Bits Bucket And Craigslist Finds For August 24, 2006
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
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Sign of the times … It would be funny if it wasn’t real.
Ad: $287000 - 2BR/2.5BA Desperate! make me an offer! Similar selling at $310000
I responded to the above ad in craigslist, and got the following response.
“The property tax etc, I dont even know since I only had the house about four months so I didnt pay the property tax yet. also HOA I dont know, I guess it s what ever is the going rate, the monthly rent is $1400 and the mortguage is $1800. However if you have good credit you can get a much better mortguage rate at about $1400 per month or less (my credit is very bad that’s why I got to pay $1800 per month). So you can have positive cash flow or break even like you want, it’s very possible.”
Where is this?
It was in the Miami area.
Bwaaahahahaha!
“However if you have good credit you can get a much better mortguage rate at about $1400 per month or less”
If you borrow $287k on a 30-year mortgage, even perfect credit won’t get you 4.2%, which is what you’d need to pay $1400/month! But then, if the guy is so stupid that he doesn’t even know his taxes and HOA costs, I guess he has no clue at all about mortgage rates and calculations. Or did he think you’d put in a down payment and ignore the oipportunity cost of that?
Now if you put down 20% (i.e. only need to borrow $230k), then you only need 6.125% to get to the “magic” $1400. But that ain’t no magic number — that’s a bad number. If his taxes are, say, $250, and similar for HOA/condo fees, then you’re losing $500 per month, not even counting the opportunity cost of the down payment money that would have netted you another $200+/month. Oh yeah, and tack on maintenance when appliances break, etc.
Bad deal. But I have no problem seeing ignorant people like this get burnt.
NoVa Sideliner….you you actually far underestimated the bad deal. Prop taxes would be at least $500 per month (2.2%) AND you also left out property Insurance which is skyrocketing around here (South Florida). The monthly negative cash flow would be a lot worse than your estimate.
Oh my! Thanks for the correction on taxes and insurance. And I was especially foolish to (mentally) exclude what I considered to be an almost insignificant cost: Insurance!
Here in the DC Metro area (’burbs anyway) you can insure a typical house for
You forgot to add the new sky-high insurance rates down there! Ouch!:)
Whoops, last comment got half-lost. Oh well, time is short, so leaving out what I foolishly though was a wee fraction of the cash flow disaster isn’t a wee fraction after all!
That guy is taking a right pounding every month he hangs onto that alligator, yet who in their right mind would take it off his hands?
I’d take it off his hands …
… if I could short sale it and have the lender take a 40% discount
… and if he brought $10k to the closing table to make the lender feel better
$287000 - 2BR/2.5BA Desperate! make me an offer! Similar selling at $310000
that should probably read: Similar NOT selling at $310000 ?
oh … my … GOD!!!!
That Warren Buffet quote keeps running through my head. I see naked people.
Bubble news from Lexington, Kentucky:
http://www.kentucky.com/mld/kentucky/business/15346755.htm
That pretty much confirms that the bust is “everywhere.”
Did you catch that, UK “lecturer”? Lecturers (i.e., non-credentialed hacks) at universities generally earn less than high school teachers.
I take issure with your “non credentialed hacks” comment. In business school, I took classes from several Lecturers who had plenty of credentials (PhDs and/or highly successful businesses). They taught because they liked it.
There might be some subtle differences between US and UK/Oz academic terminology here.
When I was doing my degree, I took 2 courses where the lecturer was the Department Head. One of them, in fact, always taught part of the first year curriculum so he could get a personal impression of the quality of the intake.
I was admittedly at a university with a small undergraduate programme.
What’s scary is that they don’t seem to realize that their cluelessness is scary.
Their cluelessnessis what allowed this mess to go on for so long.
Will M, that is hilarious and sad. I see so many listings on Craig’s List by “motivated”, “desparate” sellers. They have no clue. Most of the homes are so overpriced, they are non-starters in today’s market. With the idiot flippers out of the picture, there are no more Greater Fools (GF’s). Reality is starting to hit (and hit, and hit and…)
This was in Andrew Tobias’ blog today. I found it pretty interesting.
According to Grant’s Interest Rate Observer, which credited Yale University economist Robert Schiller for this information, U.S. residential real estate prices rose – in real terms, after inflation – by 66% from 1890 to 2004, or four-tenths of one percent a year. But between 1997 and 2005, the gain was 52% above inflation, which works out to 6.2% a year.
“Many contend that a sustained pullback in house prices in unthinkable,” Grant writes. “But the unthinkable – or, at least, the highly atypical – has already happened. In 2001-05, prices levitated.”
He goes on to say that “a return to the post-1968 trend-line would imply a drop of 22%. Which, of course, for these real estate-centric United States, would imply disaster. We do not predict disaster, but we do expect a pullback severe enough to inhibit the leveraged American consumer and to stunt the growth of the U.S. economy.”
What’s amazing is the cavalier attitude about $400 per month. And the other fees which he probably won’t even bother to pay unless he gets threatened with foreclosure. You don’t need a great job to make up $400 per month but there’s probably $300 per month for property taxes and the other expenses of owning a house.
I called Verizon yesterday over a $16.42 double charge of service last month and they promptly credited me with the amount. The tightening of the economy means that everyone is trying to squeeze their suppliers and their customers which means you need to watch your bills carefully for errors. The phone and broadband companies have bills with all of these little fees and taxes and I imagine most people don’t look at their bills making it easy to slip something in.
I brought this subject up on another thread. I am finding tons of “errors” like this and am also being charged for things I did not sign up for. Especially from phone companies.
Verizon is refusing to credit me, much larger amount, this has never happened before that I can remember.
I ditched Verizon and just use a cell phone - no landline.
A good way to get these corporate giants to credit back the funds is to speak to a manager, take down their name, and let them know you are going to march down and file a lawsuit in small claims court and you will include them in it. They usually do the right thing right away. If not, file the suit (assuming you are entitled to those funds).
I have a question to those out there who know about these things. A family member (first-time buyer) bought a house the same month we did, a couple years back. We have excellent credit and put 20% down. With a 7-year, interest-only ARM (jumbo loan), our interest rate was about 5.8. They put no money down, and also got a 7-year, interest-only ARM (not a jumbo). However, they got a rate of only 4.0. My question is: Does it sound like they might have a negative amortization loan and not even know it? They always explained their low rate by saying they knew a guy (friend of the family) who get them a good deal. Lately I’ve been reading a lot about people having them and not even knowing it, and I’m genuinely starting to worry. I’m just wondering whether it’s possible that they were able to get that great a deal?
My bet is that their real interest rate is 6.0%+. I have seen so many ads for interest rate of say, 3.0% or so. And when you read the really illegible fine print, it says “interest will continue to accrue at (e.g.) 7.0%”. Therein lies your catch. Most naive people in today’s market don’t know that this actually means negative amortization of (in this example) 4.0%. The bank or realtor will never say it in plain English.
I’m not sure about the 7/1 hybrids at the time, but back in late 2003 there were legitmate 5/1 ARMs being offered at about 4%. ING Direct was one such lender: And no negative amortization at all — you pay full principal and interest payments.
And those lucky borrowers are still paying that much, at least for another couple of years. I’ve tracked some of those mortgages and their base indices. If they freely adjusted now, they’d be nearly 8%. Ouch!
Still, it was a legitimate deal, and principal is being paid down, at least on the type of mortgage I’m talking about here. That’s not to say your friends got such a decent deal, though, and if they went the interest-only route, there could be a good chance they are NOT in a good spot. (Just a prejudice on my part, but home buyers who go IO seem to be lacking not only money but sense, and that usually means they unknowingly accept bad deals in other parts of the loan as well.)
This was in May 2004. They’re not in a good position. They didn’t put any money down and they don’t have any savings. They can’t pay the motgage without both salaries. Also, they bought a starter house (shoe box) that they can’t legitimately expect to live in for 20 years and raise a family. I’ve been bugging them to refinance into a 30-year fixed for almost a year now, but they don’t won’t to give up their low rate (understandable). If they have a neg am loan they are going to be totally screwed.
Let it be — they were “so smart” on the way up; let’s see how “smart” they are on the way down — don’t interfere with the scientific experiment.
This was in May 2004.
Rates were moving up then. It is very doubtful that they could have got a clean 7/1 ARM at 4% by that time. In fact, I don’t remember seeing any legitimate 7/1’s that low ever. Only the 1/1, 3/1 and 5/1 ARMS got that low if I remember correctly.
They didn’t put any money down and they don’t have any savings. They can’t pay the motgage without both salaries.
No money down? Then they definitely got a “hoser” of a loan, or else they met Santa Claus. The legitimate loans that i mentioned *all* required a full 20% down payment. They obviously didn’t qualify for that, then.
…refinance into a 30-year fixed for almost a year now, but they don’t won’t to give up their low rate (understandable)
Understandable maybe in short term thinking. If they are paying a legit P+I at 4% right now, I can understand the reluctance to refinance when there are years left on that rate; with a 4% rate you can pay down principal faster. But if they are neg-am, and their payment is set at 4% while the actual interest rate is higher, then any delay on their part is total stupidity. Did you ask them if they have that? Do they know? I suspect screw-dom in their future, especially if they don’t know the answers!
Question for the blogoshpere: For neg-am loans, do you get a statement from your lender every month showing your payment and interest and principal — growing principal? Or are you, the FB, left in the dark and have to call the mortgage company to find out?
Yes
I guess that actually leads to another thread. How do you approach family when you suspect that they’re committing financial suicide (and may not even be aware of it)? When I first started talking about the housing bubble over a year ago, everyone thought I was crazy and some people even got mad, so I learned to keep my mouth shut. Part of me wants them to get what they deserve but the other part of me feels sorry for them and fears what will happen to them. It was a lot easier to keep my mouth shut when I wasn’t sure whether this bubble would actually pop, but now that the writing is on the wall, I feel more responsibility (and I don’t want to them to come to me for financial help when their stupidity catches up with them).
The statement reads current principle, last payment received, current minimum payment due, current Interest rate etc.
In that case, it should be blindingly obvious that the current principle is increasing every single month! Perhaps these people just don’t read that number and block it out of their minds.
There was an amazing story in… the Washington Post, I think, in the last week. It was talking about the financial woe that ARMs are causing people, and they had a typical ARM borrower who said that she “just had no idea” that all these resets could happen.
I thought this ignoramus(ette) was just some ex-public housing, manual laborer who was barely on the housing ladder and was being taken to the cleaners by the banks. Ha!
The article went on to say that her husband is a frikkin’ professor at one of the big universities here! Now don’t tell me they didn’t understand that loan! They just didn’t (want to) read it!!! And they acknowledged as much, saying their main goal was just to keep the payments low. For which they will pay dearly later. Idiots. It’s one thing to be stupid, ‘cuz sometime stupid is something you can’t help, but to be so lazy… arrghh!
Unless they pay by automatic withdrawal out of their checking every month. (Like we did with our last mortgage.)
2004 was the bottom in interest rates, quite possible their mortgage is a regular I/O, especially if as you say, they had a friend who helped them get the best deal.
They are either not telling you the truth, or don’t understand what type of program they’re into. I’m sitting here loooking at my rate sheets this morning fom every major wholesale lender in the country, and you can’t even get close to that rate. You have to go back a year and half to find rates like that on a Jumbo 7/1 ARM.
It was May 2004, I think he said. Even back then, were 7/1 ARMs available at that rate? And with 100% financing to boot? I certainly don’t remember it, though you could maybe do some nice interest rate buy-downs by paying lots of points.
http://tampa.craigslist.org/apa/198061790.html
Fantastic!
A few knights ago there was an incident with two rival gangs outside our window on the Pinnacle property.
Wow. Knights and gangs. What a feudal situation… (groans)
Ouch! Good one.
Simple solution for bankruptcy / foreclosure forgiveness (debt and taxes)…
4 year stint with the U.S. Military. Then a fresh start….clean credit.
LOL! It certainly won’t be necessary to reinstate the draft.
This was a hotly debated topic about 6 months ago here.
Some of the tinfoil hat crew, felt that the unsustainable runup in debt was just another way to get a backdoor draft for our adventures in imperialism (oil).
Others dismissed it out of hand.
I lean a bit more to the tinfoil hat crowd on this topic.
Don’t know about the tinfoil crowd….but we’ll be needing more people to garrison / fight in the Middleast and Caspian Sea area to get oil to drive our cars to all of these exurbs and suburbs!
I would dismiss the government conspiracy…government isn’t that competent.
I would say if their goal was to STEAL ALL THE MONEY and FOMENT WAR AND DEATH…why then, the Repugz are quite competent indeed!
Certainly puts the draconian BANKRUPTCY LAWS they recently passed into perspective, doesn’t it?
“It’s a stint in SYRIA for you, FB!
Now HELOC and Load!” *ouch. groaner.
You really think? With 60% obese/overweight? And getting older? I don’t think so.
Don’t know if you caught the news last night, but the Marines are now considering Involutary Deployment for Reserves..
…where did I put that tinfoil..?
What does that even mean? Are they forcing people into the Marines reserves? Or by “involuntary” do you mean that they’re expecting their reserves to honor their contracts and actually be deployed?
.S. JULY NEW HOME SALES BELOW 1.10 MILLION EXPECTED
U.S. NEW HOME INVENTORIES UP 22.4% YEAR-OVER-YEAR
U.S. NEW HOME SALES DOWN 21.6% YEAR-OVER-YEAR
U.S. JULY NEW HOME MEDIAN PRICE 0.3% Y-OY
U.S. JULY NEW HOME INVENTORIES 6.5-MONTHS, 11-YEAR HIGH
U.S. JULY NEW HOME SALES FALL 4.3% TO 1.07 MILLION PACE
Washington (MarketWatch) - Sales of new homes dropped 4.3% in July to a seasonally adjusted annual rate of 1.07 million, the Commerce Department said Thursday. Inventories of unsold homes rose to an 11-year high, while median prices flattened out. New-home sales are down 21.6% in the past year. July’s sales were much lower than the 1.10 million expected by economists surveyed by MarketWatch. Inventories of unsold homes rose 1.1% to a record 568,000 in July, representing a 6.5-month supply at the July sales rate. The median sales price in July was up 0.3% year-over-year to $230,000.
looks like a soft landing
“July’s sales were much lower than the 1.10 million expected by economists surveyed by MarketWatch.”
Economic forecasters seem to be suffering from a collective case of irrational exuberance. Many new numbers are coming out below expectations. Another overestimate du juor is durable goods orders…
ECONOMIC REPORT
Orders for durables fall 2.4% in July
Transportation orders tumble 9.6% on aircraft, motor vehicles
By Rex Nutting, MarketWatch
Last Update: 8:52 AM ET Aug 24, 2006
WASHINGTON (MarketWatch) — New orders for U.S.-made durable goods fell 2.4% in July on a big decline in orders for transportation goods, the Commerce Department said Thursday.
Excluding the 9.6% drop in transportation goods, durable-goods orders rose 0.5%, the 10th increase in the past 12 months.
The drop in durable-goods orders was much larger than the 0.7% decline predicted by economists surveyed by MarketWatch, …”
http://tinyurl.com/lfxta
Big time PPT action is underway to shore up the homebuilder stock prices. Look at any of the major builder charts today (KBH, TOL, PHM) and you see the same thing — an initial selloff on bad news, followed by an immediate rocket straight up to stave off the plunge.
you wonder what the real median price would be if they backed out the incentives. the dicline must be close to double digit degreases.
Got that right, Stucco. Look at the charts here
http://tinyurl.com/ovpm8
The plunge began as soon as the market opened but about 10 minutes after opening, all the HBs reversed direction and began shooting up. Such precision! Such uniformity! So unlike all the other stocks! Could it be…..the PPT?
here is a good summary with graphs
http://calculatedrisk.blogspot.com/
How long can a company’s sole revenue source (home sale prices) depreciate before the stock market can no longer support overvalued share prices?
Commerce Dept data Ben posted show that median new home sales prices have fallen at a 36% annual rate since April, before factoring in the effects of inflation and incentives, which imply an even larger effect on real homebuilder revenues, and a still larger deterioration in earnings against the backdrop of inflating costs. How can their share prices stay afloat against such rapid deterioration of the earnings picture?
The PPT somehow has managed to help these dogs keep winning Keynesian beauty contests on a daily basis.
Boy oh boy! The PPT had a heck of a day. Think of it. The existing home sales fell yesterday. The new home sales fell today. KBH announced that they were looking into the CEO’s funny option awards. And a couple of days ago, TOL had bad news to announce. But that didn’t stop the PPT! Starting at noon, they began a major push on the Homebuilders and managed to push all of them up by the end of the day. Nothing short of a miracle, I’d say. Nothing but bad news and all of them go up sharply. Wow. That angel worked hard today.
Dude, where’s my appreciation?
http://www.annaly.com/mc/ammc/Annaly08-06.pdf
And the cat went Mew:
http://www.annaly.com/mc/ammc/mc_4_06.htm
That is how you have double digit and no equity
http://www.annaly.com/mc/ammc/mc_10_05.htm
I don’t know if anyone goes to this site (no, it’s not mine) I found a comprehensive housing report from 2002, I sure wish I could find one that was updated to 2006. It was spectacular then, now it must be outta this world.
Cash out refinance graph (calculated risk):
http://calculatedrisk.blogspot.com/2006/08/fannie-mae-almost-all-q2-refis.html
Yesterday while driving I heard a gent on a Fresno radio station talk about the following:
1) sales are at 2003 level
2) what sold in 15 days last year now takes 9 months to sell
A return to the “good ol’ days”
The current economic environment has caused financial distress for many people. I would encourage them to look into my unique new program for managing debt : It’s called “Don’t Buy Stuff You Cannot Afford.”
http://snltranscripts.jt.org/05/05lbuy.phtml
” Fannie Mae, the government-sponsored mortgage lending giant, said Thursday it has been informed by the U.S. attorney’s office here that it will not face criminal charges over accounting irregularities.”
Just the beginning folks. Round one, winner, Fannie-Mae.
Too bad for Enron that they were not a GSE…
Great entertainment thread:
http://www.websitetoolbox.com/tool/post/sdcia/vpost?id=1331370
My fav:
Yes I know it will reset, but I will refinance when it does. If it should reset the cost goes to $3,020. But since I am going to refi to a 30 year fixed the monthly payment will be $2,700. Did I mention I got 100% finacing?
I make $67k a year and just barly qualified for the loan. Do you think I am going to have a problem refiing since I am still making the same salary? I did the math and I think I need to be making $97k to qualify for the new loan since the rates are now higher. I think however, my loan broker will figure out a way to take care of me.
Resetting loans?
What is that all about? Does this have something to do with my pay option loan?
….. Winner of the Most Clueless Borrower Of The day award. as posted before it gets even better:
Did I mention I got 100% finacing?
“I make $67k a year and just barly qualified for the loan. Do you think I am going to have a problem refiing since I am still making the same salary? I did the math and I think I need to be making $97k to qualify for the new loan since the rates are now higher. I think however, my loan broker will figure out a way to take care of me.”
Let’s see: You’ve financed at 100%….. more than likely you’ve been deferring interest to a tidy sum each month. Your house will likely appraise today for less than what you paid for it and, even if it appraises for a little more, the amount of interest tacked on to the loan together with the likelihood you have a hefty prepayment penalty will mean that, at the very least, you’ll have to pay your closing costs out of pocket and then some.
All you have to do now is find a lender who will give you a liar loan at 100%,cash out the remaining $2,000 in your 401K and hit up your broker “buddy” for the rest.
Piece of cake!
Phoenix flipper flipped by the market. Note that she was in mid-remodel when the place was foreclosed. LOL
http://phoenix.craigslist.org/rfs/198219323.html
That house is worth a buck and quarter tops.
I hear that, David.
Can you say Dumparoo Von Dumpstein? THOSE are the best pix she can come up with? And then she has the nerve to bring up COMPS??? rofflmfao*add more letters here
I smell mechanic’s lien.
That house is a POS in a terrible area. Who do they think they are kidding? Nice bathroom, nice grass, etc, etc…Nobody would pay more than say $100k for that joke. Ho hum another FB bites the dust…
The Minneapolis home shown in The Mary Tyler Moore show was bought by a flipper, extensively renovated, and is just now hitting the market. They’re expecting to find a FB willing to pay more than three times the $1.1 million they paid for it:
It is famously known as the “Mary Tyler Moore house.” But these renovated digs might be a smidgen too upscale for even the real Mary.
With an infusion of pizzazz, heralded by a daily symphony of saws, drills and hammers, the Victorian house just west of Lake of the Isles soon will be on the market for more than $3 million.
“Substantially more,” says Don Gerlach, the mansion’s unlikely owner.
Gerlach, an English teacher at Burnsville High School, and a crew of workers are putting final touches on a massive renovation that’s making the house far more majestic than in Mary’s day.
An English teacher for 38 years, Gerlach said he, his wife and her brother decided to pursue the venture as simply “something new” to do. In the idiom of real estate investors, they are “flipping” the house and envisioning the buyers as a family that wants every comfort and convenience and is willing to pay heartily for the privilege.
Full article at
http://www.twincities.com/mld/pioneerpress/15347902.htm
Im not saying LA is inflated.. and im certainly not trying to one-up you… but I think the house in Sanford and Son just went up for 3.4 million.
It has been upgraded with kevlar wallboard, 4″ stainless “drop” zones, and a custom marble top meth-bay.
The realtor encourages you visit the open house this Sunday saying… “We are encouraging more open houses… hoping for less drive by’s…
I have been monitoring this blog shortly since it debuted and I have got to tell you this is the funniest post I have seen!
It is 4:00 am and I am catching up on paperwork. I am laughing so hard my wife woke up because she thought I was having a heart attact.
The story of the day around Boise: ‘Real trouble’: Valley home sales, construction plummet
http://www.idahostatesman.com/apps/pbcs.dll/article?AID=/20060824/NEWS0203/608240360
Local real estate agents predict that the cooling housing and condominium market will improve in Reston in the for seeable future.
http://tinyurl.com/zcspo
“I don’t see it in the next year, but once Metro is coming I give it a maximum of 18 months to get hot again,” said agent Kitty Bernard of Coldwell Banker.
Rail was scheduled to pull into Reston at Wiehle Avenue by 2011, as part of a two-phase extension of Metro’s Orange Line from Falls Church to Dulles International Airport. That time line may be pushed back slightly now as the state is reconsidering whether to run trains above or below ground through Tysons Corner.
—
According to the Northern Virginia Association of Realtors, housing sales slowed locally in July, dropping 39 percent from a year ago. As a result, the number of homes available in the market shot up 147 percent compared to this time last year.
The average sale price for July was $537,731.
A main factor for the slowing sales, according to one agent, is negative media attention about the housing market and the economy.
“There is a psychological fear out there that things are going to slow down, and it’s stimulated by the media,” said Alica Yowell of Long and Foster Realtors.
But she said sellers are starting to get fed up and are no longer bowing to pressure to lower their asking prices.
Are you kidding me? Negative attention?
AVERAGE SALES PRICE
JULY 2005 $516,588
JULY 2006 $508,397
http://www.nvar.com/market/pressrelease/prgnvjuly06.html
And it’s July..give it 3 months
21 storied condo 30 miles from the city. WTF
How do you ask a Man to be the Last Man to buy a ridiculously overpriced house?
In a lace teddy, holding a bottle of 50 year old Macallan
good point.
“Gentrification City”
The LA Weekly is a day late, as the rising home prices are a thing of the past. However, this is an interesting article. Here’s a great quote,
““People who bought their homes, like my parents did in Hermosa Beach, for less than $100,000, that house is now worth millions and millions of dollars,” said Garrison Frost, who spent eight years writing for The Beach Reporter, a weekly newspaper. “And everyone who’s sitting on millions and millions of dollars thinks that they earned it somehow, and that they’re special.””
“From the inflated home values to the appearance of Humvees on city streets, Manhattan Beach’s burgeoning wealth has proved disorienting to 73-year-old Frank Matranga, who purchased a home in the coastal community for $27,500 in 1970 and never left. Matranga, a ceramics artist, reminisced about his community over the hammering and sawing of the construction of a new home next door. And though he talked gamely about adapting to change, Matranga clearly misses the smaller houses, the kinds that had front- and backyards. Even worse, he is starting to have trouble picturing the old city.
“All of a sudden, you’ll see that a house has gone down, and you can’t remember what was there,” he said. “It’s really weird. It’s just changing completely. It gives you a very strange feeling. I don’t know what this town is all about anymore. The people are different. The City Council is different. Everything’s got to be slick and smooth, very expensive, and very elegant. And I’m not really an elegant kind of a guy. I’m a potter. An artist. I’m a kickback kind of person.””
“One retiree who got a bill for $38,000 faced a choice: sell her house or see a lien placed on the property. She sold and moved out of state, Matranga said.
“I just paid my house off a few years ago, and now, all of a sudden, I have to go back into debt for more than I paid for my house,” he said. “The young people who come in with all their money, they’re pretty insensitive to the other people in town. They would love all of us who have been here awhile to die or sell their house, so they can have nothing but million-dollar homes.””
There’s a lot more.
Actually I understand the guy. I grew up in an area so much that very of the landmarks from my youth exist. I told my daughter it is liking see ghosts. I remember — but they are not there.
first page of Dallas Craigslist RE for sale:
http://dallas.craigslist.org/rfs/
hmmm . . . people trying to hawk overpriced properties in NY, Cape Code, Las Vegas and four different cities in Southern California
I could have told them to save their energy. Nobody in Dallas has two dimes to rub together. Hello suckers! Dallas has one of the highest foreclosure rates in the country! They can’t even afford their own shitboxes!
has anyone seen this piece yet?
EMIGRES FEEL CHINA’S PULL
Affordable housing, food, recreation drive a trend of reverse migration
http://tinyurl.com/l2lq5
I can’t wait for the census to release economic figures due out on the 29th.
Special Breaking News Update: Housing Prices May Become More Volatile, Fed Report Says
The rise in housing prices over the past decade “owes significantly” to falling inflation-adjusted interest rates and changes in the mix between rates and the “housing premium,” which could mean more volatile home prices in coming years, according to a paper written by Federal Reserve economists, the Wall Street Journal reported this morning.
Hey there, Fed economists, glad you could join us.
The paper, written in April this year, is ominously titled: “A Trend and Variance Decomposition of the Rent-Price Ratio in Housing Markets.”
We say “ominously,” because we have no idea what the title means and things we don’t understand frighten us.
The paper’s Abstract says it has three main findings:
1) “Variation in expected future real rents accounts for a small share of variation in our sample rent-price ratios; variation in real interest rates and housing premia account for most of the variability.”
2) “Expected future real rates and housing premia were so strongly negatively correlated prior to 1997 that changes to real interest rates did not affect the rent-price ratio. After 1997, rates and premia have been positively correlated, and the decline
in the rent-price ratio that has occurred in almost every geographic area in our sample since 1997 reflects both declining real rates and declining premia.”
3) “In the recent housing boom, 65 percent of the decline in the aggregate rent-price ratio is due to a declining housing premium.”
Uh, ok. What was number two again?
Actually, behind the professorial obfuscation the paper is not so far out.
The study looked at the ratios between housing rents and prices in two distinct periods, 1975-96, which the authors characterize as Pre-Boom, and 1997-2005, which they called The Housing Boom.
They then broke the price structure of the two periods down by three separate components: future rent growth, real interest rates and what they called the “housing premia”, which is the return on housing investments above the yield of the 10-year Treasury note.
So, prior to 1997 housing premia “effectively moved to smooth valuations in the face of interest-rate volatility.” After 1997, however, there was a break. If the break we observed in 1997 proves to be permanent, we should expect housing prices to be much more volatile in the future.”
Why? Because since 1997 housing prices have effectively behaved like stocks and bonds.
Money quote from the Fed paper: “fundamentals”, housing rents in our case, are of little importance for explaining the trend or variance of housing valuations. By definition, then, housing returns explain most of the trend and variation in valuations. In this way, the housing market is remarkably similar to the stock and bond markets.”
Yes, stocks, bonds and housing are remarkably similar!!! Except for that one thing… what is it? What is that one thing that stocks and bonds have that housing doesn’t have? It’s on the tip of my tongue. Ah yes! LIQUIDITY!
2. Did You Know?
Look, we’re not going to spend all morning banging our heads against a Fed paper (We didn’t mention it above, but that paper was filled with stuff that looked like this: (Vt/Pt = it + Ë − gt+1) without pulling something else from it we can use.
Did you know that according to the Flow of Funds Accounts of the United States, housing wealth accounted for about 40 percent of the overall net worth of households at the end of 2005?
Did you know that housing’s share of household net worth has increased more than 10 percentage points since the start of 1997.
Did you know that while 40% of the overall net worth of households is tied up in their houses, the Personal Savings Rate has been negative now for five consecutive quarters, more than a year?
Did you know that the last time the Personal Savings Rate was negative for an entire year was in 1932 and 1933?
Did you know that US bank delinquencies of credit cards rose to 4.13% in the second quarter, the highest since the second quarter of 2004?
Excellent coverage on the economic demographics. The funny thing most of the economic faculty where I work called the bubble in 02′.
If I knew then what I know now…
Folks,
We’ve come a long way, but we still have a long way to go.
Why hasn’t the CAR posted their numbers yet? Nervous?
when and what time are they supposed to post?
Normally yesterday
Just a comment on the “Stated income-no verification” concept.
I wonder what would happen if all these “stated income” docs gets public, or at least opened up as evidence in a court of law…
Think of this folks… when this all implodes, and everyone (and their lawers) are covering their rears… the (former, now defunked) homeowner will be faced with one of 2 scenarios… either
a) He lied about his income to the mortgage company, and is now charged with fraud.
or…
b) He is now being pursued by the IRS for blatant tax evasion, being his return and his stated income don’t match.
I would not want to face either of them, but I am sure the attorneys will have a ball defending these guys… oh.. and by the way you would want a really good attorney.. but wont be able to afford one.
Damn this could get messy.
How come homebuilder shares always go up on unanticipated bad news, while those from other sectors (e.g., high tech) drop like a rock?
http://www.marketwatch.com/tools/quotes/detail.asp?view=detail&symb=aapl&siteid=mktw
Ben,
How about creating the “Housingbubbleblog price predictor”?
Anybody who wants to contribute can submit their estimate for the median price of both resale and new housing over the next 6 months. The average for each sector would then represent the “housingbubbleblog price predictor”.
My prediction would be:
August 228,000 Existing 226,000 New
September 224,000 222,000
October 219,000 216,000
November 212,000 209,000
December 208,000 202,000
January 202,000 199,000
When August figures come out the information could be used to predict February and so on. I think a rolling 6 month forecast would be better than a fixed 12 month projection which may become redundant after a few months.
Everyone has their own view on where prices will go but it would be more interesting and relevant to see a consensus.
I’m sure it would be at least as accurate as anything the NAR could produce.
And the consensus is more apt to be correct than industry sponsored economists. As the accuracy improves from the consensus, the more likelihood of responsible reporting from national media.
Cleveland: “Where have the buyers gone?”
http://www.cleveland.com/business/plaindealer/index.ssf?/base/business/1156409057264730.xml&coll=2
Best quote: “But it’s still a robust market - just not at a record-setting pace. I think this is just an inhale.”
I had the opportunity to visit the Fairfax County (VA) land records office again today. It was a ghost town. Seriously. Nobody was around. Normally, with one week to go in the month, it would be booming. Now - nothing. I take this as direct evidence that the NAR numbers and “seasonal adjustments” are a crock of dung. No contracts = no title bringdowns = no settlements = no recordings = nobody in land records. The numbers next month (if accurately reported) will be dismal beyond most people’s belief. Fortunately, we are prepared!
I went to the Home Depot, which was unnecessary. I need to go to the Apartment Depot. Which is just a big warehouse with a whole lot of people standing around saying “We don’t have to fix anything.”
Mitch Hedberg (RIP)
One more nail in the coffin:
http://www.financialsense.com/editorials/sjuggerud/2006/0824.html
WOW, what a week, and it ain’t over yet. All of a sudden, people and the media are talking declines,and serious ones at that. Whether it’s the crapchannel FOX, NPR, or the guy two cubes over, I’m now hearing significant talk about drops. Someone compared it to that knot in your stomach as the first car in the roller coaster goes over the top, but the back is still hooked in and going up.
So the observation of the day– In my zip (92604) we’re now at 49.5% of the listings having been reduced (thanks, ziprealty!). Up about 5 points in the last two weeks. the balance of the city of Irvine (OC/CA), is at 46% and climbing. So much for ‘it’s different!’
Two accused of real estate fraud :
http://www.azstarnet.com/business/143575.php