The Housing Bubble

hello from germany,

i have found a great piece from the wonderful charles hugh smith
about how the us has exported inflation and the housingbubble to china. worth reading!!!!!!! you really wonder sometimes what the chinese are thinking.

http://www.oftwominds.com/blog.html

by the way has someone heard the call from wci yesterday?

110 minutes . the longest and worst i have heard so far.

the management bets on q1 2007. they want to close 4 towers with hundrets of units in just a few days. good luck!

the question from an analyst what make them confidemt about this projection.

answer management: we have done it this the past years. it always worked well.

quote from managent at the beginning of the call “we are realistic!”

you should here the whole call. unbelievable.

from germany
http://www.immobilienblasen.blogspot.com/

can anyone explain the UK ?
started down in june 04 now stalled w maybe a 10% correction
means,medians eventually they should be on the money- they actually showed an increase in price this spring…….

Very sad, $4M homes in the Hamptons are just sitting gathering dust:

http://www.nytimes.com/2006/08/10/business/10homes.html

This poster (’Bruce”) from the WSJ RE board is funny:

“…Well, there can be no bubble with unemployment at 4.8% (look at double-digit for the European Union), healthy job creation, demand at healthy levels due to population growth, and cessation of the Fed’s raising of interest rates. Grant you, gas prices are pinching people, but did you know that Disney World and the central Florida attractions saw a record 85,000,000 visitors, up from about 60,000,000 last year? When people entertain and take vacations in greater numbers, it only means one thing: they have discretionary spending money in the bank. So, the theory that this is going to be a bubble, is unfounded.”

My take: unemployment is low due to the jobs created by RE, construction, mortgage. The fed paused once on the rate hikes- is that a cessation? Many people are entertaining and vacationing in record numbers as homeowners are flush from cashing out equity.

My theory is that the recently booming economy is being propped up by equity from the RE market. When the bubble deflates, the equity cash goes away along with related jobs and discretionary income.

I have posted a question a few times asking y’all which other sites you regularly read for ideas on the economy generally, with no replies.

So, based on some URLs that have been posted here and there on this blog, and some other searching around on my own, I came up with the following list. Others who are interested in educating themselves about economic scenarios that neither your stockbroker nor the MSM will tell you about might be interested in:

http://www.xanga.com/russwinter
http://www.itulip.com
globaleconomicanalysis.blogspot.com
rebalancing.blogspot.com
http://www.prudentbear.com

Maybe most of you know about these, but maybe some of you would find this useful. I certainly did. Any other suggestions would be welcome.

Doc

(PS, no, I am not affiliated with any of the above)

This fellow on the DC craigslist has got his list of nearly foreclosed properties for sale whittled down since it was posted here a few months back.

Unbelievable non-cash-flow, though. On one in Reston, VA, mortgage is $1,880, and LL takes in $614 a month.

http://washingtondc.craigslist.org/nva/rfs/191263640.html

BOOM DAYS GONE

Region feels ripples from home building slowdown
Slowdown in building is rocking small contractors as they scramble for jobs
http://tinyurl.com/efkwc

For some, renting makes more sense

Dogpile on home buyers today in the MSM. Wait . . . paying 50% more to own a depreciating asset isn’t smart ? But I thought prices always go up!

http://www.usatoday.com/money/perfi/housing/2006-08-09-rent-1a-usat_x.htm

The other day I wrote of a girl I am dating who is in the process of purchasing a condo and whether I should say anything. I’m here to report the outcome.

She briefly mentioned that she was worried because prices are dropping and asked whether it would be a temporary blip or would they keep dropping? I said I thought they would keep dropping and she said that’s kind of what she thought. She then said she was renegotiating with the guy to get him to lower the price down. She said he is already selling at a loss (she looked up the 2005 sale price). So by the looks of it she is being very prudent so I consider it “mission accomplished”.

I received my rent increase notice today. It’s a modest $50 a month which is quite a bit less than they wanted to increase last year. Thus I am happy, and it looks like the housing market slowdown is starting to take it’s toll on rent increases. Just 2-3 months ago my neighbors all paid $100-200 a month increases on their leases.

Anybody see this already?

Wednesday, August 9, 2006
Mass. a leader in foreclosures, home price reductions
Two new reports on the housing market in Massachusetts and elsewhere offer a glimpse of a weak market where foreclosures continue to rise and where in some communities more than half the homes on the market have had their asking prices reduced.

In one report, the town of Newton tops a national list of cities and suburbs in the percentage of homes on the market at least a month that have had their asking prices reduced. That same report, the first of its kind from national online real estate agency Zip Realty, ranks Massachusetts second only to California among states with cities in the top 20 for percentage of price-reduced homes.

The second report, from research firm RealtyTrac Inc., reported that foreclosure filings in the metropolitan Boston market increased by 181.1 percent in the second quarter of 2006 compared with the same period a year ago. In the second quarter the area had 1,823 foreclosure filings, which is the first step taken by lenders toward reclaiming properties from delinquent mortgage holders. That’s one foreclosure for every 1,243 households.

Both reports were released today.
(By Keith Reed, Globe staff)

http://www.boston.com/business/ticker/2006/08/mass_a_leader_i.html?p1=MEWell_Pos1

http://yahoo.businessweek.com/investor/content/aug2006/pi20060810_284614.htm

the money quote basically says that everyone will work together to keep foreclosures down. The question is how…in light of Fannie Mae’s new streamlined refis, I’m wondering if they can physically force people not to leave their houses when they are upside down. Also, how do you stop a foreclosure when the loan is higher than the value? In a depreciating market where monthly payments never correspondingly decrease, and thanks to PITI, mostly increase, why not rent?

“

I’ve always been curious about how the whole bubble will play out, and finally I put together a graph showing how price and inventory have changed and will change throughout the cycle. This is just something I reasoned out last night, so I’m sure some parts are wrong. What do you think? Let me know, thanks!

Bubble Graph

2 Key Firms’ Results Raise Housing Fears

from the LA Times Business Section

“It’s heartbreakingly easy,” says Stan Jonas, a pioneer of interest rate derivatives markets who until recently traded the products at Fimat, the brokerage owned by Société Générale….
The increasing transparency of central banks’ decision-making processes - sometimes influenced by financial markets as well as vice versa - also encourages investors to trade on their expectations. That has helped ensure another necessary condition for a successful Dutch book strategy - someone else has to bet first.

Also helping the strategy - notably in the US markets - is that, according to Mr Jonas, “every security is perfectly priced.”

That is, based on the probabilities for interest rate moves implied by futures markets, the theoretical prices of every security - including interest rate futures and Treasury bonds - match the market prices to within a whisker….
The hedging strategy is also designed to ensure a win-win result, at a cost of no more than the coupon on a two-year Treasury. “In the worst case,” Mr Jonas says, “you’re self-insured.”
From the Financial Times
A nice rate if you can get it
By Richard Beales
August 7 2006
http://tinyurl.com/jqax6

IMHO the hedge funds will destroy the world economy. I especially love win - win situations. Sounds like realtor speak “housing never goes down.”

This story is unbelievable. Voters in Bozeman, MT narrowly turned down a plan to buy 80 acres for a high school at $60,000/acre. That’s almost $5 million total. But here’s the kicker: “But many voters criticized the deal, especially after learning that the businessman who wanted to sell the land to the school for $60,000 an acre had bought it just weeks earlier for $30,000 an acre”

Someone trying to make 100% from a quick flip at taxpayer expense! And it almost passed!

And then: “School trustees urged the public to approve the purchase, saying it was the best deal they’d found in five years of searching and competing with developers for land.”

My goodness, even the school district has been caught up in the mania. That’s just amazing.

Land deal rejected

I did not see this posted if so I apologize, but the next thing to happen in the mortgage industry:
From August 5 Times on Line
Supersize your mortgage!
By Rebecca O’Connor
Homebuyers are being offered huge home loans in exchange for a slice of the profits when they sell their home, under a deal launched this week. Advantage, the new mortgage lending arm of Morgan Stanley, will allow house hunters to borrow up to seven times their income. Other mortgage companies rarely lend more than 4.5 times income.

Advantage claims that its deals could be the answer to the prayers of anyone struggling to clamber on to, or climb up, the property ladder.

…It also means that a homeowner unfortunate enough to sell his or her house at a £100,000 loss would be left just £65,000 out of pocket.

Ray Boulger, of John Charcol, the mortgage broker, says: “This is the only scheme that will also accept a share of losses, making it attractive.”

But others think that it could defeat its own aim by pushing house prices higher and making homeownership an unprofitable investment…”
http://tinyurl.com/zwsd2

Year over Year price declines in northern Virginia!!!!

The July sales figures are out. Average prices in northern Virginia (defined as Fairfax, Alex, Arl, and FC) dropped 4% YoY and 7% from June 06. This marks our first year over year price drop during the Great Housing Bubble.

July 06 avg = 538k
July 05 avg = 560k
June 06 avg = 579k

Other noteworthy items:

Arlington County avg = -9.7% YoY
Alexandria City avg = -6.2% YoY
Fairfax County avg = -2.6% YoY
Washington DC avg = -2.3% YoY

All this info is available at the following link:

http://www.mris.com/reports/stats/

I’ll be waiting to see if the press picks up on this or chooses to ignore it.

We’ve talked about this before but there was an rticle in our local paper about Edison Electric Co. Here is some of it:

RESIDENTS SHOCKED OVER HIGH ELECTRIC BILLS
Another rate hike is due

Larry Bronner’s electric bill for July came in higher than most people’s monthly mortgage payment. The news was shocking.
Bronner, who lives with three other people in a 5,000-square-foot Agoura Hills home, said he paid $1,896 to keep his household temperature at 80 degrees during July’s heat wave. He said the recent So.Cal. Co. rate hikes are partly to blame.
Edison has raised rates twice this year and another increase is still to come, a spokesperson said. Rates were raised Jan 1 and Feb. 4 resulting in a 15 percent increase for the average Edison customer.

There is much more to the article but that is the gyst (sp?) of it. If I remember correctly, own bill was $385.00 in June. My house is only 1400 sq ft and I keep the temp a cool 75/76 degrees. I don’t know what my July bill is really because I got an estimated bill of $57.00 because they sometimes have trouble reading our meter. Unfortunately, that just means we will be paying much more next month since the rates are on a tier and anything over baseline gets charged at three different rates. Mine will have much more “overbaseline” charges since it will encompass two mnths worth. I will call and negotiate when I get the actual bill.

When the Walls Come Tumbling Down
By Doug Kass
Street Insight Contributor
8/10/2006 1:04 PM EDT
URL: http://www.thestreet.com/p/markets/realestate/10302860.html

Editor’s Note: This column by Doug Kass is a special bonus for TheStreet.com and RealMoney readers. It first appeared on Street Insight on Aug. 9 at 7:58 a.m. EDT. To sign up for Street Insight, where you can read Kass’ commentary in real time, please click here.

Our house is a very, very, very fine house
With two cats in the yard
Life used to be so hard
Now everything is easy, ’cause of you
I’ll light the fire
While you place the flowers in the vase that you bought today.

– Our House, Crosby, Stills, Nash & Young

At the core of my economic concerns for 2006-08 is the swift and deep deterioration in the U.S. real estate market.

Housing has been — to paraphrase New York Yankee owner George Steinbrenner (in his description of slugger Reggie Jackson) — the straw that stirs the drink of the consumer and the economy.

The construction industry has been the most important catalyst for economic growth since 2001. The Federal Reserve took interest rates to unprecedented low levels, and mortgage lenders encouraged activity through creative mortgages, which kept mortgage debt service even lower by requiring small monthly payments.

Indeed, economists at Merrill Lynch (and elsewhere) have pointed out that residential and nonresidential construction activity was responsible for nearly half of GDP and employment growth since 2001.

Equally important, the unprecedented rise in home prices (especially of a coastal nature) buoyed consumer confidence, allowed the consumption binge to be extended (through record refinancing cashouts) and encouraged consumers to stop saving (comfortably relying instead on the appreciation of their homes).

On The Edge, I argued — prematurely — that the housing cycle was no different than past cyclical experiences and that the long boom forecast by industry participants (homebuilders and analysts) was fallacious and, in the fullness of time, housing activity and prices were headed for a fall.

The major reasons for my forecast were twofold and differed from the declines of the past (which were influenced by job losses and other negative macroeconomic forces). Affordability (home prices divided by household incomes) had been stretched to levels never before seen, and a new class of buyers (speculators or daytraders of homes) had artificially inspired rising home prices (very similar to daytraders of stocks in the late 1990s).

Over the last nine months, the cyclical peak in housing activity has come and gone. Almost weekly, prior upward guidance by homebuilders has been replaced by the slashing of estimates, lower order rates and eroding backlogs. And the industry’s inventory has mushroomed to multiyear highs.

The worst is yet to come for housing; it is moving toward a very hard landing. And with a further decline, will be (important) attendant and adverse ramifications for consumer confidence and aggregate economic growth.

Housing led the economic recovery and will now lead the economy’s contraction — a causal relationship far older than most hedge fund managers’ (who have never seen a bear market) half-life of investing.

House in the Hamptons
This morning I wanted to write about my home and my neighborhood as an illustration of how quickly real estate markets turn and how worrisome the downward trend in the housing market might become.

For five months of the year, I live in the tony town of East Hampton, N.Y. (I purchased the home three years ago.) I live in a nice 50-year-old home on a little more than an acre, which sits about five blocks from Georgica Beach.

When I left East Hampton for southern Florida (my winter residence) last October (which, coincidentally, was the statistical peak in housing), there were no homes for sale on my block (which consists of about 12 homes). However, upon returning to Long Island in late May 2006, four of the existing 12 houses had been demolished and replaced with new homes for sale (I would estimate, on average, each home was about 7,000 square feet).

All four homes have been for sale since May (by speculators/developers) with no bids. Moreover, three other existing homes on my block have been put on the market this summer. No bids there either.

Real estage agents across the country routinely have Sunday open houses, and East Hampton is no exception. Those open houses on my street have come and gone; there has been no traffic.

East Hampton is symptomatic of many other coastal real estate markets. The hard landing in housing is upon us and, as usual, the cycle will be more extreme than expected — just as the climb was unexpectedly high.

During the halcyon times last spring, I participated in a CNBC town hall special titled “The Real Estate Boom,” in which Dr. Robert Shiller of Yale University and I debated with optimistic industry participants and housing economists about the slope of the cycle. We were in the distinct minority. Many industry insiders still see a soft landing in housing. They were, and are, wrong.

As I mentioned previously, the statistical peak in housing (measured by new-home sales) was October 2005, only nine months ago (and with a unit drop in new-home sales since the peak of less than 20%). By contrast, the average postwar cyclical downturn for housing has been between 26 to 52 months, and in units, has averaged a 51% drop.

As I wrote earlier, the worst is yet to come for housing and, with it, the multiplier effect on the domestic economy will be felt widely.

Just a tidbit from my area. I drive past an automibile repossessor’s office every day and for the past few weeks he has new cars in his lot every single day. His business appears to be picking up. Granted the vehicles are not all new, and I’ve yet to see a Hummer in the mix, but I have recently seen more new vehicles than usual including a few Mercedes.

Also, our mortgage borker keeps calling us to see if we want to refinance at new lower rates. I haven’t been returning her calls.

Directly across from my office they’re installing a new billboard for The Learning Annex: “Learn How You Can PROFIT from the upcoming REAL ESTATE SHAKE UP! 72 Speakers!” This replaces the previous, “Real Estate Wealth Expo!” billboard, also by Learning Annex, for the SAME EVENT.

Another blow for affordability.
N.J. has highest property taxes in U.S.
- Barbara Lehman has lived in this central New Jersey community for 30 years, but her time here is nearing an end….
But her property taxes have climbed 56 percent since 2000 to a knee-buckling $14,000 a year — a heavy load for a high school French teacher whose salary goes up only about 3 percent a year….
A recent analysis by The New York Times found property taxes increased two to three times faster than personal income from 2000 to 2004 in the suburbs surrounding New York City. New Jersey’s booming Somerset County — where Montgomery is situated — got slammed harder than anywhere else in the region, with property taxes climbing 41 percent there while income increased but 5 percent.

Susan Horowitz and her husband just marked their 30th year in Montgomery, but they are unsure how long they will be staying. Both are retired teachers who have watched their property taxes nearly double since 2000 to about $12,500 per year….
http://tinyurl.com/nqo3h
Yahoo news
It is only going to get worse.

I guess I have a perverted sense of humor because I find it funny that the only properties listed for sale on Craigslist Beirut are in U.S. bubble areas!

http://beirut.craigslist.org/rfs/

Heh.

http://beirut.craigslist.org/rfs/190462945.html

“LBT16979 COME LEAVE IN OHIO LIKE A KING FOR $130 PER MONTH ASSES AT $48k

——————————————————————————–
Reply to: hous-190462945@craigslist.org
Date: 2006-08-05, 9:05PM EEST

come to the milk and honey capital of the world….no fighting
raise your kids at the higest university in usa
dayton is known as the capital of the world for innovators
and its the birthplace of aviation among other things
2 stories
assesment at $48,500
appliances stay
new roof
new windows
new vinyl siding
huge garden
much more i have full details and picture
invest today , for you? for your kids? for your wife? trade it? lease it out? etc “

I heard an ad on the radio today for condo sales that come with a “guaranteed, preapproved renter”….. Too funny.

Instant slum:
http://www.voiceofsandiego.org/articles/2006/08/10/news/01bayview.txt
But at least there won’t be any noisy kids around, they’ll all have fallen off that railing…..
$185k for a 500 sq.ft. condo in National City. Sounds like a great investment, you can probably rent it out for around $500 per month if you don’t want to live in vibrant National City yourself.

Prices are going up (or maybe down?)
http://www.voiceofsandiego.org/toscano/

From today’s Korean Herald:

“In just two months since the government lifted restrictions on offshore investments, over 100 billion won ($107 million) flowed into the overseas real estate market, official data shows. Experts said Korean investors are increasingly looking overseas, particularly at the United States, after the government imposed a series of tough antispeculation measures to curb rising housing prices here.”

http://tinyurl.com/f3wop

Seems no one told these “investors” that housing is wildly overpriced here in the US…

The realtors finally get it? Or maybe not. What on earth does “leaving homeowners with less wiggle room to balance higher interest rates with slower income growth” mean?

“We estimate that $500 billion in first-lien mortgages and $650 billion in second-liens are scheduled to adjust this year. Even more dramatically, we estimate that $81 billion was cashed out of home equity through first-lien refinancing during the second quarter, up from $74 billion in the first. Home equity wealth gains have been key to supporting consumer spending. As house price appreciation continues to slow, this mechanism for sustaining consumer spending will diminish, leaving homeowners with less wiggle room to balance higher interest rates with slower income growth.”

http://realtytimes.com/rtcpages/20060810_augustoutlook.htm

I just don’t get the Bimbo realtors (in RealtyTimes’ San Diego market conditions section) that claim prices are still rising. It’s supposed to be present market conditions, not knee-jerk Y-o-Y reporting. I guess if they fell out of a plane they would say their altitude is still increasing because they are higher up in the air than they were yesterday?

I nominate August 10 as “Bubble Undeniable Day” - Ben being interviewd by MSNBC… USA Today with a front page story about how renting is cheaper than owning (including a giant graph showing this.)

How much more mainstream does this news need to get? Anyone who does not know there is a bubble at this point truly is a head-in-the-sand fool.

OOPS

http://www.sec.gov/news/press/2006/2006-138.htm