, or government (or any large entity) manipulation of the broad asset markets, either intentional or otherwise.
Harry Shultz should be taken seriously.
JP, here’s the link: http://tinyurl.com/g88kp
Consider that the correlation is a result of the massive credit bubble. What do you do with all of that cheap money? You invest it across all (higher risk) asset classes. The puzzles will be resolved when the credit is withdrawn or called in (now), and real estate, stocks, bonds and gold will all begin their divergences. I expect that the order of assets to be hardest hit will be real estate (-60-80%), stocks (-40-50%), and on the plus side, bonds (+10+20) and then gold (+20+40). Cash devalues by of 20-30% (although today TreasSec Paulsen says he favors strong dollar), and oil is a big wild card, but I’d go with the “over” at $75-100. Time frame, 6 months or less.
There’s my crystal ball. FWIW, I’m not a trader but was trading some stock late 2004 and most of 2005 and did well. So today, the question is: What to invest in and preserve capital? I can’t say that anything looks good, and sitting on a CD or Tbill is just loosing money. So, I’m heavy in PM’s (60%) and cash, a risky position? I sleep very well, but as I mentioned above, I have a AFDB:
http://zapatopi.net/afdb/
(Very funny if you need some laughs)
Fred –
Thanks for your insights…
GS
Oh, and by the way, what do those AFDBs sell for?
You’re comin’ around. Seen any black helicopters lately?
Oh, I forgot, you can make your own but I’ll sell you mine if you want it! Very cool:
http://zapatopi.net/afdb/build.html
Thanks auger-inn. Hey, I’ve got my AFDB. Et tu?
Why can’t realtors spell?
Description
Huget pprice reduction!!!!! The house was rebuilt in 1997. The effective age is 9 years. Beautiful, bright and open floorplan. New paint throughout proffesionally landscaped front and back. Lots of fruit trees and roses
house on ziprealty
Wouldn’t you think that a house priced at $1.149M deserves a spell check?
And this one is listed at $14.95M
Description
This montalvo estate home sits on 6.27 + -sub-dividable city light view acres. Walk to village. Location yet total privacy. Must be seen to be fully apprecated.
house on ziprealty
Are real estate agents truly education deprived? Or do they have a REASON for these terrible misspellings and awful grammar? E.g. they are avoiding some kind of real estate spam filter?
They are both educationally challenged and products of their generation. What do you really expect from people who are taught to “sight-read” by associating letter patterns (entire words) with sounds rather than by learning what a syllable is? They cannot - cannot - speak new words nor sound out old words unless they have previously “learned” the pattern. Additionally there are a large number of second-language realtors these days.
Realtors may also misspell words for the same reason they use lots of exclamation points: To show breathless enthusiasm and urgency in a calculated effort to stampede the prospective buyer into a decision.
Ahaahaha! Iss dis possibely treu?
They want to do minimal work for maximum pay. Expending the time and eyeball/finger effort to go back and proofread their garbage is cutting into profits. Afterall, there are spa appts and Beemer test drives they need time to deal with.
Like when you see b/w flyers vs. color. Or no advertisement of homes except at freebie craigslist.
Oh, forgot the obligatory trademark exclamation marks!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
They save time by holding the key down rather than typing them individually. Another realtor trick.
This was the best comment on this blog in the past week!
And don’t forget the diligent agent who pulls the flyers out of his brochure boxes and does the white-out, hand-lettered price-change thaang. Now there’s the mark of a pro! [After all, printer cartridges are pricey]
And since when is TREE a verb? “Beautiful treed lot”
http://dictionary.reference.com/browse/treed
It’s a valid word.
In your best Homer…”Dooo!”
It’s D’oh
Inventory in my Boston suburb, which began to slide backwards around July 4th, has surged again and reached a new high.
wait till aftah everone gets back from the sure !
boom !
hey craven - can i ask which boston suburb? im looking to buy in metrowest and im constantly looking for anecdotes about what folks are seeing
Speaking of Boston, the Globe has a series on consumer debt which is pretty scary…http://tinyurl.com/rh8k5 (thanks to itulip.com for the tip).
the other day some here were talking about debtor’s prisons and how we should have them, and I would say that the stories here show that while we may not have actual debtor’s prisons here, what we have is just as bad if not worse. Read for yourself.
I just logged on, and got a display ad. at the top of the thread knocking this blog as boring and pushing another.
What gives?
I saw that too. Went other there it is Keith’s blog. He sometimes posts here.
It is a lot flamier and edited over there. A flame war erupted between Keith and VA_investor that boiled over here.
I like this blog because people are not, in general, flaming maniacs - I’ll take thoughtful, educated, peaceful debates anytime over that. Maybe it’s a good thing that there are other outlets for people who enjoy that kind of stress.
Thanks Ben for setting such a nice pace here.
That’s cheezy. Sad for the bubblesphere. If you have something interesting to say, then there’s no need to knock anyone else down in order to get readers.
I didn’t see it, what is this flame war? I read Keith’s blog and don’t recall it. Both blogs are entertaining in their own ways.
It appears that “Keith’s blog” is mainly a discussion about whether marriage is a good idea, whether women are frugal and whether they want to/should have babies.
I think I’ll stick to the blog that actually discusses the subject.
Loafer
Oh, is that where the lion’s share of the misogyny went. Good riddance.
Can we send the racists there too please.
$17545 - WHAT IF YOU ARE AT GAMING TABLE AND HAVE NO COLLATERAL? ASSES AT $48k (2216 RUGBY WHY)
http://lasvegas.craigslist.org/rfs/188657069.html
I love it! I especially like the part at the bottom, “USE UR BRAIN”
ASSES AT $48k is my favorite part. The collateral for gambling, ma and pa’s funeral expenses, the misspellings - it’s chock full of material.
Interesting discussion chain on some large price drops in a new Calf development, and a look at short sales and foreclosure:
http://www.prudentbear.com/bearschat/bbs_read.asp?mid=426803&tid=426803&fid=1&start=101&sr=1&sb=1&snsa=A#M426803
It is an interesting chain. I’ve seen a number of people attempt “short sales” recently and there is some room to wiggle right now on conventional, uninsured loans. Those secured by Freddie / Fannie / VA / VHDA guarantees cannot be sold short and there is absolutely no incentive for a lender to take a short sale on those properties. But for others, banks who are low on capital reserves may be inclined to take small losses on the loans in order to get speculative loans and properties off their books. They will do this quietly and discreetly lest it turn into a flood, but it’s an interesting angle for the FB’s out there.
Lenders will loosen up as their REO inventory grows.
Here’s the latest Trustee’s Sale count for Maricopa County (Phoenix metro area):
Jan 05 1297
Feb 05 940
Mar 05 1040
Apr 05 766
May 05 759
Jun 05 767
Jul 05 748
Aug 05 795
Sep 05 669
Oct 05 728
Nov 05 704
Dec 05 749
Jan 06 726
Feb 06 687
Mar 06 790
Apr 06 638
May 06 764
Jun 06 797
Jul 06 851
A bit of distress is becoming apparent.
Not apparant to me, based on those numbers,
I’ve been regularly checking out a local (Canberra, Australia) 20-odd story condo which I’ve nicknamed “The Dark Tower of Financial Doom”, because there never seem to be more than a few lights on when I’ve driven past.
I have a particular interest in this development, because a club of which I’m a member sold the land to the developer, and club members were offered pre-construction units before they went on general sale. I and a friend actually went and checked the prices, and both of us came away thinking they were too high.
However, as it happens, I always drive past pretty late at night, so the possibility that a lot of owners have gone to bed and switched the lights off has nagged at me.
Anyway, I was in the area at the weekend, and went past at about 8:00pm to check. I counted 17 units with 1 or more lights on out of a total of about 150.
And the billboard on the adjoining intersection is still there, like it has been for 18 months, with the headline “Time’s Running Out”. You know, I’m starting to think that message could be right :D.
Ironic, isn’t it?
This is Just a Joke AMERICANS WITH NO ABILITIES ACT - CONGRESSIONAL ACT 2006
WASHINGTON , DC (AP) - Congress is considering sweeping legislation, which provides new benefits for many Americans. The Americans With No Abilities Act (AWNAA) is being hailed as a major legislation by advocates of the millions of Americans who lack any real skills or ambition.
“Roughly 50 percent of Americans do not possess the competence and drive necessary to carve out a meaningful role for themselves in society,” said Barbara Boxer. “We can no longer stand by and allow People of Inability to be ridiculed and passed over. With this legislation, employers will no longer be able to grant special favors to a small group of workers, simply because they do a better job, or have some idea of what they are doing.”
The President pointed to the success of the NAR, which has a long-standing policy of providing opportunity without regard to performance. Approximately 74 percent of realestate employees lack job skills, making this agency the single largest US employer of Persons of Inability.
Private sector industries with good records of nondiscrimination against the Inept include retail sales (72%), the airline industry (68%), and home improvement “warehouse” stores (65%) The DMV also has a great record of hiring Persons of Inability. (63%)
Under the Americans With No Abilities Act, more than 25 million “middle man” positions will be created, with important-sounding titles but little real responsibility, thus providing an illusory sense of purpose and performance.
Mandatory non-performance-based raises and promotions will be given, to guarantee upward mobility for even the most unremarkable employees. The legislation provides substantial tax breaks to corporations which maintain a significant level of Persons of Inability in middle positions, and gives a tax credit to small and medium businesses that agree to hire one clueless worker for every two talented hires.
Finally, the AWNA ACT contains tough new measures to make it more difficult to discriminate against the Nonabled, banning discriminatory interview questions such as “Do you have any goals for the future?” or “Do you have any skills or experience which relate to this job?”
“As a Nonabled person, I can’t be expected to keep up with people who have something going for them,” said Mary Lou Gertz, who lost her position as a Hooters host and part time realestate broker in Naples Florida due to her lack of notable job skills. “This new law should really help people like me.” With the passage of this bill, Gertz and millions of other untalented citizens can finally see a light at the end of the tunnel.
Said Senator Ted Kennedy, “It is our duty as lawmakers to provide each and every American citizen a high paying job, regardless of his or her adequacy,
BW and inccredulous should like it. Maybe they can volunteer for a tax to pay for it.
For me, let em rot.
Huh? Why me? Did I ever talk about a government bailout or legislation or anything like that? Anyway, I thought it was funny.
OK, I retract it. Where is the damn delete button?
hey, did that post get cut off? Was enjoying the read, then it suddenly ended in a comma.
This is hilarious on the one side….and really creepy on the other. I’ve seen way too much of this in real life. There is usually one really on-the-ball person doing the work of fifteen “no ability” people and usually making less than half of those people. I’ve been there,done that.
It also me of the show “The Office” So funny because it is so true to life.
I’ve seen way too much of this in real life.
obviously, in Europe this is even worse
And to add to that, many of the biggest paycheck increases in the last years in my country (usually +20-30% yearly) were for politicians and (usually just as incompentent, stupid and lazy) executives of public organisations that are totally paid out of tax money.
landedeal2,
Arrrgh, what a tease! Please post the rest or a link!
I liked it up to the last comma. Very descriptive of the prevalence of American flabby minds and flabby bodies.
But I hate to break the news: I discriminate against the irresponsible!
Boy Dems havent been in charge for how long now??
It is getting real tired..running down Dems As the Repubs flush our country down the toilet.
George W. Bush would be the poster child for this legislation…I am still waiting for him to have success at anything other than vacation taking and brush clearing.
http://www.nytimes.com/2006/07/31/business/31men.html?ex=1311998400&en=81184a612143ae81&ei=5090&partner=rssuserland&emc=rss
Anybody else see this story.
The Money Quote?
“Instead, Mr Priga supports himself by borrowing against the rising value of his Los Angeles home. Other men fall back on wives or family members.”
Read the whole thing.
Some of these guys are in for a VERY rude awakeing.
This disgusts me to levels I cannot describe. This is the antithesis of most of what I’ve learned to respect. I cannot believe this. And what’s sad is our government most likely won’t let these guys starve to death as they deserve. Sorry for the lack of compassion, I only extend it for rapists, child murderers and guys like these.
I know at least one woman who has exactly this attitude, yet no one condemns her.
I believe in equality. Let the females who espouse this also meet the same fate.
I don’t believe in equality. Men and women are different. Women have a good biological reason for ‘doing nothing’, or at least, doing different.
Early retirement is a good thing if you can swing it.
I read that piece & wondered when I’d see it mentioned here.
Don’t those people realize that they are going to have to pay those loans back? Then they’ll HAVE to take two or even three of those jobs that they considered “beneath them”.
Not all of them live off of equity loans. Some have 401k’s and savings.
What did they call them - “missing men?”
Where I’m from, guys like these are called losers. The women stay with them for a number of reasons. Love may be one, but it’s not the only one. Admitting that their man is a useless member of society is not something a woman does lightly.
Imagine, how many SINGLE women would be attracted to such a person? This tells us, in quite clear terms, how society judges these folks’ attitude toward work.
“But when that ended, he could not find a job that, in his view, was neither demeaning nor underpaid.”
Oh poor you. And then they wonder why immigrants take these “demeaning and underpaid” jobs.
Out-sourcing to 1$ an hour Chinese labor and, 2$ an hour Indian labor and, in-sourcing of cheep illegal Central American labor, is what caused this to happen. Don’t judge these men till you’ve walked a hundred miles in their shoes.
It is predictable that the simple answers crowd here is totally in denial about the reality of the situation. Essentially all real economic growth in this country comes from creatives doing their thing. Drones don’t contribute anything that we can’t already get machines to do better.
Who do you think builds those precision machines?
I admire these men for withholding their services from corporate america, no longer contributing to the bottom line for peanuts in return. They have been shafted by the system of out-sourcing for and in-sourcing of cheep labor. I hope the can hold out and keep sticking it to the man as long as they can. I wish I could do the same, which is why I am rooting for a total economic collapse, in order to level the playing field.
E-mail I just received from Zip Realty re: Vegas Market
How to MAKE MONEY at the time of your new home purchase…..
You don’t need to attend a seminar and waste your afternoon, you don’t
need to buy a 12 disc CD and DVD package on investing, you don’t need to be angry at you neighbor or work associate who bought in 2003 and has $200,000 in equity and new hummer. What you do need to do is listen very carefully.
The boom in Las Vegas isn’t over. We’re scheduled to double in size
within the next 6 years! That’s a population of over 4 million in Las Vegas by 2112. If you think housing is expensive now, wait another year or two and see what you’ll be paying then.
The reason prices are low right now is because all the short-term
investors are selling their investments and cashing out. They bought
with little or no money down and can’t afford to pay hundreds of dollars
from their own pocket to cover their mortgage payments. After the
short-term “flipper” investors sell out, the market will correct its self again and return to our normal high appreciation. Most professionals say that it will happen within the next 12 months.
The buyers that are buying now in Las Vegas are the homeowners. The
homeowners that are moving here from other parts of the country because of the great economy and still affordable housing we have in Las Vegas.
These new buyers are putting 20% or more down payment and are
comfortable buying a home that’s $400,000-$800,000. This, combined with the accelerated population growth is going make our Real Estate market one of the most expensive in the country within the years to come.
All you have to do is adjust your thinking a little. Before, you could buy anywhere and make 15-50% appreciation in a year. You made your money off of appreciation. Now, you need to buy wisely and make your
money at acquisition. Most resale homes are over priced. The homes that
are priced right are usually sold within 30-60 days.
If I could find you a new home with as quick as a 15day move in, thousand of upgrades included, a low interest rate, and reduced
thousands of dollars for a quick sale, would you be interested? Here’s
how, new homebuilders have what’s called a “fall-out”. This means that
they had a buyer, but for some reason they couldn’t buy. The builder has
to sell this home ASAP, before the end of the quarter because it makes
their profit margin drop.
It takes a lot of phone calls, connections, and gas, for me to find a good deal. If you let me know exactly what your looking for, and the timeframe. I’ll find you a home with instant equity…. This is how you can make money at the time of purchase.
If you ready, send me a e-mail or call me…. I can get started looking for the perfect deal for you, NOW! Before you miss the boat again.
Is there an e-mail address that we can send constructive e-mail?
“These new buyers are putting 20% or more down payment and are
comfortable buying a home that’s $400,000-$800,000″
So, people are moving to Vegas to get some sort of job that pays TEN OR TWENTY THOUSAND DOLLARS PER MONTH (which is the income needed to buy these homes with a non-suicide loan) with $80,000 to $160,000 CASH for their downpayments. Right…
Wow. That was a painful read.
Well, you know they’re not making anymore desert scrubland.
David Lereah on the Today show this morning!!!
I was watching the Today show this morning and David Lereah and a Chicago realtor were guests. Lereah is starting to do some serious back-peddling. Matt asked him what buyers should do with regard to offers now that the market is slowing. He said something like “along the coasts, sellers should consider offering…(lots of stuttering and stammering)…I’ve seen 10, 20, or up to 30% less than asking price.”
Matt asked about predictions for the next 12 months for real estate and Lereah said something like “I still think it’s going to be a soft landing if rates don’t rise, but if the Fed raises interest rates any more the coastal markets are going to see some pain.”
They’ll probably put a video clip up on Today’s website later today or tomorrow. You’ll get a kick out of it.
“Pain”!
Are you suuuure he didn’t say “Gain”. That seems more likely.
As has been noted before, here you have Lereah and the Realty Clowns beginning the finder pointing — at the Fed, of course, for the implosion of the housing market.
It’s not the ridiculously high prices and total unaffordability, it’s not the unsustainable pace of new development, it’s not the general public waking up to the bubble, it’s not losers bombing out of their toxic mortgages — it’s the Fed raising rates that is killing the housing economy.
I still continue to believe that Lereah should be prosecuted under some RICO provisions. Intentionally misleading the public for the purposes of enriching his minions (Realty Clowns).
finger… finger.
The hilarious thing is that even if the fed pauses, it’ll still be a hard landing. Who does he blame then?
If sellers took David’s advice and started taking 20-30 percent off their list prices, then a hard crash would soon follow… After all, who wants to own a home while its price is sucking your annual income down the negative equity appreciation drain?
I saw that Today Show piece. Noticed there was no counterpoint, just more unilateral RealtorSpeak.
And the gist seemed to be that we are just in a temporary lull, that explains all the For Sale signs. Go buy now, it’s a buyer’s market blah blah blah.
Whoops. My original post should have said “buyers” should consider offering. Here it is corrected:
““along the coasts, buyers should consider offering…(lots of stuttering and stammering)…I’ve seen 10, 20, or up to 30% less than asking price.”
Probably a slip of the split-ended serpent tongue.
It’s not a Buyers’ Market!!
You go to buy a used car, say a 5 year old Honda. The surly salesman says that there is a big demand and it cost $12,000, take it or leave it. You think that’s way overpriced, but it’s a sellers market.
A year later the salesman is in his showroom, no one is looking at the cars. You ask about the 5 year old Honda. He says the asking price is $12,000 but he’s willing to deal. He’s very contrite and accommodating. But you still have to pay a lot more than the car is worth. That is NOT a buyers’ market.
When you can buy the car for a fair price, then it’s a buyers’ market!
If you buy the car for a fair price, it is a fair market, if you can get the car for less than that fair deal, THEN it is a buyers market.
Right!
http://tinyurl.com/sxjdh
This is a story about how traffic at the Reno airport is down this year. Hotel occupancy is down also. Could this, indicate a slowdown in consumer spending, as we have also seen the declines in ‘casual dining’ sales numbers?
I wonder if nnvmtgbroker has any comments on this.
Businessweek had an article on a similar slump in Vegas, subtly point to the state of the housing bubble as a reason why.
Doesn’t suprise me at all. Reno and LV will be hit hard.
I am on board that the bubble is here and that the 2006 dot.com crash in real estate will be when the July figures will be reported in the middele of August, where year to year median prices will be down every where BUT!!!!!
Please don’t lump Vegas with Reno. UNLV accumulates economic numbers for Vegas, and the June numbers show
employment at 918,900 UP+5.4% from 2005….Unemployment rate 4.3%, it was 4.2% in 2005….and the most #1 number that jumps off the page Gaming Revenue 962,616,273 UP 10.7% from 2005.
It doesn’t help that airfares are not exactly cheap right now (due to gas prices I’m assuming?). I was searching for flights from Philly to Florida yesterday and was surprised to see the cheapest (at least during the time period I need to book them) at ~$225 round trip. That route is historically a dirt-cheap one.
Tourism seems to be waaaay down in east central Florida this summer. Drove over to the beach this morning and there was, relative to past years, very little traffic and few tourists to be seen.
I spent a week at a top resort in Mammoth CA and the place was literally empty, ok maybe 20-30 cars, and this was during a large jazz festival weekend.
Guess it wasn’t such a great idea after all to buy that “investment” house in McKinney. Duh, how many times have I posted that here. Of course the knowitalls from out of state know better than I do, a 18 year resident of the hellhole:
http://dallas.craigslist.org/rfs/188733316.html
But does this line in the ad really entice someone to buy this McMansion?
I just want out, I am tried of dealing with renters.. I live in California and never moved to McKinney. I have been paying the mortgage for close to the past year. If you want more information call me.
I just want out, I am tried of dealing with renters.. I live in California and never moved to McKinney. I have been paying the mortgage for close to the past year. If you want more information call me.
That posting is absolutely priceless! Don’t these people realize when creating their CraigsList postings that sounding DESPERATE is NOT a good sales strategy?
Is it just me, or is it imPOSSible to feel sorry for this fool?
Damn, I’m moving to TX. That place would be $850,000 in NJ with $15,000/yr in taxes
Obvious flipper going to lose his shirt though
You’d be running from the place screaming in a week. You’ll have to trust me on this one. I can’t even bear to drive through that area.
I went to Bestplaces.net and saw the Violent Crime and Property Crime stats. I see what you mean.
I’ll just have to stay in NJ where all the criminals happen to be elected officials
Working as I do, as a 3D animator, I can categorically say that the first photo, of the front of the house, is a 3D model….
All of the pictures are 3d models.
So, we’ve got a guy here in the Twin Cities who’s rehabbed one boat, and built one small subdivision. His new project? Mississippi condo barges for everyone!
SOME HOUSEBOAT!
The novel concept of creating floating condominiums to cruise the Mississippi River and beyond will be a reality if a St. Paul contractor can navigate all the obstacles.
More than a decade later, the St. Paul native has finally translated that dream into the most unusual condominium proposal the city has ever seen. His River Cities concept is a cross between a river barge and a four-level, 200-unit cruise ship.
Condo buyers would tour Nelson’s favorite haunts — from the sand bars of Destin, Fla., to the riverfront parks in Memphis — without ever leaving home.
One of his two planned riverboats would spend the summer here and migrate for the winter to Port Isabel on the southernmost tip of Texas. The other would cruise year-round on the nation’s waterways.
His concept has also raised questions about property taxes, docking rights and the size and scale of each boat — Nelson envisions them the length of five football fields — making them the largest passenger vessels on the Mississippi River.
Nelson has reacted to a host of challenges while developing his plans over the past two years. After conversations with the U.S. Coast Guard, he and his architects redesigned the ships with all-steel construction and special attention to fire safety. Each boat, powered by motors in back, would be designed to split in half to pass through tight channels.
“What’s unique about this is that these people will have a sense of ownership of the entire Mississippi River that few other people would,” said Patrick Seeb, head of the St. Paul Riverfront Corp.
Full article at
http://www.twincities.com/mld/pioneerpress/15169154.htm
And ANOTHER dolt gets added to the list!
The fates of Detroit automakers, high inflation, interest rates, and the housing bubble are attached at the hip…
—————————————————————————————–
August 31, 2006 Wall Street Journal
p. B1 (bottom of page)
Detroit’s Cash Cow Stumbles
By Neal E. Boudette and Jeffrey C. McCracken
Ann Arbor, Mich.
Carl Babcock, a home builder in this prosperous college town, has wanted to upgrade his small pickup truck to a bigger Ford F-150 for more than a year now, but the thought of filling up with $3-a-gallon gasoline has stopped him. And now with higher interest rates slowing housing starts, he figures it is better to wait awhile.
“I would love to go out and buy a new truck, but I will probably just drive the one I have into the ground,” Mr. Babcock says. Because of gas prices and interest rates, he adds, “it doesn’t make much sense to buy one right now.”
…
The Federal Reserve’s string of rate increases also appears to have slowed home construction enough that some contractors are using older trucks longer and delaying purchases of new ones.
Mr. Babcock, the builder in Ann Arbor, says he has enough work but has seen other contractors shut down or scale back the number of work crews they have. “It’s not a good time to pile on additional debt with a new truck,” he says.
The important phrase that you missed was that the trend towards smaller cars began in 2004 before the spike in gas prices. We all saw this coming. ‘Big is not in’ with houses OR cars. This cycle repeats itself every 20 years or so and there was no chance of a different outcome this time.
In fact, I was looking for fuel economy in 2002 and got myself on the list for a 2004 Durango hybrid. Yes, there was a hybrid program in 2002 for Dodge. Unfortunately, Dodge sent me an email in 2003 indicating that there was no interest in the program and they foresaw no demand for hybrids, so they canned the program. I was livid and sent them a long email about why they were being shortsighted and were going to get crushed like they did in the ’80’s by foreign manufacturers. Lo and behold! I speak truth!
What is a new Fed chairman who has staked his professional reputation on the concept of inflation targetting to do when confronted with the highest core inflation rate in 11 years? Is anyone on Wall Street still buzzing about the pause in the works?
—————————————————————————————————
ECONOMIC REPORT
Core inflation rising at 11-year high in June
Real consumer spending tepid for fourth straight month
By Rex Nutting, MarketWatch
Last Update: 9:49 AM ET Aug 1, 2006
WASHINGTON (MarketWatch) — U.S. core consumer inflation matched an 11-year high in June, keeping the pressure on the Federal Reserve to fight inflation, the Commerce Department reported Tuesday.
The core personal consumption expenditure price index, excluding food and energy, increased 0.2% for the third straight month in June, and has risen 2.4% in the past 12 months, matching the largest year-over-year gain since April 1995’s 2.5% increase.
The core rate had also risen by 2.4% on a year-over-year basis in September 2002 and in May 1995.
Consumer prices including food and energy also rose 0.2% in June, and are up 3.5% in the past year.
http://tinyurl.com/m3u6g
The inflation numbers seem to be taking their Toll. But I am puzzled — it seems like Toll’s stock price drops 2% or so on most days, but somehow it also seems to stay glued around $25 from one week to the next. Its price action reminds me of one of those MC Escher works which shows the monks marching forever skyward up the stairs of their monastery…
http://tinyurl.com/bcmj9
Morning GS, A lot of international news today. This is from Australia, but it certainly can be applied to the US.
“They believe the Reserve cannot go much further without a serious risk of pushing the economy into recession.
Household debt these days is so high relative to net income that each 0.25 percentage point rate rise hits with the equivalent force of a 1 per cent jump 15 years ago.
Economists say the 6 per cent mark expected after the Reserve Bank meets on Tuesday will have the same impact on household spending as interest rates at 20 per cent back in 1990.
It will push the average bank standard variable mortgage rate to 7.82 per cent, according to Infochoice.
Worse, for most Australians it will more than cancel out the benefits the Federal Government delivered in tax cuts at the start of the month, after taking into account the rate rise in May, soaring petrol prices and the rise in health costs….”
IMHO well worth the read
http://tinyurl.com/q73w9
and from the US
Record Household Deficit - Is There Anything Wrong With This Picture?
by Paul Kasriel
“….households have racking up large deficits starting in 1999. By the way, these deficits are not just records in absolute terms, but relative to their disposable incomes as well - e.g., 6.15% of disposable income in the first half of 2006. These “modern era” household deficits also are not that difficult to explain. Generational low nominal and real interest rates, in part engineered by the Fed, have had the effect of inflating the prices of assets…”
http://tinyurl.com/rf5xu
and for technical traders and people that like housing graphs and charts:
From the Contrary Investor
The Landing Pad
“…although the housing industry stocks have absolutely taken it on the chin lately, and the mortgage purchase apps are in a clear downtrend, the stocks of companies that finance residential real estate look nothing like their housing industry counterparts as you’ll see below. Why haven’t these stocks fallen as has real world real estate activity and the stocks of the homebuilders, etc.? It’s simple. Remember, as we’ve told you on many occasions now, the financial economy IS the real economy in the US. The fact that these stocks have not cratered is simply testimony to the fact that market participants are fully aware of this concept. At all costs, the Fed will protect the financial economy….”
http://tinyurl.com/nextb
Enjoy!
Some great takes on the status quo there, hoz!
Here are a couple of passages I particularly like:
(Kasriel)
Why should households spend less than their after-tax incomes when the value of their assets is skyrocketing? And, of course, with asset prices inflating, there is all the more collateral upon which creditors can advance loans. So long as asset inflation continues, we guess households can continue to run record deficits. We can’t wait to see how the adjustment works out when the asset-price music stops.
(The Landing Pad)
NEVER has the rate of change in year over year nominal dollar residential fixed investment not gone into negative territory during or very near a US recession until the most recent experience in 2001. In other words, the current real estate cycle has broken all historical relationships set down over the last sixty years at least. And the flip side of this record-breaking cycle is a simple non-descript soft landing and subsequent reacceleration upward? Hmmm, we’ll see.
I know some are mildly bullish on US bonds - I am not and consider the US bond and stock markets to be in a massive bubble. The potential return does not justify the risk. With the news from the ISM this morning, foreign insights into possible fed actions.
“With the Fed’s favoured measure of inflation rising at the fastest pace since September 2002 and pipeline price pressures clearly intensifying, a rate hike cannot be ruled out next week,” said James Knightley at ING Financial Markets. “[The] ISM manufacturing index has made next week’s Fed rate decision an even closer call.”
and
“If they don’t tighten, they had better be right that core inflation will ease, or they have a major credibility problem on their hands,” said Alan Ruskin, strategist at RBS Greenwich Capital.
http://tinyurl.com/efbod
And treasury Secretary Paulson this Morning
Following the continued rise of America’s trade deficit with China, he called on Beijing to revalue the yuan and open the country’s capital markets to foreign investment. “That would be of huge benefit to us . . . and also to China because China right now has an economy that appears to be overheating,”
http://tinyurl.com/gy3be
IMHO if Paulson has his wish then the rate of inflation in the US will be much greater than 10%. A revaluation of the Yuan of 25% (realistically should be 40%)makes all imports from China (toys, electronics, shoes, clothing, boats, car parts) that much more expensive. Whee
MARKET SNAPSHOT
Stocks sell off on rate worries after data
New monthly income and spending data put inflation at 11-year high
By Leslie Wines, MarketWatch
Last Update: 12:49 PM ET Aug 1, 2006
NEW YORK (MarketWatch) — U.S. stocks sold off at midday Tuesday, after a new round of strong economic data dealt a blow to hopes for a speedy conclusion to the U.S. rate-tightening program.
Investors are taking in earnings news from Visteon, Verizon and other household names and monthly vehicle sales that are down by a one-third for both Ford and DaimlerChrysler.
http://tinyurl.com/nrp3v
Golly, 4000 sqft for $210K looks enticing, if you were actually to live in it. How could the interior look so well if the renters are straining the owner’s patience? Must be old pictures.
Those are pictures from the sales brochure. Trust me, the neighborhood is a white trash ghetto at that price.
Here’s a funny snip from another Craigslist ad. What do you suppose “Korean” countertops look like? LOL
Brand New , Nicely Upgraded Luxury Town Home in the heart of Las Colinas for Lease. You will be the first one to live in it. Upgrades include
- High Quality Berber Carpet
- Dual Fire place that opens in formal living and family room
- Complete 4th Bedroom with full bath on first floor
- Toilet hardware upgrade with Chrome finish
- Korean Top Kitchen Counter tops
Must be “Corian” countertops. The mistake is telling.
I think they’re made of lice paper.
Or some of that silly staging crap that goes on. I don’t care how polished your interior looks if your price tag is too high (not saying $210K for 4000 sq ft is too high - wouldn’t be in my area; might be in McKinney - but it’s a general comment about staging).
Foreclosures jumping in Australia…love the cartoon on this link…
http://tinyurl.com/lxvh8
Interview with Richard Grace, Commonwealth Bank of Australia
Tuesday, 01 August 2006
“… Kathy: And how has the housing market been impacting the economy?
Richard Grace: Well, Australia’s economy has been through a massive house price boom, and now we’re seeing a slow, gentle deflation of that bubble, if you’d like to call it that, and it does affect Australia’s economy because it is a very, relatively small but volatile sector, has large multiplier effects into the local economy, and we’ve also got a pattern of a lot of diversion in the, in the housing market in Australia.
In other words, we’ve got the booming housing market in Western Australia, where that part of the country undertakes a lot of commodity exports, whereas, in the, sort of, in the manufacturing side of the economy and the service side of the economy, which is located in Melbourne and Sydney, we’re seeing housing prices really slow down there, and in some cases, we’re seeing house price falls. Household consumption in Melbourne and Sydney is starting to slow right down, being offset by the household consumption in Western Australia. So to answer your question, it’s having diverse effects and it did have sort of a dampening effect as the house price boom starts to deflate. But now things are starting to nationally pick up on average….
..We will see the release of the quarterly inflation numbers coming out on the 26th of July. We think that that’s going to lift the year on year inflation rate from 3% up to possibly as far as 3.6%, well above the Reserve Bank of Australia’s two to three percent target zone for inflation and hence the RBA will inflate rates in early August….”
Main Themes : Oil prices, Federal Reserve rate hikes, Bank of Japan rate hikes andChina
- Despite Chinese Demand, Australia’s Export Volume Growth is Being Held Back by Shipping Constraints, Which Should Keep Inflationary Pressures High
- 2 More Rate Hikes Expected from BoJ this Year
- Expect more Demand for Gold from India
-RBA Rate Hike Expected in August With Possibly More to Come
- AUD and NZD Relationship Breaking Down Because Drop in Agricultural Prices has Plunged Growth in New Zealand
- Movements in Australia after Surprising Data Tends to be Exacerbated in London
http://tinyurl.com/nz49n
HD;….Are you out there ??? Do you remember this ???
Money and credit may pour in, but no one is fooled. Instead, prices rise, while the economy goes limp.
This was what Paul Volcker faced when he stepped into the Fed back in the late ’70s. He had to whip inflation - or more precisely, inflation expectations - before any further monetary stimulus would work. And this he did, by pushing lending rates up over 15% and bringing about the worst recession since the 1930s. People were so upset with him they burned him in effigy on the capital steps.
I remember it well…Born in the early fifties, I heard all the depression stories from my grandparents & parents….The early 80’s were not a depression but it was close…Business was just “paralyzed”…No amount of effort or strategy employed would work…It was a very scary time…At least for me….
Thanks to Mr. Volker we were able to enjoy the boom that went from 1982-2001 with only a minimal recession in 90-91.
I’d like to see him come back and lead the Fed again.
Where you there ??? Where you in busniess ???
Did you see his recent piece in the Washington Post(?) (can’t quite remember the publication, but I remember reading it)?
Volcker was extremely concerned with the twin-deficits and repeatedly mentioned the real estate bubble. The media and A.Greenspan poo-pooed the comments.
Moman;…I picked it up on John Muldin’s “Ouside The Box”…It was a very painful time “EVEN” if you were well planned and prepared…You did not need to be over extended (Unlike today) to have lost everything…
90-91 was terrible. wasn’t it the first jobless recovery?
90-91 was a walk in the park cmpared to 81…..
Anyone self-employed professional in business during those periods knows scdave speaks the truth.
Volcker allowed Greenspan a tremendous amount of room to maneuver by whipping inflation expectations.
Unlike Greenspan (bubbles) has left Bernanke.
Bernanke has a choice is going to be a Miller (dove on inflation) or is he going to be a Volcker (hawkish on inflation, not liked by the masses but did what was right).
“Bernanke has a choice is going to be a Miller (dove on inflation) or is he going to be a Volcker (hawkish on inflation, not liked by the masses but did what was right).”
If BB is going to do a Volcker, he needs to go to acting school first. I remember seeing cigar-chomping Volcker on TV and he was one tough-looking, tough-talking character. BB has too much Gentle Ben in his visage, to date.
I agree Chip;….I was so pissed at Volker I wanted to choke him….I had just purchased my home, and had 3 children still in diapers, I survived and the country was better off for it in the long run but I wanted to kill the B.,@tard…
please bring it on, that US recession and housing crash!! And let’s hope that it spreads to Europe because the EU RE party is better than ever (at least when looking at the price level).
In Europe the housing markets are surging ahead again, in my country that is despite gains in individual home prices that are often bigger than 1000%. Realtors are expecting another fiesta year and if the ECB follows the FED I can see why - free money for everyone, again. The UK also had the biggest price jump in some years a short while ago. The worrying stories about RE problems on the Spanish costats from early this year have disappeared and there is again plenty of enthusiastic advertising and flipping.
And it’s not just the RE sector where things are totally wrong. As a small business owner I have seen for years how this is distorting the whole economy and killing many small businesses because they are chrunched by big, unprofitable companies that get loads of money for nothing. Rents for shop/office space has increased about 400% in 15 years while net income for small companies (except those in the financial/RE/home improvement sector) is probably lower than 15 years ago. We need a really good washout here.
It’s Over Before It’s Over
By Howard Simons
RealMoney.com Contributor
8/1/2006 8:07 AM EDT
URL: http://www.thestreet.com/p/rmoney/economy/10300536.html
Here’s a bet for all you gamblers out there: The 17 consecutive increases in the target federal funds rate will remain on the books as the longest streak ever, forever. That’s right, one day you will be able to drive to Cooperstown and see Alan Greenspan and Ben Bernanke enshrined next to Lou Gehrig and Cal Ripken Jr.
Gehrig, of course, was struck down tragically by ALS, and Ripken decided to end his streak on his own terms. The Federal Reserve’s streak will end by virtue of its success in reining in inflationary expectations and ending the housing bubble.
Cynical observers, some of whom have been known to inhabit these precincts, might note both of these successes would be triumphs over problems caused by the Federal Reserve’s own lax monetary policies between 2001 and 2005. Create the problem, and then solve it: That’s how they sell mouthwash.
How can we be so sure the streak is over before it’s over, in direct contravention to Yogi Berra’s dictum? The implied probability of a rate hike on Aug. 8 has fallen toward the 30% level, and no one from the Federal Reserve has attempted to jawbone the market higher.
More interesting, however, is how the yield on 10-year notes has moved up and down with the implied probability. Long-term rates are supposedly set in the market, not by the Federal Reserve. The message from this unusual confluence is that the bond market has turned bullish for the very same reasons the Federal Reserve is going to cease and desist.
Click here for larger image.
Source: Bloomberg
Let’s Do the Swap
Let’s update a set of indicators we looked at in December and April on the behavior of long-term rates, 10-year swap rates in particular. As noted in December (marked on the charts below with a vertical line), much of the financing of American business is done at the swap rate, which is simply the present value of the yield curve, as opposed to a single rate, such as the 10-year Treasury plus a spread. At the time, we noted how the constant stream of rate hikes, then 12, had failed to derail business borrowing. Furthermore, even though the yield curve had flattened and was headed toward inversion, this would not matter so long as swap rates remained in their range.
The yield curve, as measured by the spread between the 10-year-note rate and the two-year-note rate, did in fact move into an inversion both between January and March and again in June. Swap rates broke out of their range to the upside in late February and continued higher into the end of June. They since have turned sharply lower; tellingly, this turn lower is coinciding with a re-steepening of the yield curve. This indicates that the bond market no longer regards looser monetary policy as inflationary or overstimulative. For stock investors, this is unalloyed good news: A fall in the swap rate should, all else held equal, be supportive of interest rate-sensitive industries.
Click here for larger image.
Source: Bloomberg
Swaption Signals
A swaption is the right, but not the obligation, to enter into a swap at some point in the future. A call swaption gives the buyer the right to receive the swap’s fixed rate of interest and pay the floating rate of interest. This is a bullish position in bonds, as you profit if rates fall in the future. A put swaption buyer has the right to receive the floating rate and pay the fixed rate; this is a bearish position in bonds, as you profit if rates rise in the future.
The volatility of these options, like the volatility on other instruments, contains information on the relative anxiety of traders in the market. Previous lows in swaption volatility have coincided with highs in interest rates. Swaption volatility has put in a double bottom (plotted inversely) on its chart, first near 14.8% in May and again near 15.05% in early July. Its rise is consistent with an outlook for falling yields.
Click here for larger image.
Source: Bloomberg
After The Federal Reserve Is Through
Now let’s bring the closer in from the bullpen. Two-year-note yields frequently trade under the federal funds rate at the time of the last rate hike. If we map the history of this spread against the target federal funds rate and overlay a set of vertical lines marking the time of maximum yield-curve inversion in each cycle, we see how previous maximum inversions occurred at the very time when the last Federal Reserve rate hike in the cycle was made. The current situation is different. The maximum inversion occurred on Feb. 23, but we had three more rate hikes afterward. Of course, most previous rate-hike cycles ended with the Federal Reserve moving by more than 25 basis points at a time. It was different this time.
Click here for larger image.
Source: Bloomberg
More important, however, is how each previous cycle’s end preceded a bond market rally. While past performance does not predict future results (so why do we have such an elaborate system of measuring past performance?), it does indicate how we should bet. And that bet is for the bond market to rally.
Good post! Not my style, but any plan is better than no plan.
I like this plan better (even though it will not work).
…Writing in this week’s Barron’s, Jonathan Reiss offers a suggestion. Stating that “it is almost certain that in aggregate, hedge fund returns will be disappointing” — especially when hefty fees and expenses are factored in — Mr. Reiss argues that the best bet is to not invest in hedge funds, which are subject to relatively little regulation and often take risky bets. Instead, a contrarian might want to try selling them short.
Ah, the irony. Hedge funds have come in for criticism lately for heavy short selling, in which an investor essentially bets that a stock will decline. Now someone is suggesting the technique be used against them.”
“What would happen if investors could short hedge funds? Very likely, sellers would zero in on funds of hedge funds to sell short. They have two layers of fees, which reduces their performance. In addition, they diversify, which reduces the risk — for both investing and shorting. Making this short interest visible would provide a valuable signal to investors currently funneling billions of dollars into these outfits.”
from dealbook NY Times
http://tinyurl.com/qftjk
yes, the bond market is signalling another rally is near (for another view on the subject, just read the latest article by Pimco boss Bill Gross). Which means that interest rates are going DOWN again. So there is HUGE potential for another upswing in RE prices, an echo bubble just like what happened in Europe after the ‘top’ around 2001.
I still don’t get all the optimism on this blog, stating that the end to this bubble is near. Yes, some speculators, ARMs dealers and homebuilders will get hurt this year (no big deal, most of them already made more than enough to retire early). But there will be plenty of chance to refinance at even lower rates in the near future so the only way for housing prices is again UP - unless we get a really severe, full-blown recession. I have no doubt at all what Helicopter Ben is going to do, he has already stated that he is going to ignore inflation (exactly like the statements from ECB conman Trichet). The newest rate cuts from Ben will probably come just in time to rescue the massive amount of stupid ARMs homeowners that face resets in 2007.
Also, although some lenders are saying they get more cautious, as far as I can see NOTHING has changed regarding the crazy lending (certainly not in Europe, it’s even worse than ever - and judging from all the stupid mortgage spam I’m getting from the US it’s exactly the same there). If some EU countries can have 1000% home price appreciation, why wouldn’t it happen in the US (usually they do everything ‘bigger, better and faster’ overthere, isn’t it)?
FED and ECB are going to continue this Ponzi scheme until the whole financial system is blown to pieces. They have painted themselves in a corner and by now it is clear what solution they are going to use (did you notice that surge in goldprice today?).
If the US was a net lender nation I would agree with you. It is in debt up the throat and is starting to choke. If it cannot get foreign investment to fund its 48 trillion in total debt (current plus unfunded liabilities) then the country is effectively BK. Most Euro nations are not in the same choke position and can still manage their debt (funded and unfunded). The US receives its oil purchase funding from the mideast (a strong US ally !) and its current account deficit funding from our eastern allies -”What, me worry?”.
“I have no doubt at all what Helicopter Ben is going to do, he has already stated that he is going to ignore inflation (exactly like the statements from ECB conman Trichet).”
Could you please furnish your references? Because my understanding was that Bernanke intended to *target* inflation, not to ignore it…
Also Paulson just said “I believe that a strong dollar is in our nation’s interest and that currency values should be determined in open and competitive markets in response to underlying economic fundamentals,” Paulson told a Columbia University audience, renewing a statement he made earlier in an interview on CNBC television.
http://tinyurl.com/hucsm
“The newest rate cuts from Ben will probably come just in time to rescue the massive amount of stupid ARMs homeowners that face resets in 2007.”
When and if that comes to pass, I will feel stupid, and they will look smart…
That will make two of us.
Nhz, it’s good to be cautious and consider all possibilities (maybe we’re wrong), but I believe your caveat is right on the money: “unless we get a really severe, full-blown recession”. Look at the negative savings rate, the rapid increase in household debt (both real estate and consumer lending), then throw in flat wages and lack of affordability at current price levels (forget interest rates), and you have what, class? Can you spell recession? Probably full-blown and severe, not mild and short term.
To put it another way:
I intend to pay cash for my residence. Even if home mortgage rates drop to 2%, I refuse to part with $300,000 cash to buy an overpriced, slightly above $US median, POS house for $300,000 cash… Rent debt-free or DIE!!!
Here’s a new post that has some interesting mortgage-lending and housing charts:
http://www.safehaven.com/article-5643.htm
I love Bill Bonner’s phrase, in his article about mortgages on LR today:
“A Farewell to ARMs.”
He also made a funny note of Kinky Friedman’s run for Texas governor, proposing to use gambling revenue to build schools: “Slots for Tots.”
I get the feeling that realtors are scraping the bottom of their rolodexes. I received a call from an agent I use to work with in Colorado before I moved to California who was asking me if I still had plans to come back and if so, did I need a realtor. is it that bad?
Difference between wisdom and intelligence
I’ve lived through four major asset bubbles in my lifetime.
Bubble #1 – 1987 Dow Stock Market Crash. Didn’t impact me directly since I was a college student at the time but I graduated into a poor hiring environment.
Bubble #2 – 1990/1991 Japanese Stock and Real Estate Market Crash. By 1991 the Japanese noticed that the economy finally slowed down after years of quick growth. An off year was just going to be the pause that refreshed the Japanese economy. With hindsight, it turned into fifteen year rout of zero growth. By 1993 overtime was curtailed and companies and consumers went into expense cutting mode which was sort of a self fulfilling prophecy in itself of slower growth. I was not invested at the time.
Bubble #3 - 2001 Dot.Com Stock Market Crash. Even though I believed tech stocks were overvalued, I didn’t sell my holdings. I reasoned that I wouldn’t be hurt that badly because I did stop buying. I told coworkers that I would switch my 401(k) entirely to cash if the NASDAQ hit 5,000. It did but I failed to act and watched all my portfolios lose about 75% from the peak in the ensuing correction. I was still above water in my personal accounts based on long term holdings, but I was negative in the 401(k).
Bubble #4 – 2005 Housing Bubble. This time, with my wife’s approval who one day jokingly suggested that we sell, we acted. She wanted me to sell my stocks during Bubble #3 by the way. Put the house on the market in May 2006 and it closed in July. It is pure luck that we were able to sell so quickly at probably the peak of the market for Irvine. Our sale set a record comp for our tract and I’m certain that it will be the record for the next 5-10 years.
I knew housing prices were insane when we bought five days before 9/11. I was ready for a 5% drop in price then, because we bought the house for shelter and not as an investment. After an unbelievable run up in prices, the house became an accidental investment (David Bach – I’m going to trademark accidental millionaire.) Now we are just bitter impoverished renters – NOT. I’m expecting a minimum 20-30% correction in housing prices in Irvine, with an outside chance of overreaction to the opposite pendulum swing of 40%. I don’t think prices will drop 50%, but it could.
The difference between wisdom and intelligence is actually executing the plan when you know it is the smart course of action.
Congrats on getting out at the peak, and good luck on nhz’s hyper-housing-inflation predictions not panning out…
think you did a smart thing selling RE. Time will tell.
I’m curious about real estate listings that contain the phrase, “check with city.” As in, “bonus room may not permitted, check with city.” Or, “lot is r2, good for developer, check with city.”
If you get 2% on a $1M POS in LA, that’s $20k, why don’t you check with the goddamned city?
Of course the bonus room isn’t permitted when they write it like this, but maybe the poor sucker (buyer) won’t check until later (if at all).
I wouldn’t even drive by a listing that had a CYA phrase like that in it.
Wow. Just got an email with the result of the latest 4-week Treasury bill auction. 5.212%, that ’s 0.2% higher than last week and the highest I’ve seen. And first time I’ve seen a rate inversion like this. Recession anyone?
Term: 28-Day Bill
High Rate: 5.120 %
Investment Rate*: 5.212 %
Price: 99.601778
Allotted at High: 83.97 %
Total Tendered**: 65,868,970
Total Accepted**: 30,955,168
Issue Date: 08/03/2006
Maturity Date: 08/31/2006
CUSIP: 912795XT3
*Equivalent coupon-issue yield
**In thousands
Yesterday:
Term: 91-Day Bill 182-Day Bill
High Rate: 4.975 % 4.975 %
Investment Rate*: 5.108 % 5.174 %
Price: 98.742431 97.484861
Allotted at High: 72.20 % 84.47 %
Total Tendered**: 51,592,761 42,169,497
Total Accepted**: 24,611,681 21,535,072
Issue Date: 08/03/2006 08/03/2006
Maturity Date: 11/02/2006 02/01/2007
CUSIP: 912795YC9 912795YR6
*Equivalent coupon-issue yield
**In thousands
Another tidbit from overseas:
Wal-Mart unionized in China
QUANZHOU, China - US retail giant Wal-Mart saw its first trade union in China established on Saturday in Quanzhou, southeastern Fujian province.
China Business
Aug 1, 2006
Asia Times online
http://tinyurl.com/zjd8j
For those interested in comparing house price rises in various countries the Economist has a nice table. Its a little dated now but I don’t think most countries have seen too much apprecitiaion in the last year.
House Chart
- apprecitiaion
+ appreciation
good greeef
From the Federal Reserve
As Household Asset Values Rise, Should We Still Worry about the Saving Rate?
…Every three years, the Federal Reserve Board of Governors publishes the survey, which focuses on the finances and key demographics of American families during that year. Economists, policymakers and financial experts use the report to assess changes in the financial health of the largest sector of the U.S. economy over the previous three years.1 This article briefly describes the survey and highlights some noteworthy findings regarding recent trends in average household income and financial holdings….
So what about the reported increase in value of households’ assets minus their liabilities—equivalent to 42 percent of disposable income during 2005? Much of this “wealth gain” was the result of incomplete accounting. For example, appreciated housing values actually are canceled by the unrecorded, but very real, increased cost of living in the houses. Another portion of increased household assets corresponds to changes in the prices of stocks, which go up and down much more from year to year than the underlying economic value of the capital stock they represent.8…”
http://tinyurl.com/hrgtk
and also from The federal Reserve bank ofSt. Louis
Survey Says Families Are Digging Deeper into Debt
Between 2001 and 2004, the median value of total financial assets for families that reported holding any kind of financial asset fell by 23 percent, to $23,000. This decline followed a 15 percent increase from 1998 to 2001. Since the surge in financial assets between 1998 and 2001 happened against the backdrop of the U.S. stock market boom, it is reasonable to conclude that the stock market bust that began in early 2000 was one reason for this decline in the real value of household financial assets.
A second reason for the decline in median family assets may directly reflect a reduced willingness to save. Between 2001 and 2004, the percentage of families that saved any of their income declined by 5.2 percent to 56.1 percent. From a longer-term perspective, this response was broadly consistent with the responses noted before 2001, and it suggests that nearly half the population might be financially ill-equipped for retirement. It also is possible that many families view the sharp appreciation in home prices as a substitute for saving. Thus, many families apparently look at their increased home equity as permanent saving and spend a greater percentage of their after-tax income.4 Families also are borrowing on their home equity to make discretionary purchases…
http://tinyurl.com/gpsfp
“Between 2001 and 2004, the percentage of families that saved any of their income declined by 5.2 percent to 56.1 percent.”
One possible interpretation: A vote of no-confidence in the Fed’s resolve to maintain the value of the currency. This would have been the correct explanation in the late 1970s, pre-Volcker. Time will tell whether it is currently on target.
Survey Says Families Are Digging Deeper into Debt
By Kevin L. Kliesen
Median household debt rose by almost 34 percent between 2001 and 2004, while net worth went up by just 1.5 percent, according to the latest Survey of Consumer Finances (SCF) report.
—————————————————————————–
Kevin,
Wouldn’t you agree that this is a worrisome development, given the backdrop of a supposedly solid economy? Whatever happened to the notion of saving for a rainy day?
Wonder if the gold bugs think Castro has croaked. Price has blipped up.
HOW FUNNY IS THIS. FIRE THEM ON ONE END AND HIRE ON ANOTHER
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