The Housing Bubble

“Right now consumers are feeling insecure. They are worried about their inability to finance their standard of living in the face of higher gas prices, a softening economy, a slowing job market and a cooling housing market…”

Finance your standard of living? Shouldn’t people live within their means or is that just old-fashioned?

Interesting, I’m watching the morning talking head tell me about how consumer spending is the highest in six months.

are we doing the UK thing- quick down in 04 w rate increase then nothing ?????

Am I reading this right? Houses $40,000 each, two week fix, $60,000 profit? You’re either an investing genius or you don’t know that you’ve been screwed yet. How come your broker didn’t keep the houses and make that fast cash?

Hey, I work at a forensic toxicology lab in PA!

you have to keep the ac & heat on or the paint w peel etc……..

Good points Salinasron . I have always said that having all these vacant houses isn’t a good thing . I wonder if the Flippers are even going to turn on the heat in cold country if the house if vacant or protect the pipes in any manner .

Houses need to be lived in or else all kinds of things tend to go wrong with them… Those flippers might be better off hiring someone who, for a modest fee, will occupy their house for them.

Anyone long on bulldozer companies?

“Housing experts expect market sluggishness to continue for a year or two before entering the next boom phase, fueled by a house-hungry immigrant influx and prospering 20-somethings.”

Where do they keep finding these quotes. At some point I would expect the reporters to question the validity of the press releases. Milwaukee is a wonderful city - festivals, parks, fun baseball, etc; But in Miwaukee where are the immigrants with money going to come from ? Minnesota? Canada? and prosperous 20 somethings are not going to be a predominant fixture in 2 years since wicked manufacturing decline (WMD) has swept thru the midwest.

YOY declines in Northern Virginia

AVERAGE SALES PRICE
JULY, 2006 $508,397
JULY, 2005 $516,588

29% drop in sales volume volume

http://www.nvar.com/market/pressrelease/prgnvjuly06.html

Yup….

San Fernando Valley? I know a lot of FBs there. It’s going to get really, really ugly in no time at all.

Try going to craigslist for Phoenix and type in “reduced”. You will get over 900 listings!

I love doing Craigslist searches for RE for sale and typing in reduced-you get like 100 hits per city.

You can augment this by checking the local assessor’s office webpage (if there is one) and see what the original date/purchase price was.

Here’s craigslist listing:
http://lasvegas.craigslist.org/rfs/191011819.html

Here’s clark county assessor page:
http://tinyurl.com/rvwnz

Oops! $7k under water in 5 months.

MjM

I think a crashing dollar was the plan all along. Easiest way to take care of that nasty old deficit. Fire up the presses. Implicit default. RE has in the past been an inflationary hedge , but can it be a stagflationary one? Especially if, and I hate to sound like the typical RE salesman , it’s different this time- because the price of houses went bananas at the same time that supply of houses went bananas - there’ something unwholesome/unnatural/alarming even?- about prices and supply increasing increasing at at record levels simultaneously. And all of it balanced precariously on a mountain of questionable consumer debt. Anyway , it should be fun to watch it all play out.

“but will the US as a huge debtor care about a crashing dollar…”

Mises made an insightful comment about the fallacy of looking at economics in this way. He argues in Human Action that there is no “US” as an economic entity, only a collection of citizenry. There is no “US” that cares what is good for the “US.” Only 300 million or so individuals that mainly want what they personally value, and social conditions which are most financially lucrative for them.

So, there are plenty of taxpayers accountable for a huge government debt- though to think they would have to pay less taxes under inflation would be naive. There are plenty of FB’s would would love a WHOLE LOT of inflation to erase their unmanageable debt. Asset owners would probably be fairly neutral as assets tend to rise in accordance with inflation, excepting this current credit bubble. But there are also those whose wealth is lent to FB’s, who are expecting repayment.

Who do you think is in power?

War-torn is often a good thing; buy when there is blood in the streets. Europe was a great investment as RE bottomed out in WWII. No, the middle east’s problem is that it is populated by Muslims.

Bothers me no end:

http://exurbannation.blogspot.com/2006/01/true-affordable-housing.html
http://exurbannation.blogspot.com/2006/03/more-on-affordable.html
http://exurbannation.blogspot.com/2006/07/redlining.html

What bothers me is that “affordable housing” always has to mean low, LOW income. Why can’t there be affordable housing communities with standards - for someone like me (single parent, average income, pay my own healthcare, no gov’t assistance, and I’d keep my property up quite nicely)? To hell with “discrimination” laws - it is what it is! (I’m in a mood today.)

“Does it bother anyone that in some parts of the country were are putting low income people into high priced housing under ‘affordable housing’?”

it’s called subsidized housing as in “corporate welfare.” the housing industry might work more like the farmers who get cash in exchange for keeping their prices low. i saw that california wanted to take out a Billion dollar bond to pay for “affordable housing” so, after reading that, I thought: tax payers are being asked to prop up the market.

Yeah it bothers me. Every person I have met who is on Section 8 has been a poor neighbor. At least one time filthy mouthed and rude. I think it’s because there is no incentive to be nice and civilized…they still get their housing voucher. Meanwhile, the people who do pay their housing costs in full, without government help and are good citizens have to endure those who are not. I don’t agree with it all and feel it rewards those who least deserve it.

Well Hell Yes Econ;….Lets just continue to create revenue streams so we can prop up all those pension and benifit plans for those civil servants…Makes me sick to my stomach…

Funny!

From the article:

“I think what we need to see is the asking price in some (cases) to come down and buyers to realize it’s not a fire sale. This is not ‘92 or ‘93 when foreclosures were the norm and the bottom was dropping out of the market.”

No, that’s still a few months away.

Jim Link, the association’s executive vice president, characterized July’s muddle as an impasse. Sellers stuck with unrealistic price expectations and buyers demanded unjustifiably deep discounts, he said.

“I think what we need to see is the asking price in some (cases) to come down and buyers to realize it’s not a fire sale. This is not ‘92 or ‘93 when foreclosures were the norm and the bottom was dropping out of the market.”
—————————–

“Unjustifiably deep discounts”…hmmm, was he telling sellers that they were demanding “unjustifiably steep prices” these past few years? No, I didn’t think so.

Idiots don’t seem to realize the prices got to where they are because people were paying a premium (in total sales cost and monthly payments) for an ATM machine. **HOUSES** (as opposed to ATMs) are an **expense** (and a burdensome anchor if you are underwater) and not worth nearly as much as cash-rich ATMs or profitable gold mines. These prices have a long, long way to go before they resemble anything near what a **house** is truly worth.

Buyers will determine the price, Mr. Link. And a good number of buyers who have been on the sidelines thought 2001-2005 prices were too high. Sounds like we’ll just have to keep waiting, then, for the bottom to drop out and foreclosures to pile up. See, the buyers are the ones who have the power over the market, not some whining RE shills. By the time this is done, you will be begging us to buy at any price just to get people out from under their upside-down mortgages. You will use a deferential tone with us, not this lame attempt to tell us “how it is”. You, Mr. Link, will realize we were right all along.

That Sales chart is UGLY! I hope Ben posts this as a front page story!!

Lowest sales volume since early 90’s WOW! Deb has been updating us on this and she was right on the money!!

“The market malaise hits at a bad time for Mike Petersen, who just listed his Bell Canyon home for about $2 million and has a broker showing scheduled for today.

“I’m very concerned about that,” he said of the market.

Petersen bought his 3,300-square-foot home 2 1/2 years ago for $900,000. It was a “total fixer” that he gave a complete remodeling and new appliances, he said. His asking price is comparable with others in the neighborhood.

If the house doesn’t sell in three months, it will come off the market until next summer.

“I don’t have to sell it. It’s just how I supplement my income. I live in it for two years to get the capital gains (tax break),” said Petersen, trying to use this strategy for a third time.”

I think I can say with some certainty that my “compassion” for any of these people is gone.

don’t read it unless you’re ready to flame away!

Wow, that’s a nice property. Of course, Buda is a pretty long drive from downtown Austin. I visited Austin last year, and it seems like a lot more of the crazy new development is going on north of town (Pflugerville), rather than south of town in places like Buda.

That seller is an idiot for rejecting your offer like that in the present climate. Oh well, experience is a hard teacher, they say…

The LV heat must have melted her brain. Looks like a nice place.

In Pennsylvania, any offer to buy that meets or exceeds the offer to sell is automatically binding on the seller; the seller has no discretion to refuse the offer (assuming no contingencies).

IMHO art has been in a bubble since 1994 and an 80% drop in values would not surprise me.

Back to McDonalds, oh Sotheby’s then Back to Subway for these former RE Brokers!

Says that when he closes, he will immediately put a HELOC on it and pull the equity. “If the market drops I’ll just walk away and let them foreclose”.

Boy, that just makes you feel all warm inside . . . as the bile comes gushing up your throat.
Where do they get these people?!?

This guy is proud of planning fraud. The lack of morals is astonishing. This guy actually thinks he is smarter than the rest of us. Sickening.

The second this jackass told you this scheme you should hang the phone up. Long before there were RE ‘flippers’ all over the place , I had to deal with equity flippers. I’ve no probelm with daytraders etc , but we used to see the scum of the world coming into the IPO market. Flippers , or ‘new-issue whores’ they were called. Would sign on for IPO’s and, since legally we couldn’t accept funds prior to the offering , they’d just wait and see if the IPO opened up enough for their liking. If the offering was poorly met , they’d just DK (Don’t know ) the order and never pay (and people complain that institutions get all the shares in the hot IPO’s - this is one major reason , at least they pay). Our compliance dept actually kept a list of these idiots and we’d have to check all new accounts against it. Maybe they’ll find a way to do the same in RE. In any event , it’s stuff like this that makes me hap.

Where is his daughter supposed to live in that case?

That’s a “gourmet” kitchen?

“Chris Thornberg, an economist formerly of the UCLA Anderson Forecast and now with the Beacon Economics firm, issued a recent report — “California: Singing the Housing Blues” — where he outlines the changes:

The once loud debate over the existence of the bubble has now been replaced by a debate over how hard a landing it will be, whether home prices will drop, and most importantly what it means for the rest of the economy. What we do know is that we have not come close to the bottom of the market, and it promises to be painful.”

So Chris left UCLA and now seems a tad more bearish and willing to make stronger predictions about steep declines in CA? Hmmmm, anyone else think he left UCLA to remove the gag?

On the other hand, am sad to see he has left one of my alma maters.

Economists Paint Gloomier Picture
Outlooks for GDP and Employment Are Cut,
While Concerns About Recession Edge Up
By PHIL IZZO
August 10, 2006 9:45 p.m.; Page A4

The Federal Reserve cited moderating growth when it paused its rate-increase campaign this week, and concerns about the economic outlook seem to be growing among economists.
CHARTS AND FULL RESULTS

[Full Results]
See and download forecasts for GDP, housing, interest rates and more. Plus, views on the biggest risks and the impact of gasoline prices. Survey conducted Aug. 4-8.

This month’s WSJ.com economic forecasting survey showed projections for gross domestic product and employment growth were cut, while forecasts for consumer prices and oil prices were lifted. Economists continued to nudge higher their estimates of the probability of a recession over the next 12 months; on average, they put the likelihood at 26%, up from 20% in June and just 15% in February.

Economists, on average, forecast GDP growth at a 2.8% annual rate for the third quarter, the first time their forecast for that quarter has been under 3% since the economic forecasting survey first asked about the period in November 2005. While their forecast is slightly above the 2.5% real GDP growth recorded in the second quarter, it is well below the 5.6% growth in the first quarter and average annual growth rate of 3.2% from 2003 to 2005. The economists forecast growth slowing to a 2.6% rate in the fourth quarter, and staying at that rate for the first half of 2007. GDP is the broadest measure of economic output.

“The economy has definitely slowed below trend,” said Ethan Harris at Lehman Brothers. “Second quarter GDP is soft, employment numbers are coming in soft and the housing market is finally softening.”
WALL STREET JOURNAL VIDEO

[Go to Video]
Marketwatch.com’s Tom Middleton interviews WSJ.com’s Phil Izzo about findings in the WSJ.com economic forecasting survey.

Oil prices remained at the forefront of concerns, as 43% of economists — 20 of the 46 who answered the question — indicated higher costs presented the biggest risk to their GDP outlook. At the same time, the average year-end forecast for crude-oil prices was lifted to $69.50 a barrel. That is up by more than $4 since the last survey, conducted in June, but below the recent level of oil prices, which have traded in the mid-70s this week. The economists expect prices to drop to $65.25 by June of next year.

The economists generally have underestimated the cost of crude oil. In May, for instance, they forecast that the price would settle at $67.27 at the end of June, while the actual price ended up at $73.93. Prices lately have been lifted by continuation of unrest in the Mideast, the shutdown of BP PLC oil operations in Alaska and militant attacks in Nigeria.

After some strong quarters of growth, it had appeared that the rise in energy prices would have little effect on growth. But recent inflation reports have shown some evidence of higher energy prices being passed through to consumer prices. When asked at what price gasoline would need to rise to threaten economic expansion, the average forecast put the number at $4.08 a gallon, a decline from $4.30 when the question was last asked, in May.

Amid the rising forecasts for energy prices, the economists revised forecasts for inflation upward. The average expectation is for a 3.3% year-to-year increase in the Labor Department’s consumer-price index in November, compared with an earlier average forecast of 3.1%. While economists retained the view that inflation will slow in 2007, their forecast for CPI in May 2007 was also lifted, to 2.8% from a previous estimate of a 2.5% rise. The CPI rose 4.3% this June, the latest month for which data are available, amid rising shelter costs.
ABOUT THE SURVEY

The Wall Street Journal surveys a group of more than 50 economists throughout the year. Broad surveys on more than 10 major economic indicators are conducted semiannually, at midyear and at year-end. Between each semiannual survey, four monthly updates are conducted for the most closely watched forecasts. This is the monthly survey for August. For prior installments of the semiannual and monthly surveys, see: WSJ.com/Economists.

“Inflation is getting hit with a double whammy,” said Mr. Harris. “First from commodity pass-through, mainly energy, then from tightening of capacity and labor-costs pressure.” He added that companies and workers are both developing pricing power, allowing them to ask for more money, creating the “classic ingredients” of inflation acceleration.

However, price increases are expected to moderate in the housing sector. Economists see housing prices rising 4.9% this year, but forecast growth will decline to 1.8% in 2007 after annualized double-digit gains for the last three years. Moreover, after adding 0.50 percentage point to GDP in 2005, the economists, on average, expect housing construction to subtract 0.28 percentage point from GDP growth this year. Economists expect the sector to subtract 0.29 percentage point from GDP in 2007.

“Housing is the big story,” said Lehman’s Mr. Harris, declaring that the sector’s long-expected slowdown is providing the biggest drag on the economy. He pointed to direct effects, such as the drop in housing construction, as well as the indirect effects, such as the negative impact on consumer spending.

The negative outlook also extended into the U.S. employment picture. While the economists kept their November 2006 forecast for the unemployment rate steady at 4.7%, the average forecast for the rate for May 2007 rose to 4.9% from June’s estimate of 4.8%. And the economists put the average monthly increase in nonfarm payrolls over the next 12 months at about 123,000, a drop of 18,000 a month from the level they forecast in June and down sharply from the 186,000 they forecast when asked in August of last year.

…..view remainder of article at http://WWW.WSJ.COM

Is he a goldbug?

There’s no beach in Orlando…not being snide, just curious as to what you meant.

His condo is in Cape Canaveral — he drives there every weekend from Orlando.

I am familiar with this senario. Usually these people will howl about a tiny co-pay for their life sustaining heart medication, but gladly shell out $10,000 cash for a face lift, or $4,000 cash for a breast augmentation, or $1,000 cash to give Fido their dog another 2 months to live.

These houses are scary. What a hassle to own one of these monsters.

The first one has brick only on the street side, the rest is siding. None of the houses have side-entry garages. Some “mansions.”