What Have Been Important Housing Bubble Milestones?
A couple of readers suggested noting the significant ‘milestones’ we’ve seen with this housing bubble. “I’ve got a Labor Day weekend topic suggestion. It’s good time to look back at how far we’ve come and what the important milestones have been.”
“I’ll suggest a format:
1. What marked the top of the housing bubble? (e.g., last summer’s Time magazine cover).
2. What have been the three most important events/milestones/turning points since the top? (e.g., July 2006 — Countrywide CEO says he’s never seen a soft landing in his 53 years).
3. What will be the next key milestone? (In my opinion, when public perception shifts from the housing bubble to the lending fiasco — the Business Week cover seems to be pointing in that direction).
Another added, “Next key milestone - negative YOY price change in the national median for existing homes.”
“No matter how flawed that measure may be, it will be a headline statistic that the MSM will use. Joe/Jane Sixpack will see it and react.”
I agree that the TIME cover marked the top nationally. Locally I would say Hurricane Katrina and Wilma in 2005 was the turning point.
I agree. Katrina was peak. This is when the market hit the top and first began to reverse course. The media suggested “Katrina related uncertainty” was impacting sales, but it was only a blip and buyers would soon return to their feeding frenzy. I’m not sure if it was purely coincidence or if Katrina had a real effect, but it nonetheless appears to mark the peak.
Over the last year, I think we were experiencing the “pause” at the top of the roller coaster. Inventory skyrockets, sales slow, sporadic price reductions are reported, the psychology shifts and there is stalemate between buyers and sellers. Storm clouds grow on the horizon, but the storm hasn’t really started yet.
I think August 2006 will be the beginning of the crash. Sales have really fallen off and massive inventory remains even as the summer selling season ends. Even the media, which has been behind the whole time, is now openly questioning the idea of a hard landing.
I thought the dramatic increase in inventory of existing homes for sale that could be documented by using the real estate web sites marked the top. I think that happened around the beginning of the fall of 2005. Once that was certain the probability housing prices would follow was almost assured.
The top of the roller coaster is the best analogy. I think the third quarter (July-September) of 2005 was the top. We put our Florida house on the market around the first of May, 2005. When we told the realtor what we wanted to put it up for she said, “You’re not asking enough.” OK, so we bumped it up to her suggestion (about 3% higher). It took three whole weeks to sell, right at the price we had thought. We only got one offer. It was cash, non-contingent, and no home inspection, but they wanted our living room oriental rug. Deal killer? No way!! We didn’t even bother to counter.
I wonder what line that realtor is using with her sellers now.
Ageed. We sold our house in June 2004, for the full asking price, which at the time was about 10% over anything else that had been sold. House sold in three weeks, they wanted all the plants. Done Deal!! We took the money and ran. Been happy renters since!
The TOP was this NY Times article July 31, 2005:
Fear of Committing?
http://www.nytimes.com/2005/07/31/realestate/31cover.html?ex=1157428800&en=ab5dec92e7a70bbc&ei=5070
“Fear of Committing?” psychoanalyzes the problem with those of us who are destined to be loser renters forever:
“Such thinking, if prolonged and paired with the inability to make a decision one way or the other, can signal what’s known as an obsessional personality. Obsessives, Dr. Maloney explained, adeptly bury their feelings beneath an avalanche of thoughts.”
That’s me! Wow, what a rush to see it in print!
“The head ruled every decision and didn’t give way to the heart, so they never fell in love with anything,” Mr. Prince said. “It was always too much of a cold decision to make.”
A fear of unsound investments, when it gums up the gears of decision-making, can obscure unmet needs.”
I’m so far gone, so freaking crazy that I’ll never “let my heart” spend my money so as “to meet my needs”. What the F? Just reading that made me start muttering aloud to myself. I think before i spend LOCK ME UP!
Seems like many papers this weekend had headlines like “MARKET IS STABLE “. Do they mean for 2 weeks ?
Also, I’m getting sick and tired of the papers/realtors /NAR suggesting that buyers are messed up in the head .Buyers just don’t want to overpay in a declining market , Thats smart . The real estate industry is so use to buyers responding to the rah rah cheerleading that they think they can lead them around by the nose .This new ploy that tries to attack the psychology of buyers rather than admit the market over-inflated is a insult . Thats all right ,different advertisers are going to take over ,bye bye cheerleaders.
Thats because they have no clue about economics and finance. The majority of people with econ/finance background understand there is a bubble in RE.
Hell, I don’t want to overpay in a rising market! Who wants to ever overpay?
All analysis from the REIC is 60-90 days forward looking only.
This is a true disservice to buyers who are looking 10-30 years forward to make a purchase decision.
You won’t see negative housing news on weekends….it’s the big REAL ESTATE section that’s bringing in the bucks. Negative housing stories appear on weekdays in the general business section.
“You won’t see negative housing news on weekends….it’s the big REAL ESTATE section that’s bringing in the bucks.”
You know I think you are right! In LA the Times section weighs 3 lbs. I had never thought of this before.
In the DC area, inventory seems to have stablized, but the only houses that are moving are the cheaply priced ones. There are still a lot of hideous ones listed at high prices. Those are rotting. I’m starting to see a lot of relative bargains that I think will only get cheaper in the coming months.
If the Stock Market reported its results on a monthly basis and not on a minute by minute basis it too would have looked stable in first quater of 2000.
Great article! In it the would be buyers who balked at prices are portrayed as losers and unable to make a commitment. Now those losers look like winners. A follow-up article about the same people would be appropriate.
Well, potential buyers can commit to a one-year lease.
Why dont they apply this same thinking during the peak in the equity markets in 2000.
Yeah, that was a bizarre article.
excellent! just a few weeks earlier in july 2005, the cover of the nytimes sunday magazine section featur was hawking a toll brothers bright and shiny future where house prices would go up, up and away forever … and kids would have to live with their parents until 40 and then get a 50-year mortgage to pay for their multimillion dollar starter shack.
THAT was the top, imho.
Top of the market, bottom of the barrel for journalistic credibility. I think of all the people who stumbled on this blog (myself included) and saved their bacon. If we’d listened to the Times’s endless pimping for the RE industry, we’d be well on our way to some major losses/debts.
This reminds me of a Tom Brokaw evening news segment at the top of the dotcom bubble where the piece highlighted an investor (fb?) who had just dumped all of his “bricks-n-mortar” shares for dotcom shares. I remember thinking at that moment, “now is the time to bail out of the market, i.e., convert to money market.” Well, two days later the market stumbled badly, and it was downhill from there!
Apparently it is a psychological disorder if you feel uneasy about committing fincial suicide instead of being a complacent sheep being led off a cliff.
How sweet it is now to look back and laugh at that sneering psychobabble attack on those who were sufficiently forward looking to avoid making home purchases last summer.
david lereah’s update book on the housing boom will be seen as a top. it’ll be cited for the next 50 years. maybe it’ll even make ben’s book!
as long we have search techology … many will find his name for centuries to come…LOL
Check out what they said on Wiki.. search for Real Estate Bubble US
Hitting July 2006 with high inventory.
The rush of the spring market has a lot to do with the timing of school in September. After July, there’s no hurry to buy. If you’ve got a for sale sign in your yard, might as well take it down until February.
And heeeeer’s your Gary Watts button!
The day that San Diego YOY home appreciation numbers went negative. The canary in the coal mine. The rest of the nation soon followed (just like this blog predicted a year earlier).
1) Last summer, homebuilder CEOs cashed out their stock holdings in droves, just before a 50% drop in share prices.
2) This summer San Diego reported its first drop in housing prices.
3) The NAR has admitted that price declines are possible.
4) Currently Marketwatch.com home page has lead articles on how the housing slowdown may lead to a recession.
5) Mainstream media everywhere refers to the housing bubble by name.
Millstones or milestones, THAT is the question ?
100%-financed I/O Option ARMs + falling prices = millstone
Good one — we ought to begin using the term “We’ve reached a financial millstone” and let the more observant figure out the sleight-of-words.
The peak of mortgage originations over $4 trillion in 2003 (if I recall the year right). Also, when Alan Greenspan did a u-turn and instead of denying a bubble was possible, ‘wouldn’t shut up about it’ as one reporter said.
I thought at the time that a speech by Donald Kohn (AG’s right-hand man) in April 2005 was a watershed event. It revealed that the Fed had begun to fully grasp the problem of imbalances in the housing market, and dropped strong hints that the imbalances would soon unwind. Funny how the future path of events often follows a closely similar course to the Fed’s current perceptions. Not sure whether that means they are good forecasters, or self-fulfilling prophesizers…
‘A couple of years ago I was fairly confident that the rise in real estate prices primarily reflected low interest rates, good growth in disposable income, and favorable demographics. Prices have gone up far enough since then relative to interest rates, rents, and incomes to raise questions; recent reports from professionals in the housing market suggest an increasing volume of transactions by investors, who (along with homeowners more generally) may be expecting the recent trend of price increases to continue. Even so, such a distortion would most likely unwind through a slow erosion of real house prices, rather than a sudden crash. Moreover, experience suggests that consumer spending would respond only gradually to any loss in wealth–an important consideration because a gradual adjustment in spending would give offsetting policy actions time to work. In any event, I take some comfort from the continuing disagreement among close students of the market about whether houses are overvalued, and, given the widespread press coverage of this issue, from my expectation that people should now be aware of the risks in the real estate market.’
http://www.federalreserve.gov/boarddocs/speeches/2005/20050422/default.htm
It can take 17 plus years to become a sucessful Doctor. It takes less than 17 minutes to marry one. Sometimes it’s wise to have a good healty Fear of Committing to sheer and total STUPIDITY !
Current episodes of “Flip This House” and “Property Ladder” now seem to be ending with minimal profits OR the house is not sold at all, with the owner’s savings dwindling with every mortgage payment. Greedy, self-entitled people who are clueless about remodeling and picking a list price that the market will bear are shown for what they are: road kill.
Too funny - I ordered a framed copy of the time magazine cover 15 minutes before reading this.
my friends and I have had an inside joke that RE would peak when it was on the cover of Newsweek or Time since 2003. The second I saw that cover it confirmed the market had peak (I really already knew this as I had just listed a house for sale 2 weeks prior 6-1-05 and I could see a pronounced shift litereally overnight. Market (NO CA) was just starting to stall…sat there for two months flat and then started it’s unprecedented slide in SEPT) - one month after the Time cover I listed anothe house for sale.
Anyways the Time cover has alot of symbolic, as well as monetary meaning to me and indeed marks the Peak. Here is a link I used to order the cover ($69.95) :
http://tinyurl.com/k2g5g
This week’s BusinessWeek cover is great too (the one with the snake and the house that’s about to burst). Very unnerving image - and artistically well done.
Snake = Evil
1) When the Fed the dropped rates in 2001.
The runup to Labor Day weekend this week, with the recent Business Week article that came two years too late (”toxic loans and people in trouble because of them”) and when Carol Lloyd’s column in the LNAA, aka San Francisco Chronicle, said (paraphrasing) “sellers are in denial and buyers only want to play lowball”.
2) When the Fed began raising rates in summer of 2004.
3) In the spring of 2005, when the SF housing market seemed to quiet down some.
4) In October of 2005, when I saw my first Bay Area “Price Reduced” sign. This is when the hissing sound began.
5) Throughout 2006 thus far, when no one I know well locally has admitted that they’ve either bought or are thinking of buying.
6) The recent DataQuick figures showing y/y price declines in both San Francisco and Marin on median homes.
7) Lereah’s recent “capitulation” in order to get the Fed to lower rates (”capitulation” because he knew what was going on all along).
“buyers only want to play lowball”
LOL i was affraid some forgot low balling was a normal part of buying RE. Overbidding was unheard and unusual practice of buyers.
There is no alternatve now but to lower interest rates again in the Fall.
Wrong. It’s a US Dollar story now. Lower rates and it gets killed.
IMO, the US Dollar is beyond saving. China and the Saudis and Warren Buffett and even the World Bank all know it already. There’s little juice left to siphon from the dregs of the once-full U.S. cup.
Coming soon: The Great American Meltdown! Thanks for the fiat currency, ya bastidges!
I don’t see why the value of the dollar isn’t under the Feds control. If they want to strengthen it they can increase interest rates and turn of the printing press; and if the want to weaken it, it is within their power to do the reverse.
Now, the Fed DOES NOT have control over prices, which are determined by the valuations and psychology of buyers and sellers. So the Fed likes to try to control prices, and it has influence, but fundamentally it is beyond it’s power.
So whatever happens to the dollar is whatever the Fed want to do with it for whatever reason. What happens to the US economy is the question.
As with prices, you just described how the Fed influences the value of the dollar, not controls it. Ultimately the strength of a fiat currency is determined by the strength of that country’s economy and stability of its government, two things totally beyond Fed control.
I don’t see why the price of gold is not in the feds’ (as in US Federal Government, not the central bank) control. They crashed gold in 1869, and I believe they can and will do so again if that will help shore up the almighty dollar. Good luck, gold bugs!
I agree. Right now as far the FED is concerened, their job is to keep an eye on inflation and the US dollar. And given the leveles of the US trade deficit and budget deficit, the Fed has no choice but to keep interest rates attractive (vis-a-vis the Euro and other currencies) if they expect foreign invenstors to continue to finance our twin deficits.
You underestimate the power of manipulation. You are assuming that the Euro and the Yuan are bastions of stability. We are
You underestimate the power of manipulation. You are assuming that the Euro and the Yuan are bastions of stability. We are in a
You underestimate the power of manipulation. You are assuming that the Euro and the Yuan are bastions of stability. We are in
Yeah, but that might be inflationary since most of what we buy is made in China and the only to thing keeping the dollar afloat is the comparatively higher interest rates we are willing to pay foreigners to buy our debt, popularly known as the carry trade. If foreigners stop using dollars to buy our debt, the dollar plummets and the price of everything we buy at Wal-mart and the like increases.
Besides, with interest only option resets combined with hefty prepayment penalties and declining asset values, it’s going to be difficult for mortgagees to refinance out of their loans and take advantage of lower rates. Let’s face it, recent mortgagees are screwed.
Moreover, pump priming is’nt going to work since the only thing we seem to manufacture when given the cash are new home prices which encourages building speculative new homes we don’t need. This traumatic housing bubble is evidence that the tried but overused method of pump priming failed to meet our expectation and generate new products and services.
In other words, interest rates are probably going to stay the same while renegotiated terms between mortgagors and mortgagees together with bail outs, write downs, and so on become more popular. Moreover, its way past time we put our combined imaginations to work again and create new products and services that truly improve our broader economy and quality of life.
Buy gold as a hedge.
pump priming failed to meet our expectation and generate new products and services.
————-
Perhaps a falling dollar might motivate us to generate new products and services. IMO, we stand to gain more by debasing our currency. I believe this is the plan.
Bush keeps saying he or “we” have a plan for keeping the U.S economy strong. Does anyone besides the “inner circle” of the whitehouse know of this secret, so-called “plan”.
1. Dec 2005 – Jan 2006 (as per some condos I tracked on Zillow, the sales price started going down on units selling after Jan 2006)
2. Reporting of the housing bubble has become mainstream in the media.
3. Mass foreclosures, unimaginable price drops.
unimaginable price drops.
Hmmm. I have a pretty good imagination.
Katrina is so symbolic of a wave destroying housing . When I was watching Katrina I knew my house was going down in value way over here in California . Katrina broke the spell . It showed us how vunerable we were . It showed us we were greedy and It also showed us the true purpose of a home .
Still we have houses sitting vacant and ghost towns that were speculation bubbles while 200k or more are homeless from Katrina .
There are some lessons coming up .
- August 2005 was really the peak of the bubble, before the downhill slide began (in terms of sales volume and rising inventory).
- That Fortune Magazine (?) “Dead Zone” article in April was really a milestone for the psycological transition from bubble to bust making it into finacial mainstream media.
- This month home prices are likely to go negative YoY nationwide - last August’s figures were really hot. And we’ll be comparing this August’s numbers (which from pending sales figures look to be really bleak) to those overheated numbers for the YoY calculations.
References:
Existing home sales soar in Aug.
http://www.usatoday.com/money/economy/housing/2005-09-26-home-sales-aug_x.htm
Welcome to the dead zone
http://money.cnn.com/2006/05/03/news/economy/realestateguide_fortune/index.htm
References:
Existing home sales soar in Aug.
http://www.usatoday.com/money/economy/housing/2005-09-26-home-sales-aug_x.htm
Welcome to the dead zone
http://money.cnn.com/2006/05/03/news/economy/realestateguide_fortune/index.htm
I would say Aug 05 also. In southwest Florida the buying slowed for the first time.
The benchmark for me was when my barber said he was going to move home to Buffalo!!!
Game over!
SPB Dude-
Does SPB stand for St. Petersburg Beach? I’ve lived in Pinellas County, FL and I’ve lived in Buffalo, NY as well. If someone voluntarily moves from Pinellas County, Florida to Buffalo, NY then that is definitely noteworthy.
I think it was when Alan Greenspan was renewed for his last term.
But, also, I think the best part of the bubble is stil coming: when cash strapped boomers can’t sell their houses for what they expect.
CBS Market Watch had a good release on banks earlier today followed by an article saying that this coming week’s release of the April to June home prices data will be the big news of the week.
So much water under the bridge since June. They even have an analyst predicting that 2006 home appreciation will only be “in the low single digits.”
This all seems so far behind the present and the upcoming fall. The question is really whether we will end the year with home prices down only single digits, or will it be much worse?
I want to know if Ben will change the name of his blog, now that everyone agrees the bubble is bursting? Any suggestions? HousingBustBlog?
Eventually (in years) Ben’s Blog will come full circle. Instead of outrage over sheeple paying (or at least borrowing) through the nose, our posts will be about all the great real estate bargains out there. I can hardly wait.
I agree, and everyone will think we are all crazy!
Bears tend to miss the bottom by miles. Keep your eye on Robert.
HousingBustBlog.com is open for any takers. Go for it!
We know there is a bubble. It has busted when asking prices are reasonably justified by rental incomes. The name of this blog is fine.
One unforeseen consequence of the housing bust (for me) - It’s really strained some longtime friendships.
I was telling friends from 2004 on not to buy homes. By summer 2005 I was telling them to sell the ones they had recentley bought, that the market was crashing. They ignored me.
These are good friends and for the past 6 months they do not return my calls…go outta their was so they don’t run into me. It’s really a bummer. Next time I keep my mouth shut.
JDog –
I have learned the same lesson the hard way. The thought that it is normal for home prices to always go up and to provide a third income source is a matter of religious dogma for San Diegans which is currently getting overturned. It is a bad idea to become the bearer of bad tidings who gets killed in the process.
I’m kind of relieved to have lost a couple of friends during this real estate madness. Making quick money brings out the worst sense of smugness in some people.
I have one friend who made quite a bit of money off a home sale in San Diego and hey presto, she immediately bought two more properties - a condo and a brand-new house in Phoenix. The condo is up for sale at a 20% bump from purchase price (one year later). She is annoyed that the market has “slowed.”
Ditto only with family members..in-laws to be precise. A year ago they all gave me the crazy look when I said that the exotic loans would unravel when they reset and that the prices had gone beyond the realms of reality. There was one conversation in particular with my sister in-law regarding requirements for down payments (keep in mind this was the middle of ‘05). I had told her that my wife and I had about $100K in cash/cash equivalents available for a downpayment if we decided to buy. Her immediate response was that 100K was nothing compared to what they had in equity in their house that would be available if they sold it or “extracted” it to use as a downpayment on a second house. My wife and I (recent renters in San Diego at that time) had considerably higher combined income than my S.I.L and her husband and she couldn’t understand why we didn’t want to buy at that time. When I asked how much cash she and her husband had available for a downpayment, she said they didn’t…they didn’t need it because of the equity in their house. So my next question was how did they expect a first time buyer couple, such as my wife and I, to buy their house without having a sizeable cash downpayment?? Of course she spouted off about being able to use I/O’s to make it affordable, but my response was..debt is debt, it has to get paid off eventually by someone. This conversation really opened my eyes to how engrained the Housing Psychosis was/is in So Cal. During the course of that conversation a lot was revealed about certain fundamental truths of finance, savings, jobs, etc. All of it went over her head. This my friends, is what we’ve been dealing with in So Cal for the past several years: Mass Psychosis. It’s about to end and the withdrawals will be severe.
Housing Psychosis — LOL! Most people from here in San Diego just don’t “get it.” And those who do for the most part just play right along.
What I’ve found is that the only San Diegans who do get it are typically well versed in Finance or Business and they have either sold or are in the process of selling. It’s a complex subject and most of the population has never had formal training / education on time value of money concepts (present/future values). I’m thankfull that my business education in accounting and finance allowed me to intuitively see that there was something wrong with the housing market in So Cal before my wife and I moved out there from Chicago in late ‘04…otherwise, I’d probably be an FB. Oh, and I’d also like to thank Ben and Rich Toscano for giving me solace in my perspective a year ago when I was enduring the cacophony of relatives and friends telling me to buy.
If they were “good friends” then they would understand that your motives were pure. IMO good friends are open, honest and candid with their thoughts and feelings. It doesn’t mean you never disagree. It just means that you respect the others opinion. That’s why, IMO, good friends are hard to come by.
Advised my family and closest freinds to sell thier houses in April ‘05. Especially if they were considering moving, retireing, or other wise selling in the next couple of years. Did not receive any comments. Over the years some jokes have come out about my “predictions.” Most people were shocked and think I’m crazy. Didn’t get any replys.
Then last week I sent out an e-mail saying many agree that the top of the market was in Aug ‘05. Got a reply saying anybody can predict that housing will go down sooner or later. WTF?
You just can’t win!
Oh by the way I saved that e-mail from April ‘05 and resent it out! No reply.
Next Milestone:
At least one of the HomeBuilders will announce amonth of NEGATIVE sales. Yes, more cancellations than contracts signed.
Other possibilites:
Golden West purchase cancelled.
Countrywide corporate relocation as a cost savings measure.
H&R Block “reorganization.”
The Rapture.
“the Rapture”
LOL
GS
Did you want to say
“The Rapture” or The “Left Behind”?
I agree with most of you that Aug was the peak and Time’s cover story marked the turning point of this bubble.
However, my personal milestone was the day Greenspan advised consumers to refinance into adjustable rate mortgages. Do you remember that dark day?
I remember shouting obscenities in the direction of my television and questioning the wisdom of this prized economic sage. I was completely and overwhelmingly disappointed.
No, what dark day was that? Come on, I’ve got the quote. What you cite is an internet legend. Never happened. The quote was from 06/08/05 if you are interested in the truth.
Post it. I can handle the truth.
Here is a block quote of what Greenspan said at the Credit Union National Association 2004 Governmental Affairs Conference on Feb 23, 2004. Pay attention to the last paragraph where he endorses adjustable rate mortgages. Also note, this speech was in Feb just before the spring 2004 selling season:
One way homeowners attempt to manage their payment risk is to use fixed-rate mortgages, which typically allow homeowners to prepay their debt when interest rates fall but do not involve an increase in payments when interest rates rise. Homeowners pay a lot of money for the right to refinance and for the insurance against increasing mortgage payments. Calculations by market analysts of the “option adjusted spread” on mortgages suggest that the cost of these benefits conferred by fixed-rate mortgages can range from 0.5 percent to 1.2 percent, raising homeowners’ annual after-tax mortgage payments by several thousand dollars. Indeed, recent research within the Federal Reserve suggests that many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade, though this would not have been the case, of course, had interest rates trended sharply upward.
American homeowners clearly like the certainty of fixed mortgage payments. This preference is in striking contrast to the situation in some other countries, where adjustable-rate mortgages are far more common and where efforts to introduce American-type fixed-rate mortgages generally have not been successful. Fixed-rate mortgages seem unduly expensive to households in other countries. One possible reason is that these mortgages effectively charge homeowners high fees for protection against rising interest rates and for the right to refinance.
American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home.
Here is the link to the full text of Greenspan’s speech: http://www.federalreserve.gov/boardDocs/speeches/2004/20040223/default.htm
“American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home.”
This is the ringing endorsement for which many on this blog have condemned AG? That seems hardly fair — somehow his circumspect recommendations for households “willing to manage their own interest rate risks” were lost in translation.
Personal responsibility aside, you have to agree he raised the ARM subject and couched it as an alternative and more affordable financial tool at a time when home prices were beginning to soar. Thereafter, home prices went through the roof.
Moreover, after AG’s remarks every mortgage broker in the country started pushing ARMs and their hybrids with the pitch, “according to AG it is cheaper than traditional financing and you can save X amount of dollars in your monthly mortgage payment.”
Here is a sample of this pitch by florida mortgage corp, caveats included:
“In a speech to a credit union group, Fed Chairman Alan Greenspan questioned whether fixed-rate mortgages were the most cost-effective means of financing a home purchase. He said “American homeowners clearly like the certainty of fixed mortgage payments” but pay several thousands of dollars a year for the benefits.
Greenspan said homeowners “might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade”
Greenspan noted that if homeowners are “willing to manage their own interest-rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home.”
As you can see, to the consumer searching for the cheapest method of financing the American Dream or afraid of forever being priced out of it, this reads as a ringing endorsement from a very reliable public trusted source. Here is the link: http://www.floridamortgagecorp.com/adjustableratemortgage.htm
You sure it wasn’t in ‘04?
I would say July 20 2005, which marked the stock market top for several builders, notably Toll.
Milestone: That single ad, for a San Francisco property, that said the successful bidder would have to sign a statement promising to feed the squirrels after the owner departed. That was the shoeshine-boy moment for me.
I’ve made it a point to dine on squirrel as much as possible, since.
Los Angeles milestone: Sellers receiving multiple over-the-asking-price offers and seriously reviewing the essays that came along with. Potential buyers begged to be considered for reasons as diverse as “we want to keep our folks living with us and they can no longer climb stairs - we love the fact that your house is a one-story” to “our son’s best friend lives down your street and we want to make it easy for them to play Little League together.”
Kind of like Match.com for housing. Everyone was cranking out what they thought people wanted to hear just for a nod in their direction.
Buying property went from being a business transaction to a surreal emotional one.
Ok folks, this is how I see it:
1.
Ok folks, this is how I see it:
1. before and to 2Q 2005: wackiness and insanity reigns supreme - and loans at this point are not being made in conjunction with the realities of the buyers’ situations
2. 2Q-3Q 2005 topping out on prices and complete insanity. The dumbest of the dumb are still “getting in the game” - a.k.a. biggest suckers on the planet
3. 3Q 2005 - 1Q 2006 slowing sales (true that is generally not the busiest season) it serves to MASK the underlying erosion of what is really going on…
4. 2Q 2006 - last chance for sheeple to have a snowball’s chance in hell to sell their homes without taking a complete bath. Inventories are skyrocketing and there is some slippage in pricing, but not too much yet. Foolish sellers dig in - smart sellers give up a little to get the deal signed.
5. 3Q 2006 - Inventories largest in decades. Pricing going downward in a hurry. Sheeple sellers starting to clue into what their situation REALLY is (denial = over) - become panicked if in ARM and subprime.
6. 4Q 2006- on (I say this will play out until 2010-2011 at least). Prices Tank. Buyers are rare. Foreclosures never higher. Some subprime banks fail. Mortgage companies layoff 75%+ of workforce.
Tanks out the economy. Sets off domino effect of other more mainstream companies LAYOFFS, plant closings, shifting more OVERSEAS, huge cutback in consumer spending due to the fact that Joe Sixpack is ALWAYS hovering one paycheck away from foreclosure (oh, his credit cards are maxed out too).
Quality of life suffers in condos and subdivisions when units and home are empty - or get rented out to gangbangers and/or stuffing 5 illegal families in because the FB needs to try to cover their mortgage. Erosion of Mayberry RFD lifestyle: increase in graffiti, noise, homeless, increase in road rage, etc.
A few people who were caught up in this foolishness become somewhat unhinged - some go postal at work.
Prices go down to pre-1996 levels. But people still cannot buy because (pick one or more): interest rates; their employment prospects are iffy at best/unstable due to the poor economy; banks finally “see Jesus” and now underwrite loans properly and most people do not qualify; they (or good friends/relatives) were so burned before that the thought of owning makes them piss their pants outright.
But is could be worse. I did not say that there is the Big D in there and that IS a possibility. In which case we ALL will get fvcked (unless you have several million in cash in a safe place- under your MATTRESS, of course)….
Respectfully submitted,
M.B.A (the Clairvoyant)
Not in your mattress, but in another currancy, gold, sliver, etc.
Completely agree with this, [1. ] from an existentialist point of view.
However, transcendentally, putting emotion and intuition above reason, [my gut feeling thing], I must say that the milestones for me were:
1. Thinking I needed a psychotherapist to help me overcome my 4-year-long unwillingness to purchase a home, until I discovered bubble blogs early in the year. Canceled appointments.
2. Hearing a real estate agent discuss “the Mexican Standoff” out there [June 06]. Wondered at that time if the bubble chatters (like me) had not at this point (May?) now turned into “the herd.”
3. Laughter between the deli lady at Pathmark and a potato chip guy earlier in August [about some idiot trying to get a "bubblicious price" for his dump.]
4. Trying to determine now if the volume of discussion alone about a taxpayer bailout is any indicator at all of it’s probability.
Ok folks, this is how I see it:
1. before and to 2Q 2005: wackiness and insanity reigns supreme - and loans at this point are not being made in conjunction with the realities of the buyers’ situations
2. 2Q-3Q 2005 topping out on prices and complete insanity. The dumbest of the dumb are still “getting in the game”
No, I am not psycho, and I do not stutter while typing!
Did you know that if you use the GREATER THAN or LESS THAN signs on this blog that your post cuts off exactly when it hits that symbol?
My apologies….
M.B.A., I’m still pondering your first post. Very profound!
LOL - someone told me you have to use an ampersand to display a greater than sign,-in a subsequent thread. Well, now I know.
Pretty funny how it stopped at #1. !!!
M.B.A. ,
I see the same visions you do , but I hope it doesn’t happen .
the peak in w sonoma couny was 8/05,you could see and feel it.the latest milestone was seeing inventory double after july 4 weekend in my area near sebastopol.we have a 10 unit development near downtown that went on the market april first.no sales yet…the literature states “all offers will be reviewed on april 10th” oops.
Speaking of changing psychology, has anyone else noticed a change in tone of several companies’ tv commercials lately? Maybe this is just an example of “seeing what you look for”, but I have noticed in the last few weeks a couple of new ad campaigns that made me think, “They’re desperate.”
Example #1: One of the home improvement companies (either Lowe’s or Home Despot) is now running very aggressive “tug the heart strings” commercials. The dad is fixing the pipes under the sink. The son comes to see if he can help and is told “no”. He walks away dragging his stuffed animal and moping; the sad/tender music swells and we watch the dad reconsider. He seems to thinks, “Home improvement skills should be passed from father to son, and here is such an opportunity!” So he calls his son back to the kitchen to grab a tool and help. Awww, how touching. Fade to logo of company trying to manipulate your emotions.
Example #2: BestBuy is rolling out a new “we pledge to help you [buy a ridiculous plasma tv]” campaign that is weirdly serious. Quite a change from their previous carefree ad campaign which featured dancing best buy employees, trippy kaleidiscope visuals, and techno music. “Life’s a party!” just became “Life is filled with worry, but you can trust us.”
Example #3: Someone else (txchick?) pointed out that JC Penney has long skirts and conservative fashions in their most recent catalog.
For an amused zeitgeist observer like myself, these are the sorts of superficial indicators that flash “Recession! Recession! Recession!” in big neon lights.
I’m so convinced a recession is coming, that I’m urging everyone I know to convert 401k’s to cash. Nobody has, but at least I’m on record…
I went further than that. I switched my 401k (from my old company, retired from there couple of yrs ago) to an IRA held by my (federal) credit union this past week. They are paying 5.5% for 1 yr CD.
I didn’t have that much in the 401k (about $100k) but decided to get out NOW.
I am in the ’stable value’ option - we do not have CASH options…
the cape showing cracks in fall 04
the first to drop in 1988
The day Ben Jones noticed the emperor had no clothes and decided to do something about it.
Feb. 2004 — Greenspan recommends that homeowners switch to adjustable rate loans.
http://moneycentral.msn.com/content/P73977.asp
Insider & Form 144 Filings - TOLL, ROBERT I.
http://biz.yahoo.com/t/11/1190.html
“21-Dec-05 480,164 TOL Acquisition (Non Open Market) at $0 per share.
13-Dec-05 296,099 TOL Acquisition (Non Open Market) at $0 per share.”
How come he was able to purchase at the future price ($0)?
I ended up having a heated email discussion with Cramer on this one. This is the one that hit home for me (and when I doubled my short on Toll Brothers).
Can’t Bet Against the Land Shortage
By James J. Cramer
RealMoney.com Columnist
5/20/2005 11:04 AM EDT
SNIP:
At the heart of the current and continual housing boom is a tremendous land shortage. This land shortage will not be cured by higher rates, short or long.
But what I do see is an unbelievable land shortage just at the time when we have Third-World-like population growth.
The reason I won’t recommend shorting the homebuilders here is that Lennar, Toll Brothers (TOL:NYSE - commentary - research) and a handful of other companies have the land. They are land banks, they are the ones with the repository of undeveloped land. They bought it shrewdly, before values really took off. When you short a homebuilder, you are shorting raw land in an environment where land simply is in such short supply that you have to bid on closed military bases and you can’t avoid bear habitats anymore.
The day I realized a housing mania was taking place, was when I determined that my CA home was increasing in value each month, faster than the mortgage payments themselves. This was in the spring of 2002, and as we all know in hindsight… the mania was really just hitting it’s stride.
When the TIME mag cover appeared, I knew we were within six months of the top.
I personally decided there was no longer any doubt whatsover in June of this year that the peak was in. (I have some access to mortgage industry data, it was clear the market was dying and applications were falling off a cliff.)
“The day I realized a housing mania was taking place, was when I determined that my CA home was increasing in value each month, faster than the mortgage payments themselves.”
Ditto. When your home suddenly becomes your household’s primary income source, one should begin to suspect something unusual is underway in the macroeconomy.
Easy:
THE DAY I BOUGHT MY HOUSE! June 22, 2005 in MD Suburb of DC.
Don’t feel bad I bought a house in 2005 also . Hope your staying long term .
Future milestones?
1) Fannie Mae bailout.
2) Banking industry bailout.
3) Hedge fund bailout.
4) Lenders denounce the use of interest only loans as too risky, and return to traditional underwriting standards and downpayment requirements.
4) Everyone says that real estate is a risky investment, and advises against buying any.
5) Median home price to median income ratios drop to around six in the formerly frothy coastal areas and below three in the heartland.
6) Homes can be purchased and rented out for enough to cover carrying costs.
7) Home ownership is widely viewed as a household expense, not an income source.
It’s Deja Vu all over again…
#8B) USA Bail out from foregin creditors
#8C) USA taxpayers becomes slaves to apy off all thier debt
For perspective, I’d like to know when this blog hit it’s zenith. When were the most hits?
Are they still climbing? Ben please fill us in!
I second that!
Yes - that will indicate that sheeple are scared witless…
Today - The day the Croc Hunter dies in a bizarre accident playing with deadly animals just like Wild Boyz on MTV.
This sends the signal that risk is again a thing to be feared/respected or at least taken into account in any decision. Bungee jumping, BASE jumping, croc hunting, X-games mentality and toxic loans are once again seen as the “true” risk they really are.
We are human after all and the housing market doesn’t always go up and crocs and stingrays don’t always cooperate.