‘The Sound Of Yesterday’s Myths Exploding’
It’s Friday desk clearing time for this blogger. “For the past five years, the housing bulls have been trotting out one rational-sounding argument after another to explain why the boom made perfect economic sense. Forget about a crash, they assured homeowners. Expect a ’soft landing’ where your three-bedroom colonial in Larchmont or Larkspur not only holds onto its huge price gains, but keeps appreciating at a ‘normal’ rate of 6 percent or so into the sunset.”
“Americans wanted to believe, and they did. Now, the giant popping noise you’re hearing is the sound of yesterday’s myths exploding like balloons pumped up with too much hot air.”
The Reno Gazette Journal. “Sara Babylon tried having open houses as a way to sell her Spanish Springs home for almost three months. But instead of a flood of interest, she barely had a trickle. ‘The last open house, not one person came by and I was like OK, that’s it,’ said Babylon.”
“So Babylon decided to offer a free 1992 Jeep Wrangler with purchase at asking price. The home once listed at $336,000 is now down to $320,000. ‘We didn’t realize how slow (the housing market) is and how hard it is to get people out (to see our home),’ she said.”
From Arizona. “There were 8,955 homes listed for sale last month on the the Tucson MLS. That’s a 120.5 percent increase over last July’s 4,062 listings. ‘Sellers are making concessions nowadays, could be price reductions or paying closing costs. Buyers are taking their time choosing from all that inventory,’ Paul Olson, MLS president said. ‘We’ve gotten to the point now where the trend is pretty doggone obvious.’”
“Olson said that he recently sold a home and reduced the price by about $15,000. ‘Many of these homes are unoccupied. Estimates are as high as 50 percent. This will cause the resale market to react with the only incentive that is available and that is price. We could, and probably will, see a softening of prices in the resale market,’ said John Strobeck, a Tucson housing market analyst.”
From Idaho. “It looks like the Treasure Valley housing boom that meant higher prices and bidding wars for homes has subsided. Lindsay Marler is anxious to see her Nampa home sell, but so far no one is interested in buying. ‘I was a little worried but our realtor has told us the market has almost come to a standstill,’ said Lindsay Marler. So they decided to lower the price.”
From Kentucky. “To get into their new house early next year, Art and Amanda Goldman must sell their 10-year-old residence on Darlington Circle. But the outlook is uncertain. Priced at $394,500, the four-bedroom, five-bath house has been on the market four months, but only a few potential buyers have stopped by.”
“The national problem has ‘trickled down to us,’ said Bobbie Johnson, president of the Lexington Realtors group. ‘We are being touched by it, that’s for sure.’”
From Ohio. “A softer housing market has taken a particularly tough toll on Highland Heights, where Bob and Germaine Deacon have been trying to sell their four-bedroom colonial on Barkston Drive since last fall. Bob Deacon will consider selling for about $40,000 less than he was asking three months ago. ‘I really don’t have the time for this aggravation,’ said Deacon, who runs a Chrysler Jeep dealership nearby. ‘It’s tough enough to sell cars. Now I’ve got to sell a house.’”
The LA Daily News. “‘Once upon a time there was a housing market that allowed homeowners to print money. Those days are gone,’ said Joel Naroff of Naroff Economic Advisors.”
From Florida. ” Guess what? It’s payback time! With no shortage of shiny new Lincoln Navigators in the parking lot of the elementary school each morning here in paradise, it serves as a vivid reminder of what we are actually dealing with in terms of the potential fallout from the ‘artificial wealth effect.’”
“Big news locally comes from a Southwest Florida stalwart in the real estate development industry. WCI Community’s net income fell nearly 70 percent. That’s right… 70 percent, year over year from 2005. Maybe it’s not just me staring the ’sacred cow’ in the face. What does it all mean? The ‘cheap money’ from the Fed helped fuel the completely irrational housing boom .”
“Don’t look at me. That is essentially the message of a new Federal Reserve study arguing that productivity, not the central bank’s own policy of rock-bottom interest rates, was behind a five-year housing boom that now seems to be ending rather abruptly.”
“‘The housing boom has not been driven by unusually loose monetary policy,’ wrote John Fisher and Saad Quayyum. ‘We view our findings as supporting the view that the current housing boom may be a temporary transition toward an era with higher home ownership rates in which spending is temporarily higher than historical norms but will eventually return to such norms,’ the Chicago Fed study said.”
Bill Fleckenstein. “Alan Greenspan managed to make folks’ lives ultimately even worse, in attempting to bail out his equity bubble with a real-estate bubble. Let’s never forget who the un-indicted architect of this mess was: Alan Greenspan and the other merry pranksters at the Fed.”
“Of course, those folks who didn’t learn anything from the equity mania, and who will turn out to have gotten themselves trapped in the housing mania, really have only themselves to blame. As I have been warning, all of this was going to be wonderful until it wasn’t. That moment in time is upon us.”
As one reader said, ‘Wow, what a week!’ Not the best time to have server problems, but this site should be on a new host within 36 hours. My thanks to those who support this blog. Please check back this weekend for news, your market observations and topics.
Having on my tinfoil hat, I suspect your server problems during the very week when the media resoundingly confirmed that the bubble has popped may not have been coincidental, but rather due to some REIC hacker’s effort to keep the facts hidden from public view as long as possible.
Oh please!
Have you never had a computer or a hard drive crash?
I’m as (or more) cynical than the next person but this is truly ridiculous!
Sorry you have no sense of humor.
(Or maybe I don’t?
)
almost had a nervous withdrwal thursday night but i am happy as hell that this blogsite is fully functional again. gotta have my daily fix.
Chicago Fed study
_____________________
CYA!!!!
The authors of that study appear to be very capable economagicians.
That study is one of the worst, white-wash affairs I’ve ever seen. Every freaking observer with half a brain knows that the Fed created/encouraged this housing bubble to “save” the economy after the tech bust. And now, what do we have to show for it? An extra couple trillion in debt. Unaffordable homes. One of the biggest asset bubbles of all time. $70 oil. The worst inflation in years. Should I go on?
Mike,
I quite agree with you that the paper is terrible (I just read it.) While I agree with you that the Fed has created a real mess here, I think it was more due to incompetence than malice (although Greenspan got way to close to Bush in the final years.)
The Fed didn’t expect to create a real-estate bubble, it happened because they didn’t understand how the financial world has changed….
1) The Fed was used to moving short rates and seeing the yield curve move out to the 30 year.
2) During the dot-com boom, they noticed that this was no longer the case. Read the Fed papers from 2000 to see how confused they were. They were reduced to making public statements about “irrational exuberance.”
3) During the dot-com crash, they saw they could not move the long rates much. Many papers got written about buying long-dated stuff to actually shape the yield curve.
At this point, the Fed should have taken a deep breath and realized that they were not a monopoly anymore: the market could also provide long and short term money via financial products such as swaps. The Fed was now just a big player that you dared bet agianst if it did something dumb. Very different situation from it dictating prices.
If the Fed was a monopoly, it could move prices at will. If not, it loses tons of money as people bet against it. Sadly, when it trying to lower short rates below market value, modern financial firms raced in to pocket the mis-pricing: the Fed was thinking equities vs bonds, but was blind-sided when the mortgage biz dropped down-payments from 20% to 0% and grabbed the free money.
A good Fed researcher would now be writing a paper titled “The Fed: We Can’t Move the Market Without Losing Lots of Money.”
Good Post!
Great post. But I have a question, the Fed is the government, and the gov likes to be in control. If they cannot control/adjust/ manipulate the market anymore, how long will it be until a well intentioned congress changes the laws to give the Fed more power?
Didn’t Benjamin Strong make a power grab for the Fed in the ’20’s? I think it’s not too long before that happens again.
Stop calling the FED the FED. They have nothing to do with the government, and are a private consortium of bankers with private intrests on their adgenda. “Fed” is a malpropisim.
the fed could end this mess with back to back 50 basis pts bumps.they are making this a big mess by stopping the rate increases.we are already in recession but runaway inflation will deystroy us.its time to take the medicine.
we probably should mention here the topic of fractional reserve which essentially made the fed’s role of the economy much less significant.
How much value is the American economy going to lose? More than in 9/11? More than in Katrina? More than in both combined?
So this is not terrorism, it’s not a disaster — it’s criminal negligence.
FIRST.
2005 called. They want their schtick back.
Upgrade your browser - You are 3rd.
Also - that was the deal in early 2005 before we had to register.
An old habit when I use to hang out on FC.
I do remember that. Joe wang, VPCheney, etc… I think I spend way too much time on the net. UGH.
woah. nice to see you guys.
Heard from Bay Aryan recently? I heard he became a Realtor after he was fired from dot.com job for padding his expense account
Bay Aryan bailed from FC after someone took a crack at who *she* was. Someone noticed similarities in writing styles with an article in a promo magazine for Acura owners or some such.
I didn’t get a chance to ask Pud questions when I saw him speak at the HOPE conference in 2002 (or was it 2004). I was wondering how many of the mystery people he knew.
Back on topic. Do you remember that bizzare posting about house prices escalating forever, and people living in tent cities and Hondas? Was that not premature? It seemed like that came before I clued into the housing bubble, and I think I watched this blog come online.
So Babylon decided to offer a free 1992 Jeep Wrangler with purchase at asking price
Dooooood!!! That 14 year old POS sealed the deal! Are you sure this story is not from the last housing bubble in 1993?
in florida its more like 1928,
only for those that bought post 2002.
Don’t you have a HELOC checkbook to fondle?
How does it feel to see dat paper “wealth” draining away, day by day?
Didn’t you see VA_Inv was on the Forbes list. Between Buffet and Ellison. She is wealthy and knowledable beyond our wildest dreams.
Don’t you have to “hurl” or something? At least I have some wealth.
oops! Forgot not to feed the trolls.
I will throw in my 86 Subaru as a deal sweetener! Drive, or haul it away, please.
I drove in a friend’s 1990 Jeep Wrangler is about 1995. I wouldn’t be surprised if this 1992 Wrangler is in the garage and unable to move.
A 1992 Jeep Wrangler. That is after Jeep stopped making them and Chrysler took over. Total heap. What in the hell is that guy thinking. I mean my God, you are trying to sell your house dude, please keep autorama items to yourself JOE DIRT.
Yep , I’m getting sick of this car shxt . What a insult what the housing market has turned into .Someone wants to give away some old car that has 180k miles on it to sell a house .
Everyday I see just how stupid people think other people are ,(which they have been in this housing mania ).
Didn’t anyone tell this man there isn’t any greater fools out there anymore . This circus is so insulting and I’m not about to pay a higher tax bill because all these self-serving FB’s think the world owes them equity on their investment risk POS house they probably bought 2 years ago .
Any gifts or incentives add to the deal is actually taxable income valued at FMV. Which may kick you into a higher tax bracket…
My two cents.
Good thing the value of a 1992 Jeep Wrangler (according to kbb.com) is under $3,000!
According to Kelly Blue Book that vehicle is worth somewhere between $2,000 and $4,000. Wow, what a deal! I wonder if she has a collection of National Geographics to throw in as well.
I’m gonna hold out for the used Yugo before I buy.
Wow, pardon my launguage but that 92 Jeep move is about the most scumbag thing I have heard yet. She thinks throwing in some worthless piece of junk is going to motivate someone to buy her overpriced house.
I’m going to start saving my old underwear. Maybe that could close a deal in the future.
For me, it’s a Gremlin, or no deal.
a gremlin with a built 401 is a serious drag car id love to buy one
Nat Geo! Laughed out Loud.
Also includes one barely used ‘Tony Little’s Gazelle’ Exercise Machine…*hopefully…plus cash at closing?
you folks are on fire tonight!
A Nordic Trak for me or nothing!
Forget that - Its the Suzzane Summers ThyMaster or I am a’walking!!!
A few years back a friend bought a condo in FL. He asked the guy to throw in his boat with the deal. First time he took that pos out, the propeller fell off 3 miles offshore. I nearly pissed myself laughing. This boat was just a bit more than an old rusted out bathtub with one smoky old engine, minus the propeller of course.
And she still really doesn’t get it, a $16K price reduction was not even 5% from the original price. And no 14 yr old jeep is going to sweeten the deal.
What a schmooo!!!
This is the comment someone left at the end of the article:
Well, first of all, the home has not sold yet, right? Second, the reason homes are no longer affordable is because the federal reserve bank of the United States lowered interest rates for too long, causing speculators, flippers, greedy homeowners, and credit unworthy persons to enter the real estate market.
Because this easy money increased the money supply so greatly, the fed found it necessary to raise interest rates to control inflation. When they did that, the house prices have not come down to reflect the new affordability reality. The speculators are leaving, unless they are morons, the flippers are gone, the greedy homeowners still want their price, and credit will soon be denied to those who cannot pay back.
All this will result in a major housing bubble that can only get worse. If you buy a house that is priced above its 2001 price you will be upside down and will have spent way to much for your house. House prices must revert to the mean following a bubble. That means they must revert to 2001 prices and may even go lower.
It is foolish to buy a house in Reno right now unless you absolutely must do so. It is simply throwing money away.
Fairly comprehensive, I’d say!
From Florida. ” Guess what? It’s payback time! With no shortage of shiny new Lincoln Navigators in the parking lot of the elementary school each morning here in paradise, it serves as a vivid reminder of what we are actually dealing with in terms of the potential fallout from the ‘artificial wealth effect.’”
Aww, too bad. No more buying houses and then selling them a few days later for $200,000 more? I guess humanity doesn’t all have to drive Navigators. I guess that isn’t the meaning of life after all.
Lindsay Marler is anxious to sell, but so far no one is interested in buying. ‘I was a little worried but ….
our realtor has told us the market has almost come to a standstill,’. So they decided to lower the price.”
- Lindsay, you go girl!
You were worried but your realtor reassured you that the market is ‘at a standstill’ WTF!
I’ll bet her realtor could sell her oceanfront property in Kansas,
It is reassuring to her that she go down with a lot of people. She doesn’t want to be the only person losing everything.
Florida is toast. Phoenix is toast. Everywhere is toast.
Now that the wallflower MSM heads have finally begun to fall in line with the new “story,” all markets are done for. I’m sure John Wayne or Clint Eastwood or Matt Dillon would have had an approriate expression at this point. A more thoughtful, polite version of Daffy’s “Dadadadada…you’re toast, folks!”
LOL . How about a glaring Clint eastwood saying ” What did you say your were going to sell me that POS house for ,come on make my day .”
More likely, “Do you feel lucky punk (seller), well do you?”
Clint Eastwood “Unforgiven”
MUNNY: That’s right … I’ve killed women and children. Killed just about everything that walks or crawls at one time or another. And I’m here to kill you, Little Bill, for what you did to Ned.
LITTLE BILL: I don’t deserve this … to die like this.
I was building a house!
MUNNY: Deserve’s got nothin’ to do with it!
Mmmm … toast.
John Wayne once said: “Life is hard. It’s harder if you’re stupid.”
The converse is a country song.
If you are gonna be dumb, then you gotta be tough!
Matt Dillon? I like him, but what memorable lines does he have? From Drugstore Cowboy: “Who left the hat on the bed?” From Something About Mary: “Special, my ASS!” - scoring a touchdown against the retarded kids.
Scoring a touchdown against the retards? He’s a RE broker!
I cannot wait until the MSM starts talking up the boomer problem. Could the last 30 years of real estate appreciation been a huge Ponzi scheme? Now that the boomers need cash to retire with, is real estate going to implode?
The articles are going to be brutal.
The notion that real estate is even an investment will be questioned before this is all over. And if you think about it, should real estate have ever been anything more than a place to live?
The MSM is going to have a field day with this, and it will make buying the bottom (or near the bottom) very hard for everyone, myself included.
“…and it will make buying the bottom (or near the bottom) very hard for everyone…”
My kinda’ pain.
“Now that the boomers need cash to retire with, is real estate going to implode?”
Lots of govt economic officials are currently fretting over this very question, and wondering what kind of rabbit they can pull out of their bag of magic tricks to keep the real estate implosion from turning into the beginning of a serious baby boomer retirement shortfall. So get your wallet ready to help share the cleanup costs of the most profligate consumption orgy since the Roaring 20s.
GS — you’re more charitable, in a way, than I am about this. I’ve figured the gummint to say, “Hey, you gambled, trying to gain unearned riches, and you lost. Fleetwood sells some really nice homes that will last longer than you will. Your country wishes you all the best.”
I wish it were a simple matter of charity (or lack of charity). The angry losers will vote in some quasi-socialist reactionary who’ll confiscate the wealth of those who didn’t gamble it all away. We’re all in this together, unfortunately.
I agree, snake_eyes. The problem is that so many fools drank the koolaide that they can vote themselves a collective mandate to steal from anyone who did not blow their wad out the housing-ATM machine’s money dispenser.
you really cannot shake out that concept of voting to make protect/impose one’s agenda. with the current voting system, it’s the agenda of those in power that will matter. and they don’t give a hoot. they already got their loot.
The whole idea was that people pay off their homes by the time they retire ,so at a time when their income goes down they would not have the mortgage nut or need the mortgage tax write off by that time . It was suppose to be a hedge against inflation .If the retired person wanted to sell and move to some smaller house in a retirement place ,they would be able to do it . Home ownership was always a forced savings thing ,(in the form of equity ),and a tax write off to encourage people to purchase during their income producing years .
If you buy a house as a rental investment , the numbers better add up on the cash flow from the rentals . If you buy a fixer upper you better get it way below market and have the money to fix it up and the final asking price should not be more than fixed up houses in the neighborhood would get .
If you end up going to a assisted living place in your old age at least you would have the money to pay for it after your insurance runs out ,if you had some long term equity in a house or savings . The world can’t afford to pay for older peoples health care and you have to save for it ahead of time .
I would like to see builders build more low priced older people places ,small condos etc. Arizona and florida was always a great place for retirement when it was affordable .
We got to have entry level houses/condos that our young people can buy and smaller retirement housing for our older people .
This all sounds so rationale? What went wrong?
p.s. I am a boomer who sold in Oct ‘05, my guess is the peak in my area was May ‘05. I’m happy as a clam (renting a shell).
“We got to have entry level houses/condos that our young people can buy and smaller retirement housing for our older people . ”
I go all over scal in different communities, rich, poor, middle income areas. Mobile/trailer homes are sort of a solution to your dilemma. I see them in all different variations from polished well-maintained retirement villages for moneyed seniors to tiny 10′ shoebox trailers squished onto grimy concrete-paved lots no bigger than a half-acre.
The worst poorest examples are the numerous lots in the poorest sections of LA, in absolute trashed out areas, where you see these junky 8-10′ trailers sited in trashed-out grimy lots no bigger than a typical sfh lot, occupied by poor immigrant families. Slum-Barrios in trailer Parks.
Some commuities in LA such as Lomita, Carson, and Hawaiian Gardens have a large % of trailer/mobile homes/parks. Have seen quite a few also in westminister/Garden grove in OC.
The trailer/mobile home seems to be a half-way solution for the provision of affordable stand-alone housing for Seniors and /or the poor:the benifits of having detached housing at an affordable price. They may be too restricting for young upwardly mobile single’s or families .
I have also heard of the concept of prefab Manufactured housing units?which may come in single-doublewide modules. Does not get much mention on this blog. Maybe somewith some insight into this type of housing could offer some thoughts.
Keep your wallet close to you and your aging relatives out of state and out of contact from your.
Could the last 30 years of real estate appreciation been a huge Ponzi scheme?
Yes, and all the other ponzi schemes targeted to boomers. Shall we take an inventory? Junk dot-com stocks, beanie babies, Thomas Kinkade dreck, Coin Vault’s overpriced monies, real estate, the list goes on. And, these people are impossible to warn or speak logically to; they’re perfect suckers for these cons.
At some point, sellers are going to look back at this time now with moist eyes thinking..”If only I had not been so greedy and lowered my price, I would have STILL made a tidy little profit”.
“At some point, sellers are going to look back at this time now with moist eyes thinking..”If only I had not been so greedy and lowered my price, I would have STILL made a tidy little profit”.
I agree, Sue but I can’t help but think that all the buyers that are still purchasing right now will be crying with similar (or worse) situations.
Tears for everyone!
Anyone have a definitive article about ‘herd mentality’? With all the negative press this last week, I would love to know just when the avg Joe will get a clue. Hopefully they have, but I wouldn’t bet the rent….
Its getting through, trust me. Friend of mine bought in April, at the very top of the market, in SoCal. I warned him once, he ignored it, so I gave him a handshake and said “congrats” at closing. Just got an email from him today, very short. “I’m fucked, aren’t I?”
LOL.
Yes he is.
July or October 2005 was the top of the market.
It’s debatable
also depends on the location.
I’m glad to see it’s getting thru somewhere. An older relative has heard me expounding on a regular basis for at least 6 mos. Her neighbor just put in a beautiful stone wall, walk and landscaping so of course she had to do the same because now “her neighbor made her yard look bad”. I just assumed they paid cash but when we went to lunch the other day she shared that their HELOC payment would be going up now and had a worried look on her face. I looked at her like “are you crazy?” but bit my tongue. The worst part is they’re in their mid 70s so I guess they don’t really care if its paid off or not just as long as their property improves along with the neighbors.
(Sunset Beach Guy I think I owe you an apology)
For what?
I don’t think so.
“I’m fucked, aren’t I?”
Not if he can easily afford his mortgage and plans on living in it 15 years or more.
Rationally speaking, yes… but people aren’t rational. The nagging sense that his humble abode is a concrete block dragging him ever deeper underwater could easily destroy him.
This time around in SoCal houses will drop much farther than last time against a much more severe economic backdrop. Rest assured people will react to it emotionally.
Might be awhile. I was just sitting on my patio eavesdropping on my neighbors. The woman nextdoor had her mom over visiting and apparently the mom is hous hunting. She relating a story about how pissed she was that she got outbid on a particular house. Talk about clueless. This is in S. Jersey, not too far from Cherry Hill area.
So my Mom is my secret indicator. By the time she mentioned that short hair was fashionable, few of my friends had long hair. When my mom told me about this thing called “email”, I knew it was going to be bigger than the little world of technology that I live in. When she told me about this thing called the Internet, again I realized the thing had grown bigger than just-for-gnurds.
I spoke with her on Wed, she seemed to think that housing is holding steady (in the NE). Therefore, my 100% accurate Mom indicator tells me that it will take some more time to sink into the general population.
BTW, I’m thinking of starting my patented MOM indicator investment letter. 100% correct advice, 100% after you need it. What do you think, does it work for a tagline?
LOL
Sorry, my sister-in-law indicator beats your mom indicator.
HEY! S. Jersey finally!!! I went to Cherry Hill East, graduated in 1997
Nope, the average Joe is still hearing denial from the Realtors.
In today’s Santa Monica Daily Press (a newspaper with issues), the lead story is “Housing Climate Cools”, but the article is full of “it’s not a real problem” and “this place is different” tripe. “August is a slow month because the sellers are on vacation”, blah, blah, blah. Of course it didn’t help that the June median price went from $1,835,000 in 2005 to $2,345,000 this year, according to one realtor.
http://www.smdp.com/
the article is full of “it’s not a real problem” and “this place is different” tripe. “August is a slow month because the sellers are on vacation”, blah, blah, blah.
Hahaha!! Sellers are on vacation. And July was a slow month because it was hot outside. And June was a slow month because everyone was visiting family. And May was a slow month because everyone was passing kidney stones…..
When will anyone in RE be honest and say (insert name of month here) was slow because PRICES ARE TOO HIGH!!!!!
I read this one at lunch.
Lots of great stuff about the market turning, etc. etc. Risky loans, etc. etc.
Then, drumroll please … “but, this is Santa Monica, it’s different here”
it sure is! sheltered to homeless ratio is 3 to 1…..
Yes, but our bums drive Mercedes.
I kid you not. I actually watched one load his stuff into his car after a hard day of begging on the Promenade. It was a five year old freaking Mercedes Benz. I have this vision of the leather seats screaming in fear as they smelled him coming.
Well that is the whole game, isn’t it - I used to see similar stuff. He is NOT homeless - he just panhandles. You can tell the true homeless - knotted, matted hair, open sores, etc.
Look, I lived there long enough. I give you all kudos for staying on. That place can be so nice if 75% of the people would just move away!!!!
I was just in Santa MOnical last week on a biz trip. One of the people I was meeting with, who lives between Santa Monica and Brentwood, told me that many of the homes that were torn down and now under construction are completely stalled. No one comes to work on them anymore except maybe on the weekends.
I was staying near the Whole Foods grocery store on Wilshire and went in a couple times. I wept a few tears when I remembered how I used to shop at the one in Cupertino, CA and thought nothing of it, and now I have to shop at the yucky “Summerfresh” in hillbilly country. The produce section with the gorgeous fresh organic vegetables and fruits was the most heartbreaking.
whole foods is from Texas.
On the scrapers: I see a little bit of activity, but it’s very slow. I figured by now there would plenty of high-quality construction labor available, but I guess they’re all tied up finishing McMansions in Palmcaster and Beaumont Springs. A guy I know in the business tells me that the scraper rebuilds are costing up $1000/sq ft, so maybe some them just ran out of money or are waiting for better deals on labor and materials.
On the groceries: The twice-weekly farmer’s markets are great too. And on a good day, you can get meat at Wild Oats and Whole Foods that is almost restaurant grade. Nothing like living within driving distance of craftsman farms. Especially around strawberry season (yum!!).
Now, if we could just fix some of the other problems…
Labor Day Massacre is right on schedule…3 days off, and then all the 4 months old listings get relisted at lower and lower prices. I just saw $130,000 condo sell in Las Vegas, where they dropped the price $1,000 a week every week for 4 weeks in a row, and somebody nailed it. That’s the kind of marketing a good real estate agent will do for the $600,000 listing, except drop it $10,000 every week, or maybe $25,000 every week. Crash!!!
“WCI Community’s net income fell nearly 70 percent. That’s right… 70 percent, year over year from 2005.”
Wow, did they save for a rainy day?
From here on in, the only reliable info comes from the Builders.
Robert Folsom of EWI - Elliott wave..caught the Fla Realtor assoc. “cookin” the YOY median numbers.
Last year FRA published a July 2005 median of 252,300, a check from last years records found but the FAR claimed yesterday the july’05 number was only 248,200…SO they could claim YOY is still up!
FRA has learned the Fed tricks well.
And of course the FED and their agents are 100% totally responsible for creating these bubbles. For 12 years they have refused to bite the bullet….Are there any more bubbles to be blown?
Now this is how the MEDIAN values keep every chucklehead smilin.
Way back in 1990-01 NYT article
Bear in mind we had in some places 40% decline.
http://query.nytimes.com/gst/fullpage.html?res=9C0CEFD6133BF93AA1575BC0A966958260&sec=&pagewanted=print
August 29, 1990
California Sees Housing Boom Become Slump
By RICHARD W. STEVENSON, SPECIAL TO THE NEW YORK TIMES
LEAD: On front lawns in many cities along the California coast, the for-sale sign has become almost as common as the palm tree, and to some sellers seemingly as permanent. After several years of breathtaking price increases and demand so strong that houses were snapped up within hours of being listed, California’s giant real estate market has slowed drastically.
On front lawns in many cities along the California coast, the for-sale sign has become almost as common as the palm tree, and to some sellers seemingly as permanent. After several years of breathtaking price increases and demand so strong that houses were snapped up within hours of being listed, California’s giant real estate market has slowed drastically.
Just as in the Northeast in recent years, California sellers accustomed to huge annual increases in housing prices have been shocked by how low the offers have come in. Some are dropping their prices to meet the highest bid, and housing prices are now falling in many areas. But in other cases they are either taking their houses off the market or leaving them on and refusing to budge much on the price.
Volume of Sales Down
As a result, the pace of housing sales in California has been dropping even more quickly than the price. Figures released Monday by the California Association of Realtors indicated that the rate of houses sold fell in July to its lowest level since December 1985. The seasonally adjusted annualized rate of sales last month for existing single-family houses was 419,943, down 15 percent from July 1989. Construction of new houses is also off sharply.
And while prices in some inland cities like Sacramento continue to rise, prices are dropping in the population centers along the Pacific Coast. The median price of a single-family house sold in Monterey was down 9.3 percent from July 1989, and in Los Angeles it was down 4.5 percent. Prices in Santa Barbara dropped 2.9 percent from a year earlier. In the San Francisco Bay area, the drop was 1.8 percent.
Statewide, the median house price in July, at $194,099, was down 3.7 percent from a year earlier, when the statewide figure peaked at $201,653.
Those who don’t know history are destined to repeat it.
From Studs Terkel’s “Hard Times”
(Inteviews from those who lived in the Depression. Interviews mostly took place in late 60s)
Sydney J. Weinberg
1929 Senior Partner, Goldman-Sachs Co.
….”A Depression could not happen again, not to the extent of the one in ‘29. Unless inflation went out of hand and values went beyond true worth. A deep stock market reaction could bring a Depresion, yes. There would be immediate Government action, of course. A moratorium. But in panic, people sell regardless of worth. Today (late 60s)you’ve got twenty-odd million stockholders owning stock. At that time you had probably a million and a half. You could have a sharper decline now than you had in 1929.
Most of the net worth of people today is in values. They haven’t got it in cash. In a panic, values go down regardless of worth. A home worth $30,000, the minute you have a panic isn’t worth anything. Everybody feels good because the stock they bought at fifty is now selling at eighty. So they have a good feeling. But it’s all on paper.”
Martin DeVries
“People were speculating……It’s like many people on the bread lines. I certainly felt sorry for them. But many of them hadn’t lived properly when they were making it. They hadn’t saved anything. Many of them wouldn’t have been in the shape they were in, if they had been living in a reasonable way. Way back in the ’29s, people were wearing $20 silk shirts and throwing their money around like crazy. If they had been buying Arrow $2 shirts and putting the other eighteen in the bank, when the trouble came they wouldn’t have been in the condition they were in.
In 1929, I had a friend who speculated. He’d say, “What’s good?”……”Oh, hell,” he’d say, “five percent. I make ten percent on the stock market.” He was buying on margin. He thought he was rich. Know what happened to him? He blew his brains out. The Government had nothing to do with that. It’s people.
The interviews are online and can be found here:
http://www.studsterkel.org/htimes.php
Thanks for the link!
Thanks for the link.
It’s deja vu all over again!
– Yogi Berra –
“The housing boom has not been driven by unusually loose monetary policy,’ wrote John Fisher and Saad Quayyum.”
No, of course not. It’s been driven by preposterously loose monetary policy and the largest injection of artificial liquidity in history.
Either that, or little green men in golf carts.
Does the Fed pay special bonuses to members of its research staff who can come up with outlandish theories which serve to deny any Fed culpability for anything that goes wrong?
The bigger question is whether the FED can escape culpability with regard to public opinion? They are trying hard to soft shoe this crash onto the back of the “productivity miracle”, but I wonder if anyone will bite on this? I see occasional articles in the MSM that point to the FED’s easy money policies but I wonder if these will “stick” or not? The FED needs public support to be able to continue milking the system for the benefit of the banking cartel so I’m wondering whether we can look forward to a loss of that support. Any thoughts? Anyone? Bueller?
I had said a few months back that the important thing is to understand why and how this entire charade happened. The reason is to inform people, one at a time, exactly how this con happened, and who is responsible. I agree, the FED is certainly part of the reason. Another is the fractional reserve lending. The money created by private lending institutions had a very large role.
They are the ones that will have caused the most severe damage. They are the ones that lent money that wasn’t theirs to begin with. Yes, the people are ultimately responsible for not taking an interest in where their money was being loaned. Remember, and tell one at a time. We shouldn’t be here right now. The Great Depression was only 70 years ago. The fractional reserve lending led to the same thing. No money there when people came to get it. All tied up in overpriced real estate. Then, they couldn’t create more gold. Now, the FED can create dollars out of thin air to back up the money that wasn’t there to begin with. It’ll be coming in the form of FDIC insurance. So much for someone buying our 3 billion a day when that much is being created by the gov’t. Hopefully, I guess we can pull the wool over their eyes with M3 not being published. Time will tell.
The consequences of this expansion will show up in far away and unexpected places. Maybe the US dollar? Maybe a foreign currency failure? Maybe some of both? At the end of the day, American taxpayers will come to the rescue but we will never no it was related to the housing bubble. Globalization and MBS allows us to diffuse credit risks globally.
I don’t think they are kidding anyone really. Certainly the other central banks know how the game is being played. The system was doomed to failure the minute they signed the Fed Reserve Act into law. It was really nothing more than a scheme to reward the banking cartel and gov’ts that went along with it. I’m actually surprised that a system requiring ever increasing debt as well as some semblance of trust between countries shuffling unbacked fiat currency amongst themselves lasted as long as it has. It looks like the U.S. printed themselves out of the game is all it is coming down to. I agree that it will be important going forward that folks realize where the train skipped the tracks. Unfortunately that was back in 1913 and most folks won’t make the effort.
Its interesting because last night on Oprah (I know its cheesy, but once in a while she has a good topic) the topic was on the various social-economic classes. The discussion turned to the “haves” and “have nots”. She had Robert Reich (formerly of the Clinton Cabinet) and he basically said that the country is in danger of losing the middle class. And as we all know, this is what keeps a country stable. He also stated that if the middle class continues to get poorer, there may come a day when the “have-nots” revolt against the rich who continue to cheat the “have-not” out of their money.
Its interesting that this is coming up more and in discussions, on this blog and from other honest economists.
When the lowest wage workers make one hundred times less than the typical executive-level employee, then there is going to be a problem. I know that when I was younger (am 39), I believed that anyone could “have the American dream”. But it seems that more an more people are uneducated (dont read). I mean look at the people that bought all these POS homes at the top of the market. None of them ever read or heard about the 1970’s inflation, 1980’s housing bust where Reagan (and other bluebloods) fradulently deregulated S&L’s and caused the R.E. and S&L debacle (and took away many elderly people’s life savings that they had deposited in supposedly “safe” high-yield bank accounts).
I am really worried about our country. People dont know squat about philosphy, history, economics, etc. When the dust settles from all of this, I’ll bet very few people will question the whole banking system and why we are off the gold standard and we all get paid with FRN’s that are backed by nothing (as kerk mentioend) other than the military - so foreign investors know that we wont be overthrown from outside. However, the bigger question is will be implode from within. Too much debt, too much stupidity, too much illiteracy, out of wedlock pregnancies, exporting of jobs, crooked politicans, too many uneducated illegals. The list goes on and on.
I know that some of us on this blog will make tons of money shortly after the bottom of this cycle, but if there is only 1% or 2% of the population with money and the rest are poor (like Soylent Green) then where will we be as a society?
“…….1980’s housing bust where Reagan (and other bluebloods) fraudulently deregulated S&L’s and caused the R.E. and S&L debacle ….”
Don’t forget the ‘Tax Reform Act’ of 1986. Instead of getting the million dollar “Big tax Cheater” (like was advertised), they plugged in that nice little 2% AGI floor on personal deductions, and instead got 1K from a thousand of us……Hey, it still adds up to 1Mil …… times are good !!
(just not for you ya cheater …..)
“Don’t forget the ‘Tax Reform Act’ of 1986. Instead of getting the million dollar “Big tax Cheater” (like was advertised)”
Not exactly true. TRA ‘86 essentially killed the real estate tax scams that were so popular at the time (deducting phantom losses, and the like). The passive activity loss rules, though a real headache for us tax-types, blitzkrieged thousands and thousands of millionaire types who were abusing the federal tax laws. It worked.
if there is only 1% or 2% of the population with money and the rest are poor (like Soylent Green) then where will we be as a society?
Cuba had a functioning society once upon a time.
just look at that big country immediately south of us. wonder why so many of them have those american dreams? at the rate we are going, we will be like them within our lifetime.
It will be so nice in, say, another few months, when the bottom line realities of inventory and price cut through all of this last gasp bizarre alternative universe bs about “soft landings” and “return to normal appreciation”. Congrats once more to Ben’s blog for documenting so well this week the change in MSM sentiment, the critical first step towards the true change in tide.
Our North SLO county development now has seven homes for sale, four are the same floor plan as the one we rent. The price reductions are weekly. The latest was one that started at $819k fsbo, listed at $809 a couple weeks later, and this week’s latest reduction has it at $719k - which really throws a bucket of water on the three other “comp” offerings that range up to $785k (that one being down from $850k).
The point? Other than the mildly amusing fun it is to play “www.realtor.com” gambit every day to see who is the latest to chop another $10 - $15k off their prices? Six months of prime selling season in one of the areas nicest neighborhoods, if not the nicest, has yielded not ONE sale! 6 of those 7 that are for sale have been for sale this whole time.
If this is how much of a reduction we are seeing in just the asking prices, and during the prime selling season no less, I can only look forward to what the reductions will be when one of these houses finally sells to some clueless knife catcher (and probably in the mid 600s).
The new comp data will just really screw everything up for these sellers.
“Congrats once more to Ben’s blog for documenting so well this week the change in MSM sentiment, the critical first step towards the true change in tide.”
Amen. This has been a watershed week. I like the sound of the “Labor Day Massacre” that some poster suggested recently.
From Kentucky. “To get into their new house early next year, Art and Amanda Goldman must sell their 10-year-old residence on Darlington Circle. But the outlook is uncertain. Priced at $394,500, the four-bedroom, five-bath house has been on the market four months, but only a few potential buyers have stopped by.”
This confirms the impressions I took from conversations with a Realtor (TM) and with an economist while visiting Lexington this past May. The Realtor said that for-sale-inventory was up by 50% since year-end 2004, and the large number of for-sale and for-rent signs was hard to miss if you had your eyes open while driving.
$395K in Kentucky? Is this Col. Sanders’ mansion?
lol. in Kentucky sometimes the choice is pay the mortgage or buy a new toothbrush your teefs.
Hey, I’m in Lexington. There are lots of $600,000 houses. $300,000 buys something nice but not “Tara.” Prices are much higher in Lex and Louisville than more rural areas. My family and I moved here from the SF Bay Area last year. I’d like to keep this area a secret a little while long. Keep up the stereotypes!
Hello Blue Grass Man… Bear in mind once you tell the realtor you can from the Bay Area they will assume your full of cash/equity and will hike the house price on you….
My two cents… dont tell them you came from California… My brother got stung when he moved out of state and paid 15% over market.
that is off the chain funny. family in kentucky. the flippers have lost their mind. nothing but gated house farms should be worth 250,000 in lexington. just plain stupid! next thing i find out is that salaries in farmtucky are median 100,000, so that i can at least buy a house with a traditional loan
Blue Grass Man,
Glad you like it there, because once prices drop, you will be priced out of CA forever. Sorry…
I lived in CA (San Diego & Bay Area) for almost 40 years. I now like living in Kentucky. Lexington is the Berkeley of Kentucky. I paid all cash for a 3,000 sq. ft. house in a nice neighborhood for the mid 200K. I did not overpay since I researched the market thoroughly and have family here. I’ve not worked in a year but if I don’t find a job in five years or so I’ll start to run out of money. Life with no debt is great. Thank you Housing Bubble.
Cool — I honestly love Lexington myself. Good luck!
Joy on “My Name is Earl” is their role model….
In Southwestern PA, the joke is: “Q: How do we know that the toothbrush was invented in West Virginia? A: Because if it had been invented anywhere else, it would have been called a “teethbrush”.
I have moved from NE KY ~ 10 mos ago. My house there is still on the market; 260 K 4 bed/4 bath on > 1 acre, best subdivision on the area by a Country Club. Of course, I am still renting here in the Central Coast.
Anac said:”!!! That 14 year old POS sealed the deal! Are you sure this story is not from the last housing bubble in 1993? ”
How insulting is that? Just donate the darn thing…
The hits just keep on coming:
Some from craigs list.
http://sfbay.craigslist.org/eby/rfs/198773095.html
I looked - can’t afford any of them…
I agree. Forclosures don’t mean squat at bubble prices.
Peace
Shawn Tully article in Fortune kicks a$$…
Damn sweet short and a can of woopa$$ to boot…
I am Jazzed ! Our long standing financially prudent views are finally getting some media attention.
Sounds from the articles, like we’re reaching the “Hey, where is MY chair?” moment for an awful lot of people. They were counting on selling the house to pay off credit cards and bills, and…. oh damn. It isn’t gonna sell this year, is it???
“The national problem has ‘trickled down to us,’ said Bobbie Johnson, president of the Lexington Realtors group.”
National problem? But wait, I thought all real estate was local…
I listened to a real estate talk radio show this afternoon here in Phoenix. The two shills hosting the show spent most of the hour talking about travel destinations and discount travel web sites. It was pathetic.
Did anyone read the story about KB Home’s CEO stock option back dating problem?
According to the WSJ, “…several past stock-option grants to Bruce Karatz, the Los Angeles home builder’s chief executive, were dated at unusually low points in the company’s stock price.”
In addition WSJ reported, “four grants to Mr. Karatz between 1998 and 2001 were propitiously [favorably] timed. One was dated at the stock’s lowest closing of the year, another at a quarterly low, and the remaining two at monthly lows.”
Can we really trust what comes out of the mouths of home builder CEOs?
Any CEO. No trust in CEO’s is one reason so many got out of the stock market and into RE. Damned if you do and damned if you don’t. The funny thing is these CEO’s are already really rich, why do they risk back dating options?
One of the reasons CEOs (in public companies at least) do this is due to the current Wall Street mentality. Miss the whisper numbers for two quarters in a row, and the board kicks you to the curb. So like the rest of the sharks, they get while the gettin’s good.
For a great recent example of unmitigated greed, check out this discussion of the FT’s suggestion that private equity types try to flip Microsoft. Not that Ballmer doesn’t have it coming, but wow: a $288 Billion flip.
Greed honed the drive for the top that led to appointment as CEO, and greed also left them unsatisfied with the millions in compensation they could have earned honestly.
‘We didn’t realize how slow (the housing market) is and how hard it is to get people out (to see our home),’ she said.”
All the idiots bought their home in the past 2-3 years….
We ran out of idiots in 2006…
They just dont make idiots anymore…..
BAHAHAHAHAHAHAHAHAHAHA
There is always room for more. Some people just don’t have common sense.
The sh!t really hit the fan this week.
I got an email from realtytrac.com and there are a lot more homes going up for auction in my good neighborhood in NoVa and most have “Notices of Trustee’s Sale” tagged on them. A big jump in number.
From NoVa -
Anecdotally, I’ve noticed most sellers seem to start out pricing their house by tacking on a huge gain over 2005, which was a peak. I just noticed a house on the market claiming “reduced 100K!” like it’s a big deal, when it’s still priced higher than the same exact model sold for at the peak last year. I’m not “buying” the “reduced” slogan without doing a little reasearch. Sure, it’s “reduced” from your initial delusional “wishing” price. So what?
The same exact tactic is pervasive here in Balto. still…it worked for most of the spring, but has pretty much been ineffective since about July.
Question–there is a development nearby in which flippers who purchsed in March and April 2006 for about $400K have listed their flips for $475K. Since these homes were just purchased less than 6 months ago, wouldn’t they show up as a comp if an interested buyer were to inquire?
That is a really good point. I believe appraisal fraud would be the only way for a buyer to get a loan without a large down payment based on a full price sale. And furthermore, on what basis do these stupid flippers think they are entitled to 18% appreciation in less than 6 months? We all know they won’t get it, but the audacity!
August 25, 2006
Op-Ed Columnist
Housing Gets Ugly
By PAUL KRUGMAN
Bubble, bubble, Toll’s in trouble. This week, Toll Brothers, the nation’s premier builder of McMansions, announced that sales were way off, profits were down, and the company was walking away from already-purchased options on land for future development.
Toll’s announcement was one of many indications that the long-feared housing bust has arrived. Home sales are down sharply; home prices, which rose 57 percent over the past five years (and much more than that along the coasts), are now falling in much of the country. The inventory of unsold existing homes is at a 13-year high; builders’ confidence is at a 15-year low.
A year ago, Robert Toll, who runs Toll Brothers, was euphoric about the housing boom, declaring: “We’ve got the supply, and the market has got the demand. So it’s a match made in heaven.” In a New York Times profile of his company published last October, he dismissed worries about a possible bust. “Why can’t real estate just have a boom like every other industry?” he asked. “Why do we have to have a bubble and then a pop?”
The current downturn, Mr. Toll now says, is unlike anything he’s seen: sales are slumping despite the absence of any “macroeconomic nasty condition” taking housing down along with the rest of the economy. He suggests that unease about the direction of the country and the war in Iraq is undermining confidence. All I have to say is: pop!
Now what? Until recently most business economists were predicting a “soft landing” for housing. Even now, the majority opinion seems to be that we’re looking at a cooling market, not a bust. But this complacency looks increasingly like denial, as hard data — which tend, for technical reasons, to lag what’s actually going on in the market — start to confirm anecdotal evidence that it is, indeed, a bust.
Why the sudden crackup? When prices were rising rapidly, some people bought houses purely as investments, betting that prices would keep going up. Other people rushed to buy houses, or stretched themselves to buy houses they couldn’t really afford, because they feared that prices would rise out of reach if they waited. And all this speculative demand pushed prices even higher. In other words, there was a market bubble.
But eventually prices reached a level beyond what even optimistic potential buyers were willing to pay, especially after interest rates rose a bit. (They’re still low by historical standards.) As demand fell short of supply, double-digit price increases declined into the low single digits, then went negative everywhere except in the South.
And with prices falling in many areas, the speculative demand for houses has gone into reverse, as people try to get out with a profit while they still can. There’s now a rapidly growing glut of unsold houses. This is a recipe for a major bust, not a soft landing.
Moreover, it could be both a deep and a prolonged bust. Since 2000, much of the nation has experienced a rise in home prices comparable to the boom in Southern California during the late 1980’s. After that bubble popped, Los Angeles house prices began a slow, grinding deflation, eventually falling 20 percent (34 percent after adjusting for inflation). Prices didn’t begin a sustained recovery until 1996, more than six years after the downturn began.
Now imagine the same thing happening across a large part of the United States. It’s an ugly picture, and not just for people and companies in the construction business. Many homeowners — especially those who bought their houses with interest-only loans or with minimal down payments — will find themselves in financial distress. And the economy as a whole will take a hit.
As far as I know, Nouriel Roubini of Roubini Global Economics is the only well-known economist flatly predicting a housing-led recession in the coming year. Most forecasters consider his call alarmist, and many Federal Reserve officials remain optimistic. Last week, Richard Fisher, the president of the Federal Reserve Bank of Dallas, dismissed “Eeyores in the analytical community” who worry about a possible recession.
Call me Eeyore. While I don’t share Mr. Roubini’s certainty, I see his point: housing has been the main engine of U.S. economic growth over the past three years, and with that engine now going into reverse, it’s hard to see how we can avoid a serious slowdown.
So why is it that the Fed governors are pooh-poohing a recession when they must see it coming?
My guess: They know will have to lower rates and pump in time for the 2008 election, but it’s too soon to start now - so they have to make like nothing’s wrong for another four to six months.
You know, it really too bad that all that funny money didn’t flow into something more productive than homebuilding and Hummers. But with all that done, I guess we’re all set for “Mad Max and Condos of Z’ha’dum”, if you’ll pardon the mash-up.
Thanks for that post. Krugman’s NYT Op-Eds have been a breath of reason for several years now. He regularly points out some of the absurd and unsustainable imbalances in the US Economy. One hopes that, after the current crop of criminals departs the white house, whoemever follows will carry Krugman in his back pocket.
i will bet you they won’t depart. maybe, kicking and screaming and after doing really serious damage.
Want a good laugh? Check out this FB…..
BOCA RATON HOME IN ROYAL POINCIANA
YOUR PRICE IS BELOW MY ORIGINAL COST!!!
http://cgi.ebay.com/BOCA-RATON-HOME-IN-ROYAL-POINCIANA_W0QQitemZ320016553599QQihZ011QQcategoryZ12605QQrdZ1QQcmdZViewItem
The builder sold the same unit in January ‘06 for $750k! My price is $599k for the same unit. I need to sell due to relocation.
Obviously a Specuvestor. Guy lives in NJ and is trying to get out of this turd before the 1st payment. The area is NOT the best ( dixie Hwy- xto the railroad tracks). Go to http://www.newcenturycompanies.com. and click on the “arial view”. WOW.
“I need to sell due to relocation.”
Yeah. He’s relocating to the poor-house.
Fast Forward Jan. 2008…Sara Babylon is warming her tatererd gloved hands by the tire fire at the dump…She bemoans ” I should have accepted that crazy low bid in Aug 06. I thought I deserved the
list price…Now I get by collecting aluminum cans and eating uneaten
fruit roles out of discarded lunchables.
http://news.goldseek.com/EuroCapital/1156523718.php
Sit back and enjoy this from Schiff. Got to love it.
I think this (from the Marco Island article) helps answer an earlier query I had about wage growth.
And that’s using a phony CPI!
OMG! OMG! Folks, you just have gotta see this! The N.A.R. admits the bubble has been going on for a year. This looks like a farce. It isn’t! They knew it all along.
http://paper-money.blogspot.com/2006/08/lereah-mea-culpa.html
Slide 19 shows the divergence in house prices and income gains beginning in 2000.
This has to be one of the top 5 bubble posts of the year. When the N.A.R. capitulates, who is left to deny the bubble??
He did not exactly capitulate. Look at slide 59 (the closing one) to see his forecasted price growth for existing homes of 4.3% in 2006 and 3.8% in 2007. He only foresees prices falling if the “mortgage rate” hits 7.8% (slide 56), and that is clearly not going to happen, as the persistently-sagging T-bond yield curve is currently screaming oncoming recession. Nonetheless, his own slide 14 suggests that nominal YOY appreciation is about to tip to the negative side, and real appreciation is already there (this graph looks similar to one in the current print edition of The Economist).
San Diegans might be interested to know that the current mortgage debt service to income ratio is at an all-time high of 45% (slide 25); it was only around 22% back in 1998, and I will not buy until it is back in that range or lower.
And even Lereah knows LV is going to crash like the Challenger space shuttle — see slide 40, which documents price growth in 2005 at maybe five standard deviations above the historic average.
Sorry, LV_Landlord
Slide 17 clearly shows the march of the inventory forest towards Lereah’s Dunsinane castle.
Check out slides 54 through 57. Lereah’s strategy is to shift blame to the Fed if prices collapse. His industry, which told the world “Housing is an investment which is guaranteed to make money, because home prices always go up,” accepts no culpability for the crash underway.
Too bad real housing prices are already falling before we are anywhere near his “baseline” scenario of 6.9% mortgage rates in 2007 (slide 56). I don’t think we are headed anywhere near that high, judging from the sag at the long end of the T-bond yield curve, but I guess David Lereah is more pessimistic (or knowledgable?) than I am.
Housing Bubble Horror: Market Has Makings for a Gory Story
http://www.nysun.com/article/38605
http://money.cnn.com/2006/08/24/real_estate/pluggedin_tully.fortune/index.htm?section=money_latest
it gets better or worse depending on which side you are on.
I like to talk to this 85 year old lady that lives down the street from me . Her mind is still sharp and she gets right to the point .
She in essence said that the problem now with this world is greed . She said in essence that everyone wants everything but they don’t want to give anything back and it’s killing America .She still drives a car and takes care of herself . She said she is happy she has a place to live in and a nice view to look at ,(and she turned me on to some good wine ). I said to her ” they say your generation was the greatest generation “. She said ,”their right about that “.
the greatest generation froze their asses off in Valley Forge. Tell that old bag to hurry up and get in the dirt.
ROTFLOL !!!
Lol…..The “greatest generation “.went through the depression ,fought World War II,worked hard in every way ,so , I’m willing to say they were a great generation . The old lady said ,”people were strong ,they made it through all hardships .” I give these people the respect they deserve . I would like to see how the following generations are going to handle harships .
We don’t know, but are about to find out.
lol. +1 for gen-x
What we need right now at this stime and the state we are in is somebody who can lead us and inspire. . The country needs another JFK: “… ask not what your country can do for you, but what you can do for your country…”
you mean like flip a house for my country?
I respectfully disagree. It’s up to us.
Yes it is up to you. The reason that the US does not have any real leaders today is that Americans don’t want real leaders. A real leader, like JFK, would tell people that they have to make sacrifices for the good of the country. And Americans today don’t wan’t to hear that. It’s just, “what’s in it for me?”.
The Kennedy family made their money by breaking the laws of this country. Joe Kennedy was a horrible man that respected the Nazis and hated Britain. JFK nearly got his crew killed on his PT boat. He was not a hero in that episode. JFK accepted a Pulitzer Prize for a book he did not write. He was a serial cheat on his wife. Contrary to Oliver Stone, he did not attempt to get us out of Vietnam, but actually escalated our involvement. JFK let the Russians build the Berlin Wall. Eisenhower would have knocked it down.
No, we do not need more leaders like JFK. We need substance, not style.
Where is john galt?
Who is John Galt?
And how many houses does John Galt “own?”
John Galt is on a remote island with all the brains of society that left because all the stupid people started running things .
The anarcho-liberterian contingent is out in force lately.
Can you blame them?
Toll Brothers, April 18, 2005 2005 2005 2005
“The New King of the Real Estate Boom”:
“But can this magical market really defy gravity much longer?
“Shockingly, despite his paranoid questions and years of hardscrabble experience, Bob Toll’s answer to that question is a resounding yes. For Toll, what looks to many people like pure craziness is perfectly normal, a reflection of a new supply-and-demand equation that will last a long time. He’s an outspoken believer that, yes, the world really has changed this time. That the traditional boom-to-bust housing cycle is now a smooth upward climb. That housing prices will keep rocking practically, well, forever. ‘We’ll reach the point Europe reached 20 years ago, where families pay 45% of their income on housing and married couples have to live with their parents for years before they can afford houses,’ he says. ‘Prices will keep going up in double digits for years.’ ”
Toll Brothers, Aug. 23, 2006
“Housing Slump Proves Painful for Some Owners and Builders”:
“‘It would be difficult to characterize the position of home builders as other than in a hard landing,’ says Robert Toll, chief executive of luxury home builder Toll Brothers Inc., which reported yesterday that net income fell 19% in the third quarter ended July 31.
“In his 40 years as a home builder, Mr. Toll says, he has never seen a slump unfold like the current one. ‘I’ve never seen a downturn in housing without a downturn in employment or… some macroeconomic nasty condition that took housing down along with other elements of the economy,’ he says. ‘This time, you’ve got low unemployment, you’ve got job creation, you’ve got a stable stock market, and relatively low interest rates.’ ”
It seems a dose of reality is needed for Robert Toll as well. The macroeconomic connection missed by Robert Toll is that housing was and is in a bubble and bubbles pop. As for “low unemployment and job creation,” it should now be obvious to everyone that the reason they were low was because an overheated housing bubble was creating jobs until the bubble popped. The reason you have not seen a downturn like this before is because you have not seen a national housing bubble like this before.
Does Greed Have Bounds?
“Propitiously Timed Grants Helped Karatz Collect More Than $100 Million”:
“Several past stock option grants to Bruce Karatz, the highly paid chief executive of KB Home, were dated at unusually low points in the home builder’s stock price, and the company said it has commenced a review of the awards.
“Four grants to Mr. Karatz between 1998-2001 were propitiously timed. One was dated at the stock’s lowest closing of the year, another at a quarterly low, and the remaining two at monthly lows. That pattern raises questions about whether the grants were made on the fortunate dates specified in company filings.
“Mr. Karatz has reaped more than $100 million from cashing out many of the unusually timed options, according to regulatory filings.
“Caroline Shaw, a spokeswoman for KB Home, said in a statement following inquiries from The Wall Street Journal that KB Home ‘has been reviewing these grants with the assistance of outside counsel. Because they are the subject of pending litigation, we will not comment on them’…
“Last month, a shareholder filed a lawsuit in Los Angeles County Superior Court against Mr. Karatz and other KB Home officers and directors, alleging that executive grants had been manipulated to carry the dates on which the stock was particularly low…
“Backdating can lead to civil and criminal fraud charges, as well as a litany of accounting and tax troubles. Earlier this month, federal prosecutors charged three former executives of Comverse Technology Inc. in a backdating scheme; one remains a fugitive. Two former officials of Brocade Communications Systems Inc. have also been criminally charged with backdating-related offenses.
“The stock option grants at KB Home could complicate efforts to untangle stock options timing problems at another company, UnitedHealth Group Inc. The chairman of KB Home’s compensation and stock option committee from 1995-2000 was James A. Johnson, who also serves as a UnitedHealth director. UnitedHealth Group is facing a criminal and civil investigation into a series of stock option grants to its chief executive, William McGuire, as well as to other senior officers…
“Mr. Karatz’s grants at KB Home regularly dwarfed those given to any other executive. In 2000, for instance, he received 500,000 options — 30.9% of all the options granted to the company’s employees. The grant was dated Oct. 13, 2000, the lowest closing price of October, and just ahead of a leap in KB Home shares that took them up more than 20% in a month.
“In 2004 and 2005, he exercised all of those options, pocketing profits of about $54 million.
“Another grant, for 450,000 shares, was dated Oct. 25, 1999, the day the stock reached its lowest closing price of the year. Those options accounted for 20.1% of all grants to employees. Grants to Mr. Karatz prior to 1998 generally exhibited unremarkable timing.
“Mr. Karatz was one of the highest-paid executives in the U.S. in 2005, according to The Wall Street Journal’s annual survey of executive compensation. His total direct compensation in 2005 was $155.9 million, the bulk of it coming from exercising options, according to the Journal report. Mr. Karatz continued to own stock valued at $132.6 million as of Nov. 30, the fiscal year-end for the company.”
If Karatz is guilty, he needs a dose of reality from a prison cell so he can reflect on whether or not an extra $40 million or so was worth going to prison over. For many, a mere $100 million or so would be enough money to scrape by on.
Regards,
Mike Shedlock ~ “Mish”