Housing Bubble Predictions For Labor Day, 2006
What’s your Labor Day prediction for the housing market? Make it local, regional, national or global. Here are some from the July, 1 2006 predictions thread:
“I predict that by the end of the year, the Seattle area will finally start showing signs of the bubble seen in the rest of the country. I’m using my landlord as a bellweather. He’s ARM’d to his teeth on both the place I’m renting and the place he lives in, with an unstable job.”
Another from Seattle, “Pretty much as planned. Inventory has increased about 15% since May 1st. The mania of 2005 has been replaced with the deacceleration of 2006. The fall will come after summer.”
From Florida, “I predict numerous Florida cities median prices will be negative yoy for Q2, several already are as of May. I think all of the following will show negative for Q2. Sarasota/Bradenton, West Palm Beach, Punta Gorda, Melbourne, Ft Lauderdale, Naples, Ft Myers, Ft Walton Beach, Ft Pierce.”
Some specifics, “EOY: Fed Funds Rate 6%. 1st National housing price YOY decrease : 9/06. State with biggest hit: Florida. 2Q Economic growth: 3.6%. 3Q Economic growth: 3.1%. 4Q Economic growth: 2.5%.”
From California. “High-level prediction: Stubborn Orange County sellers will not start making real price concessions until late 2006. 2007 will be a steady slide downward.”
One concurs, “I second your prediction, and add that OC will have a harder landing than average, as the mania has lasted longer there, leading bubble prices to more euphoric levels than places which began correcting sooner. Thus OC prices have farther to fall in order to realign with fundamentals than in places where housing market participants are less delusional.”
A view on the economy, “I think that a recession is baked in the cake. 1) Inverted yield curve. 2) MEWs are practically done. 3) RE prices are reversing. 4) Declining leading indicators.”
“There is no more fuel left to burn. IMHO we are headed for a deflationary debt collapse that will crash the economy. People will not borrow to buy more RE when prices are following. A deflationary psychology reinforces behaviour, just as an inflationary one does.”
Another said, “BB will fold like a cheap tent in the face of political pressure and will lower rates sometime in ‘07. It won’t matter. California and Florida will pass up Colorado for the highest foreclosure rates by 2009. Steep drops in housing prices will persist much longer than most bears thought possible. The government will respond by printing more money and still house prices will go down.”
From Maryland, “Accoridng to the MD Ass. of Realtors, you’d better buy a house now or be priced out forever, economic fundamentals be damned. They predict continued and indefinite price apprecation while talking about rising interest rates in combination with 1.9% wage growth. My take, OTOH, is this reeks of attempted CPR on our staggering market by trying to scare the sh*t our of people that they’ll be priced out forever.”
Another, “Mid year Prediction, 6-month forecast: 1. *Major* decline in the buyer pool by October, across the nation. 2. Continued growth of inventory at a steady pace over the rest of the year. 3. 1/4 point rate hikes at the next three fed meetings. 4. ‘For Sale’ prices will tend to remain at the peak. People will hold onto their suicide loans hoping for a turnaround until all resources are exhausted.”
A view of the markets, “Stock market says flat to slightly downward as traders can’t really figure out what the conflicting signals mean. I am calling for a ‘Black Friday’ this October. The Fed has at least 50 basis points left in it. Predict the September meeting is going to be a tough meeting of the Fed.”
“Housing markets will post nationwide year over year decreases in Q3 2006. At least one major high profile mortgage blow up remaining this year. The amount and severity of FB sob stories reported will slowly creep up. Inventory will continue to rise. I think it is possible for San Diego to break 30K homes for sale by the end of the year. If conditions are right we may see our first small market RE melt-down by the end of the year.”
Another on San Diego. “Regarding downtown San Diego only…. I predicted that in January that the calendar year change in average or mediam asking price would decrese 15-20%. After almost 6 months since, the figures are -9% and about -7% rspectively. I believe this trend will continue. Perhaps accelerate. June for all of San Diego County will likely see its first y-o-y decline in median and avg sold price, probably around -3%.”
On LA. “Los Angeles sellers will be ‘deer in the headlights’ by the end of this year; Phoenix will begin ‘Custer’s Last Stand’ in the same time period. Blood letting that media can’t ignore in 2007.”
A view on the media’s role, “I don’t see alot changing dramatically until the mass media starts to harp on the falling market. You need that lemming effect to really get things going. They love a good story and at some point the gains of siding with the NAR just won’t be enough for the joyous harping of a good story affecting millions.”
“Mid 2006 is definitely slower. I live in Nashua NH and you can now see a few homes(run down ranches usually) here and there under 200 grand. Last year I didn’t see one for sale for that range at all. There are a few articles about frustrated sellers but is still a small story.”
A look at the global impact. “This housing bubble will result in a national, if not international, depression. It’s everywhere and has permeate markets which would never have had any housing appreciation on their own. There’s no connection between housing and its respective regional job market in any manner. I think Bakersfield CA is one of the best cases for this point.”
“My advice; with enough of a savings to put in a 20% down payment after a 40+% correction, is to not bother. You’ll need that money to survive periods of joblessness in the decade to follow. Cash is king during a deflationary cycle.”
My prediction is that Ben comes back tomorrow and says he’s bought two condos in Vegas, a house in Verde Santa Fe and a couple more condos in Tampa, Florida. All on Option ARMS from Washington Mutual.
Oh wait, this isn’t April Fools’ Day
Labor Day Massacre begins this Friday, when tons of 4 month old listings get relisted (to reset Days on Market) and the listing price gets very, very competitive. Even the dumbest agent in town knows there are very few active buyers after school begins, and all the major real estate companies will be retraining their agents to get new lower prices on their listings, or dump the over priced ones. It’s gut check time for everyone in the industry, and this crash will spare no one.
This started happening late last week in my neck of the woods (Folsom Lake). I know a couple of Realtors who told me they sent out two packages to all of their sellers. One package contained a significant price reduction as part of a re-list. The other, a cancellation. A simple yet effective message: lower your price now or find a different Realtor.
Folsom is nice but it has gotten way overpriced. The empire ranch area is great but the prices would give a sane person a heart attack.
OT:
Debt Bubble Economic Polices Are Over
OT:
Home ownership
“I’m glad I got a 30-year fixed mortgage when we bought our new home. Of course, it helped that I’ve been reading Atrios for years rail about the evils of ARM mortgages. Blog reading has clearly saved my family a great deal of financial grief.
“And while I’ve been a homeowner for only four months, I’ve quickly learned just how important home ownership can be. For the first time in my life, I actually care about my neighborhood and neighbors. In the past, I always assumed I’d be moving soon enough, so I was never invested in my community. That has changed overnight.
“And there’s that intangible feeling of accomplishment that comes with home ownership. There’s nothing like it. Every day I literally say, to whoever will listen, “I love my house”. And I do.
“Now, as rising interest rates and maturing ARM loans threaten thousands of home owners, Democrats need to make sure they’re doing what they can to protect their interests from the predatory lenders who put them into this mess. Atrios sketched out some quick and dirty ideas on the back of his virtual napkin:
“Off the top of my head this could include cracking down on bad lending practices, providing legal assistance to victims of dishonest lending practices, removing impediments to prepayment and refinancing, and, of course, repealing the bankruptcy bill…”
What about cracking down on Bad Borrowing Practices. Do we really have to have a “nanny state” where only the safest of borrowing practices are legal to protect ourselves from stupidity?
However, there is one thing I’d like the government to do. I want them to get rid of the MORTGAGE INTEREST TAX DEDUCTION! The Government is partially responsible for this mess by making borrowing for mortgages even cheaper than borrowing for other things.
Don’t get me wrong, I hate taxes too. And I’ve benefited from the mortgage interest deduction personally (though not much because of AMT.) But all the mortgage interest deduction does is make housing more expensive! If they got rid of it, house prices would drop to make up for it. It’s that simple.
Also, no federally insured program should be behind loans that don’t have a fixed interest rate, 30 year or less term, and require at least a 15-percent down payment. The government needs to be responsible with its lending.
IT might not be a bad idea to borrow from WaMu. Once they go into receivership some exec needing to protect himself from criminal charges might torch their files. After the junk portfolios get rotated around a bit they might lose the files!
txchick -
Interesting post yesterday regarding Washigton Mutuals exposure to toxic loan products and there lax lending standards. Do you know how to get info like this at other banks? I asked a manager at San Diego County Credit Union and he claimed they are on solid ground, but……
If you are concerned about a particular bank you can get a rating from Weiss Ratings. They rated WaMu C+ a few years ago when I checked so we switched to an A+ bank.
There can also be interesting anecdotal evidence that can be collected here. For example, I had a client try to buy a note from the parent corporation for Wilshire Credit. The VP would not discount the note in spite the loan being in default for 3 years, and the mortgagor being in bankruptcy!
You have got to worry about a bank that is operating in such a state of denial.
Monterey County, California median home price crashes $39,000 year over and: and down $28,500 in last month alone!!
I predict entire California YOY negative by years end!!!
Article at http://www.homepricebubble.com
Area realty market turning soft
It’s the buyer’s turn as homes on market start to pile up
By MARIE VASARI
Herald Staff Writer
July was a record month for Monterey County home sales.
But it’s not the kind of record anyone would want.
As prices slipped and sales slowed compared to the previous month, unsold home inventory for July jumped to its highest level yet, and sales slumped by 50 percent over the previous summer’s sales volume.
According to the most recent figures available from the Monterey County Association of Realtors, July’s single-family home inventory was at an all-time high of 2,502.
Median home prices dropped to $659,000 in July, down from $687,5000 the previous month, according to numbers provided by the real estate association. That median home price for July also slipped behind the median price of $698,000 for the same month a year ago.
But while prices in Monterey County haven’t dropped as drastically as in some regions of the country, the number of homes selling — or not selling — is the most dramatic shift in the local real estate environment.
——————————————————————————-
Excuse me, but that June to July drop in the median occurred at a 40% annualized rate of decline, and that during the normal peak of the “red-hot summer sales season.” Are prices really dropping more drastically than that in other parts of the country?
Where???
But it’s not the kind of record anyone would want
Some unbiased new source! I’m a HOMEOWNER, and I wouldn’t mind a 40% correction! Bubbles are Bad for America.
That is the first thing that I thought when I read this article. Also the other day I heard someone (on Fox, I think) say that nobody is happy about the state of the housing market!! I guess they’ve never read this blog.
I am with SDCCU as well. I have a lot of cash in CD’s with them which expire at the end of Nov this year. I recently asked the same question of one of thier managers, same answer as you got. So I checked there end of year financials which you can get on thier website http://www.sdccu.com. If I read it correct at the end of 2005 they had about $4M set aside for loan and lease losses! But they have 50% of thier loan portfolio in real estate…again if I have read the financials correctly the assets for loans and leases total $2.3B…so does that mean they were holding $1.15B in real estate loans with only $4M to cover losses? I am planning to only leave $100K with them in Nov and move the rest elsewhere. $4M does seem like anywhere near enough with that kind of exposure.
‘doesn’t seem’…sorry typing too fast.
i also got an account with them but much less than 100k. imho, we really cannot judge the re protfolio unless we know the detail. i remember when we refi our house in 03 from mission fcu they were so keen about income documentation all those traditional requirements before approving a loan that you can assume that their protfolio might be in a much better shape than those subprime lenders.
RE: WAUMA…From a person who was previously part of their appraisal network…the outfit was well intended-not dirtbag POS’s like Wells Fargo-but administratively, the mortgage operation’s right hand never knew what the left hand was doing…typical bankers.
Just back from a 450 mile weekend road trip from the NorthShore of MA up the ME coast over to the White Mts in NH., and then back down the coast from Portsmouth…
Oberservations…From the signage, it looks like all of New England is up for sale…
I found this same situation as I traveled through Wyoming,Montana,Idaho and Utah in July. HELL it looks like all of Amreica is for Sale. Who will buy if a majority of Americans already own their homes?
The ME Tourism Dept. gave out copies of the ‘07 Farmer’s Almanac to departing tourists at the York toll house.
More good news for FB’ers with McMansion heating fuel oil tanks to fill.
Predictions? Winter will be unseasonable cold for the entire country.
gee, are we really this screwed?
It depends on your level of exposure.
bought 05= screwed till 2010 ?
bought 2004 = just starting to get under water
bought 03 = will be under water in 07
sold in 2001, screwed until 2020?
That depends on how the proceeds were invested.
sure, but in Europe there is no way to keep up with home price appreciation except by using (another) very risky investment. With a savings account or CD’s you can’t even keep up with the CPI (after taxes).
In hindsight investment in gold (stocks) would have done fine
I agree about the European thing. I am American but working here for the moment.
Sold in 2005. Renting. Not screwed.
Sold in 2005. Renting. Not screwed.
Same here, my lease on my house, $2500/month, is up in October, will be moving next door for $2000/month. Little bit smaller but son is off to College (Baylor) and utilities should be less to, so another $6K savings /year. When college boy comes home on break I told him he has to sleep on the foldout!
don’t hold your breath flatplan
“‘For Sale’ prices will tend to remain at the peak. People will hold onto their suicide loans hoping for a turnaround until all resources are exhausted.”
– It will be interesting to see just how long the sellers can hang on.
“Los Angeles sellers will be ‘deer in the headlights’ by the end of this year; Phoenix will begin ‘Custer’s Last Stand’ in the same time period. Blood letting that media can’t ignore in 2007.”
– Words of wisdom.
I swear everyone here in LA is drinking massive amounts of koolaid and is taking some really good dope!! Everyone we saw yesterday while looking at open houses was convinced that prices would never go down and their price was justified. I met one idiot who is trying to unload his ’60’s era house in the upper $700’s to buy another in the same neighborhood. He is a financial planner who bragged about the houses he owns around Austin and how he hardly has to pay any taxes since it looks like he only makes $48k a year in income! He then went on to tell us how everyone should own buckets of real estate since this is the only way to lower your taxes. I heard this and had to grit my teeth as me and my husband are “honest” people and are scared to death of tax time since we refuse to buy in this crazy market. I wanted to tell this “brilliant” person that he is screwed on his Austin real estate if something happens to Dell. People like this make me sick (he’s a boomer, of course)! He bought his current house 15 years ago after the quake and I’m sure he didn’t pay much for it. He also went on and on about how you should have a 15 year loan and pay your house off (the only intelligent thing he said). My question is how can we (gen-xer’s) ever hope to get a 15 year loan and pay it off at these crazy prices???? I definately do not want to fund his retirement and make him rich just because I was not at the right place at the right time!!!!! I am bitter needless to say!
I checked out some open houses yesterday in the L.A. area- very very quiet at all of them.
I was at a kid’s Bday party on Saturday and overheard other parents saying “You know, prices are dropping.”
Things are changing very quickly in the L.A. area.
larenter,
Be patient not bitter. If he bought in the past couple of years, remember thatTexas real estate does not appreciate much and property taxes will cost him his savings on income taxes.
Thanks!! I will try! It’s just the cockiness of this guy that pissed me off! I bet half the stuff he is doing on his taxes is not legal! He said his college age daughter “works” for him as a “computer consultant” and guess what her wages are exactly as much as her college tuition! What a scam artist! No wonder our government has the debt it has!!!
I do the same thing. My wife is employed by ‘my’ company. Her wages are not half the money she spends at Ann Taylor or Nordstroms, not to mention the fact that the FDIC, FUTA,FED withholding and EDD nonsense sucks significant cash flow. Thank the Lord there is no Nieman Marcus close by! Happy Labor Day to All! Pismo Prices will drop 15-20% But David, you said ‘it’s d different this time’. NOT
its probably his defense mechanism in action. deep down he is scared sh*t as hell. re his daughter, it could be legal and usually advised by financial planners like him. well, the idea is to exploit the system without breaking the law (or get away with breaking the law).
I should also have mentioned Jones of New York, Ann Kleins, Gucci,and Tiffany and Harry Winstams (sp).Txck help me out.
honestly, the guy is smart! in Minneapolis, business owners shifted their property tax burden onto the working class and laughed all the way to the bank. essentially, they cut wages by doing this.
in general, I think that all W2 workers should file taxes like a business and deduct expenses like “driving to work.”
in my opinion, the W2 was created as a way for businesses to help the government collect taxes. in return, businesses get special tax incentives.
Smart or not, why is this idiot talking so much about his financial prowess? And bragging about himself getting away with bending the rules?
He sounds like someone I wouldn’t want to sit next to at a dinner party.
I’ve heard of people doing this but going back to my IRS internship, he may or may not be saving anything doing this and his daughter cannot deduct her education expenses anything other than the norm. Additionally, basically you’re balancing off the 15 percent you pay additional in personnel taxes versus the difference between your two income taxes…. additionally, if the girl pays for herself and the father doesn’t claim her due to the tax scenario, he looses 1 dependent as well as her Hope/LifeTime learning credit/etc. Now, if they’re twice claiming the same deduction for 1 student, shame on them and the IRS may not like it if they’re caught eventually but still, I’m not sure its entirely worth it.
I’m also a gen-xer waiting for this train wreck to take its course, and what infuriates me is every baby boomer giving his or her BS opinion about real estate investing. Greenspan turned every Joe Sixpack that happened to own RE prior to 2000/01 into an “investor,” and since it will probably be the only “investment” that actually will have made these people any kind of a return (realized or not … and no, winning $5 after picking 6 random numbers at 7-11 doesn’t count).
In late 2003 my father-in-law (who is almost completely drawn on his housing ATM) recommended that I get into the market before I’m priced out. For most of us in our mid-20s we were already priced out of the OC market by early 2003. After taking a job in the IE, next, I had to hear it from every middle-aged secretary, accounting clerk, warehouse worker, and manager at my work. Most of these middle-aged sages are making far less than the $60K I’ve managed to scrape out, and I’m the one who needs financial advice …arrrrgh. In late 2004, when my boss opened his mouth about his ingenious RE investment (ie primary residence) at outskirts of the Inland Empire, and how it had doubled in value - I couldn’t take it any more and blurted out that that’s all fine, but he better cash out before IE RE dives 50% in 2007. This has and remains to be my prediction at least for the vast majority of the IE - the OC, however, is going to be a little less homogenous with certain non-new-construction areas (that weren’t being traded by flippers like stocks) weathering the storm quite nicely.
Well, I’m a boomer (born 1958) - I beat my head against the wall in Santa Cruz for years trying to buy a place on one income. I finally did - outside of Portland, OR - and remarried, now we have two incomes. Here’s our mission: we have a 5.875 30-year fixed, that we pay extra on - our mission is to make that balance $0. No fancy games, just - no mortgage payment when we retire. We don’t drive fan cy cars or take fancy vacations - but we pay $400 a month extra to the house. It’s a place to live, not a big investment thing - maybe a place to store some value when we’re 80 and need the money. Hang tough, GenXers. Wait a couple years - and consider living in a less expensive place.
“…and consider living in a less expensive place.”
That is the part that a huge part of the population, probably including even a small number of our fellow posters, did not want to hear. When the smoke clears, we’ll have to live within our means. Heck, that could even mean formica countertops.
Where is this mythical “less expensive place” and is there one within 60 miles of my job?
There are less expensive places everywhere, and there will likely be a lot more in the years to come, but like the guy said, most people dont want to hear that. That is one of the root causes of the bubble.
“…and consider living in a less expensive place.”
This is what we ended up doing (SLO, CA to Columbia Basin, WA), but it has worked out pretty well considering the alternatives, and we are cash flow positive even with a stay at home mom.
– less expensive place = probably not the OC. I for one moved to MN after cashing out on my Orange County house. Better jobs, not too different of salary and overall, less stress, less traffic and better schools.
just be happy that you are in the US and not in Europe, where RE has been appreciating strongly for 10-15 years now and the latest housing crash is often more than 25 years ago. There is a whole generation here who have learned to play the RE game and consider themselves financial wizards because of that. When this thing finally blows we will probably have far more bottomfishers than in the US, so the crash may take much longer to play out
“what infuriates me is every baby boomer giving his or her BS opinion about real estate investing.”
I find this fascinating because I cannot get anyone to talk about it and have never heard anyone talk about their financial situation/investments, etc since moving to Upstate NY from MA. I’m guessing it’s perhaps a cultural difference or maybe the difference between the smart money and the casual investor. I’m totally guessing if anyone would enjoy commenting on this.
CarrieAnn -
I think it may have to do with the different markets. Figure out (may using the HPI stats) the difference in home price gains between eastern MA and “upstate” NY (Buffalo, Rochester) for 1995 to present.
The gains in MA will be quite a bit greater… and it seems for most people that dumb “luck” can often be confused for “smarts.”
Don’t hold your breath on the 50% declines (by 2007 no less?? LOL!)
in the inland empire.
I agree 50 % in 2007 is too soon, it will be 3-4 years from the peak. Bought my first home in Riverside builder went bankrupt in 1993/4 was a brand new home in 1991, we purchased in 1997 for 137K original asking was 225K 6 years earlier. Amazing that it sat vacant all those years, they never even put in the carpet or appliances, which was nice we got to pick them out.
2007 is way too fast, as the foreclosures just don’t move that fast. In 1994/5 in the OC it woiuld take a year for the foreclosure to go thru. Condo’s in Tustin on Mitchell(if you know the area) that were selling for 120K in 91 were going on HuD loans in 95 for 65K. Were in a similar cycle, unfortunately it’s a worse and the Bank reserves are so small.
This is a RE Bubble wrapped around The Mother of all Debt Bubbles, with the worst kind of fiat currency mismanagment immaginable.
When prices make sense there will be very few of us looking to buy, I have worked and lived through several resessions now in my shortlife. If we don’t get deflation we will have Stagflation, either way times will be tuff. Finding a balance on saveings/investment in the preservation of capitol is an area time can be well spent right now.
OCbear, I agree with you about prices but it took 7 years from the late eighties to 1995 when things bottomed out. I purchased a condo in Irvine(Windwood area off Harvard and Deerfield) Paid 255K and by 1995 2 units like mine sold for 195K. Down 24%. I think this time it will be much worse . May not as many flippers but the HELOC’s are unbelievable in Irvine. I think every other new car is financed with them. It is going to be UGLY!!!
Larenter posts “He is a financial planner who bragged” etc.
How old was this guy? Do you think he went to school (college)?…. I doubt he has ever read a book, not counting TV Guide?
“– It will be interesting to see just how long the sellers can hang on.”
Like flies perched on a windsheild… How fast can you drive before they loose thier grip?
LA renter,
I am also a Gen-Xer, but disagree about this bubble having anything to do with Baby Boomers, or any other generation. This bubble is about debt. Even the speculators would be neutered if the credit bubble didn’t exist. It’s not the specualators, Boomers, Prop 13 (or other prop tax protection), cap gains exemption, or any of the various evils noted on this blog, IMHO.
If people were required to put 20% down of their own money (and the lender verified it was their own money), AND if they had to qualify at 28% DTI on VERIFIED income, AND had to have 700+ FICO scores…how high do you think prices would be today?
Take away the credit, and you decimate this housing bubble. We need to concentrate our efforts (and anger) on the real culprit. Whoever caused this credit bubble to expand like it did (**wink, wink**) is responsible for this housing bubble.
Ca renter posts “If people were required to put 20% down of their own money (and the lender verified it was their own money), AND if they had to qualify at 28% DTI on VERIFIED income, AND had to have 700+ FICO scores…how high do you think prices would be today?”
You nailed it. Give people something for nothing and they will take it. When I bought my first home the above were the “Rules” period. This was summer of 1976 the market aprox. went up 100%. I paid 43k and by late 79 it was worth nearly 90k…………. Unheard of!
Unlike what is about to come the prices held firm during the “slow-down” They just went flat for 5 years no or little sales or acitivity. No fun to be in RE….. But they did not “Crash” this was in So. Cal. the Valley and Simi where I lived.
This time the die is cast, the deed is done. 100,000 of thousands of Loan Doc’s have been signed. They can not be undone…..Lord knows what these people have signed? But one by one they will be held to account. Ton’s of heart break to come and social mess.
My son rents and is newly wed, they have little money, but no debt. Many will envy him soon.
“Whoever caused this credit bubble to expand like it did (**wink, wink**) is responsible for this housing bubble.”
wink, wink = heb-mister?
LIErah and all the NAR/local boards keep lying
spet w yoy negative nationaly
bottoming predictions are what this bb will supply next- has the stcok market discounted this yet ?
Prediction: both parties will do their best to keep housing off the slate for the 2006 election. But in 2007, political pandering will being in earnest. Under pressure from builders, bankers, retailers and McMansionland, politicians will float unrealistic proposals to keep the bubble alive and sustain irrational home prices. Prepare for shaking jowls and the best lies money can buy: “Today the American Dream is threatened. We cannot allow innocent American homeownerss to suffer in the face of market forces beyond their control, blah blah blah.”
I agree that this will become a political issue very, very soon. And I don’t think it will be a winner for either party.
But I have a hard time wrapping my head around what a bail-out of the American homeowner could look like. I don’t think it will happen on any kind of level that actually touches a mortgage holder. The most we can probably expect is the usual sweetheart tax breaks and “incentives” package for the lending industry.
Party apparachiks will champion this “trickle down” solution as Good Capitalism(tm). Americans have been programmed to believe that what is good for the goose is good for the gander and that this is good wholesome American capitalist democracy whatever at work.
But the truth is, “trickle down” economics will be that stream of urine appearing on Joe Homeowner’s pantaloons when he gets his big ARM reset. There will be no help for these people. But the honchos at Countrywide and WaMu and wherever else will be off sitting pretty once Congress signs the “American Homeowner Relief Act of 2007″. This is just the way it works nowadays.
There will be no bailout of the homeowner.
“But I have a hard time wrapping my head around what a bail-out of the American homeowner could look like.”
Think outside the box, then.
1) New Homestead Act, which gives blanket bankruptcy protection (comparable to pension asset exclusions) for an owner occupant’s primary residence no matter how far they stretched to buy a home they cannot afford.
2) New forebearance guidance to lenders whose main purpose is to
slow or stop the waves of short sales which end up on the auction block and drive down prices, and to incidently reward bad financial decision making.
3) Helicopter drops ostensibly intended to land the economy softly, but stealthily targeted at helping ARMs reset at lower rates, and moving the home equity wealth effect out of reverse and into neutral, thereby finalizing a permanent housing inflation increase (”housing prices on a permanently high plateau”) which is largely missed by the CPI.
I just pulled the above out of my @$$. I am sure nhz could offer some more realistic scenarios, as his country apparently saw housing prices quickly stabilize at a high level after a drop in the early 2000s. Also, posters from OZ and UK may have some real-life examples…
In Australia there’s the ‘First Home Buyers Grant’, a straight gift from the Federal government. Currently $7K. Theory was to help with closing costs when buying your first home; in practice the grant immediately got capitalised into prices.
At one point (when Oz introduced a VAT), you got a grant of double the size if you bought a new-build.
There were some funny stories about people on pensions buying homes outright with the grant money in ex-mining ghost towns in Tasmania.
RIght — we already have 100% downpayment assistance in pockets, but I see no reason why this could not be extended to a national program to let anyone buy almost any home they wanted.
We have EUR 50K free loans in Netherlands (in selected areas, after the elections probably in all of the country).
Officially it’s a starter loan to help people get on the property ladder (to be used with other loans) but in reality it’s free. If the home does not appreciate you don’t have to pay it back (government takes all downside risk). If the home appreciates strongly and you want to stay there, you have to start paying a very low interest rate after 3 years. And of course, this 50K win-win grant was priced into starter home prices even before it was introduced. Great for all the local politicians that own those POS starter homes.
Some of the leftwing parties also want a tax exemption for all ’starters’ (starter: think of something that describes their voters as good as possible) that removes the 7% transfer tax etc. for every home. That’s something for after the next elections and I don’t doubt that it will raise the price of all starter homes by another 7%.
I thought I saw something in the US (hope my memory isn’t failing me) that was basically the same thing. Sove govt entities are working on a loan for “the poor” and first-time buyers that they will not have to pay off (might have very low I/O payments) for as long as they live in the house.
Kid you not. Amazing that these supposedly intelligent leaders of our country and economy don’t understand what inflation is (in this case, throwing more money at houses). With each dollar they hand out to the poor, the cost of housing goes up by a dollar (or more, if there’s specuation involved).
With leaders like ours, no wonder our country is in such a world of hurt.
sure! here’s some Dutch examples:
1. we have something like that already, the NHG. If you buy a home, the government makes sure that you can never end up negative when you have to sell the home for whatever reason. Just be sure that you don’t use a downpayment because that is not covered (officially). And up to now it only works for homes up to 250K (probably a lot more after the elections because 250K will be the price of a starter home real soon) - but there are tricks to buy million euro homes with the same protection. One is not allowed to use an ARM , but I know some people get this protection with Liar loans so I guess the ARM is not really a problem either if you want it (with the extremely low fixed rates they are not very attractive over here).
2. it is clear that in Netherlands and some other EU countries mortgage rates are not following the ECB rates upwards; while ECB rates increased 1%, mortgage rates (and rates on savings accounts) are up only 0.25% or so. There are rumours that the banks (most of them are up to their ears in RE) made a silent agreement about this to keep the housing market healthy. The rumour was apprently strong enough to start an official investigation by the financial authorities (which does not happen very often here). Guess this wouldn’t work as well in the US because there is far less capital in savings accounts there.
And it is obvious that despite growing risk crazy lending is still getting more crazy in the EU; I’m sure the banks must have some kind of guarantee from politics that they can get away with this.
3. I think that is already starting to happen in the US …
“3) Helicopter drops ostensibly intended to land the economy softly, but stealthily targeted at helping ARMs reset at lower rates, and moving the home equity wealth effect out of reverse and into neutral, thereby finalizing a permanent housing inflation increase (”housing prices on a permanently high plateau”) which is largely missed by the CPI.”
Hey GS, #3 I doubt if it will fly. Defending the US Buck will trump the FB’s in MHO.
I’m very scared that responsible people like me (and I own a home, that was financed with a fixed 15-year mortgage, and a 20% downpayment) will end up bailing out the idiots one way or another. I don’t trust either party to protect my interests. The “right” of the Average Joe to own a home is too much of a sacred cow to the Republicans. (I’m fairly conservative, but I find myself voting for either side depending on the issue. Neither one has it right on this one. For example, neither party will touch the mortgage interest deduction, which is an absolutely stupid thing to have. All it does is make house prices higher!)
The democrats have fired the first salvo in the bailout - msnbc.com’s leading article at 7:30am Eastern on Tuesday, September 5, 2006 is about the quest for votes from “mortgage moms”. The article specifically mentions ARM’s, stagnant wages, and the high-level of debt carried by the average family in the USA.
http://www.msnbc.msn.com/id/14673701/
My extended family has long commented on the fact that the party who wins the next election will probably be blamed for hell that will finally come to surface. The question is can an election win really be “winning” when your name goes down in history attached to failure set up by others?
Poison chalice.
It could be the chance for a reformer to step in and make some necessary changes. I just don’t see anyone like that waiting in the wings from either party.
sure, the trouble is that in most countries homeowners are a majority. That’s all that counts.
In my country (NL) we also have elections end of this year. Netherlands desperately needs to do away with the stupid HMD (it’s the most generous one in the world, 40-50% of every mortgage is paid by the tax office; certainly one of the fundamentals behind our huge housing bubble). But even the most leftwing parties want a continuation of this HMD, although sometimes with minor changes that suit their voters (like capping it at EUR 350.000, or changing the HMD from 50% to 42%); and they even add new subsidies to get low-income voters on the property ladder. I think real changes will have to wait until the bubble has burst completely.
Mit Romney, who saved the Salt Lake City Winter Olympics from a corruption scandal, is waiting in the wings.
Sorry — “Mitt Romney”…
Um
Didn’t we have a Mitt Romney link from the Boston Herald (ya, I know, total rag)? Democrats in the state are trying to drag him down because the MA median income has gone down in the last 2 years.
This is what I mean by whoever is in office will be holding the potato. We know the changes that needed to be made stood with the feds but I’m not sure the average person can differentiate spin from fact. When the masses’ anger reaches critical mass they aim it at who ever is in charge today as if the situation was created in the last month or so.
As always, good people will go down on spin. I think the next election will be a marvel of political CYA and spin and a marvel of what John Q. Public will actually buy as fact. (Man, I’ve crossed the line to total cynic!)
It will be an FDR with a NEW set of cards to DEAL out.
Isn’t Bush was a big-government liberal? If not, he sure acts like it…
arghhh…let me try again:
“Isn’t Bush a big-government liberal? If not, he sure acts like it…”
You’ve got to be joking about Bush, right? What a big defense project pig at the trough he has been. Just wait, he’ll save the housing market and the construction industry by invading yet another sovereign nation. Jobs, jobs, jobs!!! BTW, what’s in that pipe you been smoking?
oh no! et tu pismobear?
hhhhhahahahahhahahhahhahahahaha
hahhahahahahahahahahhahahaha
ok, pismo, back to the betty ford clinic for you! When the high point of a presidency is catching a 7 1/2 # perch….DOH! Although the peak for the Veep was shooting a lawyer (where do I get my license for that?)
Wasn’t Kuwait a “sovereign nation”?
See:
http://www.fas.org/news/un/iraq/sres/sres0678.htm
http://www.fas.org/news/un/iraq/sres/sres0687.htm
http://www.un.int/usa/sres-iraq.htm
“… the party who wins the next election will probably be blamed for hell that will finally come to surface.”
I thought this about the 2004 presidential election. And nowadays, I am persistently impressed by how effective information age governments are at keeping hell from surfacing.
I can’t help wondering if any of the Democratic hardheads are thinking it wouldn’t be such a bad thing (for them) if they don’t retake control of Congress this November.
I was thinking the same thing. Bush and Co. are too arrogant to actually address the problems created by this mess. Let them be 100% in power so they can get the blame they deserve.
Hoover for president!
“the party who wins the next election will probably be blamed for hell that will finally come to surface”
Exactly. Who got blamed for the recession that followed in the wake of the tech bubble implosion? Hint: Not the administration on whose watch the bubble inflated.
I am so praying for the Democrats to win in 2008.:)
W’s biggest legacy is not going to be the screw up in Iraq. It will be the destruction of the US economy and dollar. Although it’s not really W’s fault, the politicians of the last 10 or 20 years have insured that the coming debt/credit crash is going to be much worse than it had to be.
Real estate is going to lead the charge, with bonds sure to follow - see Txchick’s example of Wamu with $30B in “loan mistakes”. This is all baked in the cake, so to speak, and there isn’t much anyone can do about it. I really, really hope I’m wrong.
Buying puts on home builders and idiot banks like Wamu, Cors, etc has been very profitable.
And don’t forget the new bankruptcy law that Congress and the Bushjerk passed. Even Senator Harry Reid had stock in Citigroup when he voted to pass that law. The rest of us get to eat cake, right?
$30B in loan mistakes seems realitively small! if houses are 4 for a million bucks, then we’re looking at 120,000 homes? How many homes were impacted by Katrina? or the “big three” when they closed car plants? I’m assuming that WaMu sells the foreclosed homes for something. Iraq, in one year, cost US taxpayers $87 Billion and the US government spent over $360 billion on interest payments in 2006. IMO, after the bombs explode, or medical care is given to injured soldiers, we have nothing to show for our money! The Wall Street Journal rightly suggested that the Department of Defense might go bankrupt because of all the injured troops it has to care for!
You’re right but it will be, ‘Let’s figure out how we can extract more money from those unAmerican property owners to pay for the welfare, education, and health care for all the illegal aliens. I know, let’s stop all social security, medicare, food stamps, unearned income rebates, and other ‘transfer’ payments as well to pay for the 100 million who will be coming!’
“…both parties will do their best to keep housing off the slate for the 2006 election.”
Absolutely. They now are merely two branches of a single party, anyway. Be sure that they’ve cut a deal to keep the carcass on life support until after the elections. Business Week’s cover will start the public worrying, but I doubt the media will pile on heavily until November, after which Imperial Washington will be seen peering down from its lofty dias at the lenders as their Inquisition begins, a la every other recent crisis to which they responded too ineffectively and too late.
“They now are merely two branches of a single party, anyway.”
Harold Hotelling could have predicted it.
I hate this “two branches of the same party” nonsense.
And in 2000 everyone said how Bush and Gore were both moderates and there was virtually no difference between them. Does anybody really believe the world wouldn’t be a different place if Gore was actually president after winning the election?
-Greenspan wouldn’t have inflated the RE bubble to begin with. He did so because he is a political hack that wanted to create boom times during Republican control of all three branches of Gov.
-We would have had a more serious recession but the debt level to correct this would be small and managable.
- 9/11 attacks probably wouldn’t have been thwarted (although it is a distinct possibility)
-Sadam would still be in power, but the US would have $1 tril less debt from military spending. Bin Laden would probably have been captured.
-Oil would be $40 per barrel and Gasoline at $2.00/gal
-Republican congress would not have passed a Medicare part D- reducing another huge gov liability
-Smaller tax cuts would have been passed that are more progressive, reducing income inequality and greatly reducing budget deficits.
But both parties are pretty much the same right?
“Oil would be $40 per barrel and Gasoline at $2.00/gal”
More likely, gas would be subject to a carbon tax to fight global warming, and be priced at about $5.00 gallon.
Or do you think President Gore would have been able to suppress China’s growth and the resulting pressure on oil demand?
“Republican congress would not have passed a Medicare part D”
Er…wasn’t it Democrats who were shouting for a prescription drug benefit? (I’m annoyed that Bush gave in to them — yet another wealth transfer from productive people to les ancients.
“Greenspan wouldn’t have inflated the RE bubble to begin with.”
No? He was sure capable of helping inflate a tech bubble under the administration in which Gore served, the resulting false prosperity for which that administration was happy to take the credit.
“Smaller tax cuts would have been passed that are more progressive, reducing income inequality and greatly reducing budget deficits.”
The Bush tax cuts DID make the tax code more progressive. Tax revenues from the “rich” as a fraction of all income taxes were higher post-cuts than before them. In any event, compared to the forces that are increasing economic inequality (i.e. the rich are getting richer faster than others, with the biggest gap opening between the super-wealthy and the merely loaded), any effect of the top marginal rate being 39% instead of 36% is background noise.
About the only clear difference I can see is that President Gore would not have invaded Iraq. (Or Iran, which was the better choice of invadee in 2003.) Consistent with the post-Vietnam Democratic mentality generally, he would have been more reluctant to use American military force assertively in defense of American interests. That would have saved us the Iraq diversion, but I wonder what unforeseen consequences would also have resulted from that worldview.
Northern VA - saw your post today. Since this is an expired thread, we should be able to mix it up for the rest of the day without irritating anyone else, if you’re tuned in. Where do you want to start? Foreign policy? Domestic Policy? How about I throw some questions your way:
1. Which party will actually tell Israel that they are on their own and they need to get off our multi-billion dollar a year foreign aid tit? I say neither.
2. Which party assumes that I am intelligent enough to make basic decisions for myself, to the extent that they have rolled back any of the countless legislative intrusions in our lives that have been initiated in the past 50 years? I say neither. Examples are a must.
3. Why is our country now called “The Homeland?” Does that not strike you as uncomfortably close to “The Fatherland,” the latter being too sexist for current-day usage? Which party has railed against that and tried to legislate its change? Neither.
4. Which party favors approximately the same level of involvment (hint: near-zilch) in foreign disputes as the average European country, the average of which are touted as being even more socialist than we are? I say neither.
5. Which party favors reducing the number of permits and licenses we are required to possess in order to go about our everyday lives? I say neither.
6. Which party has addressed the fact that we increasingly see law enforcement personnel on television dressed like Gestapo raiders, in black, with full-face hoods? Which party did anything about that after the photo of the machine-gun carrying, wild-eyed agent in Elian Gonzalez’ bedroom, that was circulated around the world? Neither. The only issue they addressed was whether Elian should be returned to Cuba. They did nothing about the goon.
7. Which party tries to reign in the new Prohibitionists who aim to reduce the allowable drivers’ BAC level to such a low level that they dare have nothing at all (it’s killing the business of a lot of restaurants that count on liquor sales)? Neither. Guess they’re so pleased with the succedd of their wear on drugs that they want to finish off the booze.
8. Which party has addressed, by dismantling it, the utter, abject failure called the federal Department of Education, which has existed only since Jimmy Carter’s term? Neither — why not? Which party has figured out that No Kid Left Behind is another failure and that its most memorable achievement, by proxy, was to torpedo the annual spelling bee in Podunk, Midwest, lest Little Dumb-Ass have his feelings hurt? Neither.
9. Which party has gotten even the most basic change made to our immigration laws? Neither. Which has addressed the fact that we are the only country on earth to grant automatic citizenship to someone solely because they are born here? Neither.
10. Which party has passed anything to correct the robbery of the social security trust fund, by enabling IOUs to it in lieu of actual funding? Neither. I dislike even the idea of social security, but if it exists it ought to be funded and the liability not passed on to future generations.
No, there are not enough difference between the two main political parties to spit at. The gem, to me this election season, is a political ad here in Florida condemning one of our senators for not passign a single bit of legislation in the past x years. As if that is a bad thing! He didn’t add extra laws! Run ‘im out!
You can have your party, whichever it is. I will vote only for those who show a concerted attempt to reduce the size and reach of government. Wonder if any of your candidates have such a track record.
Three or four spelling errors, not enough to throw off comprehension of the ideas.
Rapid succession of failed sub-prime lenders in ‘07. Continued layoffs in the banking industry contributes to an escalating foreclosure rate. Moneyed interests will buy up foreclosures with the intent of flipping them for short-term profit but will instead end up becoming landlords of those properties. As the economic situation deteriorates people will migrate to cheaper areas only to find that there are no jobs where housing is less expensive.
Countrywide is now offering 3 month CD’s with 5.45% annual return.
I think I will pass. I’d rather get a smaller return, rather than take that kind of risk, and lose my investment all together.
ETrade has something similar.
Hey Txchick! I got some IRA dough in the S&P 500 (Index Fund) what are your thoughts. I know its a little OT but I would like to listen to your or anyones comments. Thank you.
i’d probably sell and get some CDs or a basket of AAA rated corporate bonds.
I have invested to the maximum limit in the S & P 500 (index fund) in my IRA every year since 2000, and it has seen its ups and downs. I don’t need the money for another 20 years. It’s dollar cost averaging. I don’t really know which way the economy is heading in the short term, but it will be an economic crisis of some sort. In the long term, I am optimistic that the suffering will end by the time I want to distribute from my IRA. Moreover, I read that dollar cost averaging into stocks during the Depression was profitable. You bought more shares during the valleys, and during the course of the Depression you would have been gaining with stocks. All this is my tax-deferred stuff. I’m very aggressively into stocks in my 401k. Outside of those tax-deferred plans, I invest very conservatively. Since 1976 Vanguard’s S & P 500 index returned an average annual gain of 12%. If you were fortunate to have $50,000 in that fund at that time, you would have well over $1,000,000 right now without investing another dime in it.
the idea is to protect you current gains. so, it is still probably better to move a portion of it to a stable fund and wait for a drop (the bottom will be elusive, at best).
its probably fine as long as it is within the fdic limit.
I agree Mort…There is a lot of exposure for our financial system.
http://tinyurl.com/mapyy
I really like Market Watch. Gotta love banking analysts, though:
But Bove sees problems for the banks coming from another angle. ” The housing market is going to go down, and it’s going to go down hard,” he said. “Will the banks see billions of dollars of losses from housing? No. Will it be a huge drag on the economy and hurt everybody, including banks? The answer is yes.”
So the banks will be hurt, but not to the tune of billions, huh? I posted a link to a bit I did about the subprime market in the Bits Bucket. Needless to say, I think losses could quite easily reach into the billions.
didn’t someone recently post an article which stated that most banks have off loaded much of their mortgages to investors, i.e. mortgage-backed securities funds? if so, then the banks are not totally on the hook — millions of individuals are.
Most of those banks turned around and invested in MBS themselves. IOW, now they’re liable for everyone’s bad decisions, not just their own.
He’s right, not billions — try trillions.
Economist — the link doesn’t work.
“As the economic situation deteriorates people will migrate to cheaper areas only to find that there are no jobs where housing is less expensive.”
Today’s posts are excellent. I think Ben will be pleased.
Real estate continues to slow nationally. Panic sets in early ‘07. More properties go on the market as people begin to see their wealth disappear. Unemployment rate rises dramatically. The stock market crashes by the end of ‘06. A deflationary spiral takes hold and brings us into a depression by mid ‘07. Assuming no terrorist attacks or new wars, of course. The talking heads on the morning business reports say the economy is very good. Good fundamentals, they say. I say the data they use is highly manipulated. Keep your eye on the ball. We’re almost $9 trillion in debt, adding another $1.75 billion a day. Wealth and jobs have been created out of thin air by simply printing money. What makes you think your house is worth that much?
Look for the exogenous event; apparently inconsequential, it sets the financial avalanche in motion. This is the way collapses always happen. Financial markets do a decent job managing their expected risk, but inevitably an unforseen event destroys their ‘best-laid plans’. We may not have an arch-duke to assassinate, or a gulf of Tonkin, but 2007 is the year that one more straw breaks the back of the housing market, and probably many other markets besides. You can’t hedge once the wheels are in motion; do it now.
“Look for the exogenous event; apparently inconsequential, it sets the financial avalanche in motion. This is the way collapses always happen.”
It is more like a California debris flow than an avalanche, and it is already in motion. But I agree that an exogenous event could provide a synchronizing signal to accelerate the flow. And many putatively exognenous events could actually be endogenous (e.g., widespread layoffs in the automotive industry due to RE-led consumption recession).
I predict that by the end of the year, everyone who does not own a home will be priced out forever. Home prices will continue to appreciate at 10-15% per year, with periods of doubling every 10 years or so.
Who will buy these homes? Who cares; everyone will make money just by buying and selling homes to other homeowners (we are all priced out forever) and just watch their investments grow.
I also predict that a young man from West Palm Beach with be arrested for smacking a RE agent who told him he was “going to be priced out forever” if he did not spend 500/sq/ft on a POS condo that was an apt coversion. I further predict that this young man will be sued for everything by the RE agent; after he/she realizes that people who do not own homes actually have some liquid assets to take.
Obviously. Those with the wisdom and foresight to be born before, say, 1975 and thus be in an educational and financial position to have bought before, say, 2003, will be the overclass for the dumb idiots who had the stupidity to be born after 1975. The youngsters will forever be serfs paying wasted rent as the oldsters trade houses among each other; prices rising juicily forever!
I predict in Dec 2006 that pawn shops will have to add storage areas for all the rolex watches traded in for gas money, FB will shop for guns but not afford to buy them.In 2007 standing outside tall condo buildings will be a hazard due to falling(jumping) investors, Florida will be removed from the US and name changed to New Cuba. Ben will have a show on the history Channel called the man who saw tomorrow. The NAR president gets kicked out of the optimest club and gets a new job replacing Bagdad Bob in the new Iraq.
ha ha ha. unless you are lucky enough to be born from the 200 (or so) riches families in the us today, you’ll be one of us.
You do realize that at 10%/year, money will double in less than 10 years.
Here’s $100,000 making 12.5% (y-o-y) for 20 years
year 1: 112,500.
year 2: 126,562.
year 3: 142,382.
year 4: 160,180.
year 5: 180,203.
year 6: 202,728. Woo Hoo! You’ve doubled!
year 7: 228,069.
year 8: 256,578.
year 9: 288,650.
year 10: 324,732.
year 11: 365,323.
year 12: 410,989.
year 13: 462,362.
year 14: 520,158.
year 15: 585,177.
year 16: 658,325.
year 17: 740,615.
year 18: 833,192.
year 19: 937,341.
year 20: 1,054,509
See! You’ll be a millionaire after 20 years, all with your no-money-down i/o mortgage on a 100K trailer in Boise Idaho!
Anyone who believes real estate can sustain gains faster that the cost of living over 20 years is an idiot. In fact, there’s real estate sales data going back a l-o-n-g time hundreds of years for some well-established cities in which ordinary people owned houses, that show that housing tracks the overall cost of living. It simply can’t do anything else.
This bubble has been fueled by i/o mortgages with no qualifications. And anyone, except under very unique circumstances (like you have the money in the bank to pay off the mortgage entirelly when it readjusts) who would get an i/o adjustable ARM when 30-year fixed mortgages could be had for under 5.5% is unimaginably stupid.
I was in field yesterday and ran across a new project by DR Horton. Sent photos in. The units are townhouses and are at various stages of constuction with all having particle board subroofs. NOt to code. Many units are open to the sky and rain is penetrating to the first floor from the second with no roofing material on the subroof.
The place is overgrown with weeds and my guess is noone has been onsite for a month or more. Materials are laying all about the place and in some cases the dumpsters are brimming and noone has collected them in a long while. All the windows are in place as well as exterior doors with the roof open to the sky.
This is a classic last draw deal in motion. The biggest draws take place to this point and the finishes need not be put in place. Clearly there will be mold issues as well as water damage in these units.
The first of many to come.
What area of the country was this in?
Orlando, fl
….waiting for Ben to get the pics up.
How long will it be before someone from the MSM sends photographers to these sites? SURELY there are reporters lurking on this blog.
Jon Lansner is running a open house picture contest over the long weekend at OC Register’s RE blog.
Everyone doing a housing story, anywhere in the nation lurks here.
We coined the toxic mortgage term about 8 months ago here. Now it is a cover story on Businessweek.
My “death-or-glory mortgage” term never really caught on. Damn. My one claim to fame.
Mold happens fast in Orlando. I remember seeing a project like that near Lake Conway, in the mid 1960s. On Conway Road south of Hoffner. Some of the houses were not completed and the particle board was wet for at least a couple of seasons, as I recall. Eventually someone took over the houses and finished them. Wonder what’s living behind the drywall today.
By the end of Sept the MSM will report YOY drop in Aug’s median sales price and David Lareah will look into the camera and say, “this is great! Its time for everyone to buy.”
I predict that when people look at advertising that trumpets “BRAND NEW HOME!”, their stomachs will churn and a faint sense of nausea will set in.
Seriously, I am already feeling that way. Is anybody else turned off by the thought of a “Brand New Home”?
I think you will find 95%+ of the people on this board are appalled by the quality and soulessness of new construction and would prefer an older, well-built home…
M.B.A., the image that “Brand New Home” conjures in my mind is this flat, faceless, faux stucco facade with windows like empty, staring eyes. And a mortgage that is a one way ticket to hell.
Palmetto,
Your comment reminded me of when I first moved to Tampa from the midwest and I was driving around one of those newer developements where all the houses were painted that tan color. I thought it was a public housing project!! It took a while for the person with me to convence me otherwise.
Hey, Janni, sorry, I was gone for a while (whew, this blog is addictive) but I know EXACTLY what you mean. That’s what most of these developments look like, public housing. And the way things are going, here’s another prediction: many of them will be public housing in the future. Heck, some of the public storage facilities have more character than some of the BRAND NEW housing developments.
Strange that you mention this. My thought exactly.
Where I live (Mobile), we have several older neighborhoods (25-50 years old) that almost never have homes for sale. And when it does happen, its due to events such as death, job transfer, divorce. I live in that kind of neighborhood (for 12 years), nice tree-lined streets, quiet, neighbors who’ve on average been here 10-20 years (and some even longer than that).
When a house in these neighborhoods do come up for sale, the agents usually don’t even bother to put it on MLS, Realtor.com or even have an open house. It usually sells immediately unless the price is way out of proportion (and occasionally that does happen in which case the house sits on the market for months).
OTOH, the new subdivisions are heavily advertised, huge billboards on the roads, listed in the paper every week. They sell eventually even though they are most of the time junk. Primarily they sell because many Americans want the latest, the newest w/o regard to quality.
I like houses built in the 1930s. Depression era stuff. My experience is this is the highest quality housing overall on average of any built in the 20th century. Only the best craftmen/builders would get work during this period. Any in good shape now are 70+ years old and, if well updated, are truly gems.
My house was built around 1940. Its not big or luxurious, but it could stand for centuries. That is, unless its demolished (with great effort) for another plastic subdivision.
Although you correctly observe that existing 1930s homes reflect quality construction, you incorrectly conclude that all construction from that time was of greater quality. Many, many more ramshackle homes from that era have fallen or been torn down in the time since, which is a sort of “natural selection” process for quality construction.
For a while now, and the thought of somehow “having to own or live in one” takes that feeling notch up…
LOL, say what. “Having to own or live in one”. Pepto-Bismol, anyone? Hey, here’s a thought. Maybe we should be investing in the stock of the makers of Maalox and Pepto and other similar products. The housing bust = acid reflux on steroids.
Palmetto, I am with you on this. We sold a 73-yr house in Elko, Nevada this month for $200,000. to move to Reno for new “non-gold-mining” related jobs. Got to Reno and saw that a similar home would cost us over a million in the older part of Reno and about $280,000. in the poverty stricken area of Reno past the university. We are stashing our $80,000. in sales profit for now. No way in heck do we want an ARM or otherwise. I’m glad this blog is here because leaving a single industry gold mining town for the real world in the rest of the country has been a culture shock as far as housing goes. Elko had record-breaking foreclosures 5-6 years ago during a mining downturn due to low gold prices and housing prices were screaming everywhere else. Now it’s the flipside, gold is up, Elko can’t build houses fast enough to keep up with the job demand. They are always opposite of the rest of the country’s housing and economic trends.
NVMojo — that is a very interesting anecdote. Sort of a Charles Kuralt-type reality check in a microville. Thanks.
With articles such as this one: http://www.tbo.com/pasco/MGBT3IMBLRE.html?imw=Y
I believe Florida will be in for a 2006-2009 sales slump with foreclosure sales in summer of 2007 to EOY 2008 being the bulk of the recorded transactions… Also I picked up a Sunday paper while traveling through the fort myers cape coral area yesterday. They have the recorded sales for the last week in it an it was shocking how fast it is turning there. I will post the info later as I am off to grab some breakfast at first watch.
Great breakfast at the First Watch. Post those numbers as soon as you can.
By the way, that story was excellent. A realtor taking out a full-page ad begging people to stop trying to sell their homes.
THAT is a milestone.
Breakfast was good, got to spend some time with the mrs. having coffee and a bacado omelette(cholesterol be damned)…..
Heres some Cape Coral sales based by zipcode as this is market I am tracking as a hobby, I would never want to live there (too many reasons to list today)… Beautiful day for BBQ and some beers…
Cape Coral NW 33993
270,000 3/2 2368 sq ft 2004
260,000 3/2 1890 sq ft 1990
220,000 3/2 2250 sq ft 2004
295,000 4/2 2347 sq ft 2005
173,800 3/2 1847 sq ft 2005
92,500 3/2 2492 sq ft 2003
227,900 3/2 2477 sq ft 1999
185,000 3/2 2220 sq ft 2005
The sq ft on these is total foot print. Keep in mind a garage is 400-600 sq ft….
Hahahaha. Heh.
Think about this. WHAT happens when gas prices rise, and some prominent person says “Don’t hoard gas?”
WHAT happens when a bank runs low on reserves, and asks its customers to not withdraw more than $500 a day?
OK now. With those examples in mind, WHAT happens when you implore people not to list their homes for sale because the market is getting weak?
This is a great sign that the s#it is hitting the fan. I would think her job was to sell homes not set the market, its called comps.. think she has some skin in the market ? I would bet her investment homes are in that area. What she should have said was let me sell first. Now a new storm is out there and in two or three days the window will be closed.( with boards on it )
Get Gary to help her pick up 3 out of 4 signs so hers will stand out. Sell hers first then help sell the others. hehehehehehehehe
I’m in western Massachusetts and here things are cooling, but nothing like the east and central parts of the state. Sales here in June we’re actually up slightly from last year. Prices went up substantially here, but nowhere near the way they did elsewhere in the state. But inventory has grown recently to about 5 months. There is very little spec building here, except for a condo binge. Condos will be the real debacle here. I know that’s true most places, but here the dichotomy is greater. You had people turning rather plain looking, ordinary houses into 2-3 condos.
This is one of those areas that make “great places to live (retire to)” lists and as long as it stays substantially cheaper than the Boston area, it will have a draw. But I think the high-end will suffer because in the future, people won’t be able to sell a sub-standard ranch near Boston and buy a big victorian here. There was very little investor activity here outside of condos and rental properties. People buying houses here plan to live in them and I’d bet much longer than the 7 year national average. None-the-less, I’m expecting prices to fall at least somewhat.
Good post. And I predict that condos, even the new ones, will revert to apartment housing for all the FBs who lose their homes. Heck, maybe some of the FBs who bought condos will get to stay in them as apartments, paying rent at half what their mortgage was.
Bob-
are you the same guy as ‘Rob-Amherst’? I have been watching western Mass carefully, too. Prices are just not moving much, in part because the lower end of the market has been somewhat supported by decent rents. The high end has been pure speculation. Still, with less than 10% reductions some large houses have continued to move.
The growth out here was delayed by 1-2 years, I expect to see a similar delay in the deflation of the bubble. Berkshire county is really a different market, as the southern county is more related to the NY market than anywhere else in NE.
In December, 2005, there were ABSOLUTELY NO Washington DC properties listed under $400,000.
Today, there are 1543.
And NO ONE is speculating as to the effect on the DC housing market if either the house or the senate changes hands on Nov. 7th.
talk about 0-100 in 3 seconds flat…
But up or down?
Even a Pinto accelerates fast… when driven off a cliff.
I predict the housing downturn finally picks up momentum.
From the starting article: Another, “Mid year Prediction, 6-month forecast: 1. *Major* decline in the buyer pool by October, across the nation. 2. Continued growth of inventory at a steady pace over the rest of the year. 3. 1/4 point rate hikes at the next three fed meetings. 4. ‘For Sale’ prices will tend to remain at the peak. People will hold onto their suicide loans hoping for a turnaround until all resources are exhausted.”
I agree with everything except the rate hikes. I think BB will blink again even with inflation starting to get out of hand.
Locally, there is an incredible stock of summer rentals coming onto the market. People who know more than I do (so take this with a grain of salt) have pointed out that OC, San Diego, and south bay LA can expect a large inventory gain post Labor day weekend. (One noted 9/15/06 is a common end date for summer leases.)
At that point… I expect multiple things to happen:
1. Dutch auctions for rent.
2. Home “owners” will alternate between listing their properties for lease or sale.
3. There will be a massive increase in road rage on the LA freeways. Enough so that it will be commented on by the MSM.
4. Restaurants and gyms will start to close locations on a wholesale basis.
5. Hedge funds will purchase up failed businesses (cheap) and turn the land into nice, but reasonably priced townhomes or other high density housing.
Before you think I’m insane on #5… with the crash in the price of building materials, if land can be aquired *cheap* in bubble areas, it is theoretically possible to build at normal profits and sell at 30% of *today’s* sale price.
6. A mass decrease in construction employment. #5 will boost the employment, but expect workers to receive a 25% to 35% “haircut” in wages a la 1930’s. I expect the workers to get down to “fist to cuffs” over some of the jobs.
Neil
“…if land can be aquired *cheap* in bubble areas, it is theoretically possible to build at normal profits and sell at 30% of *today’s* sale price.”
Interesting. That, essentially, has been my Plan B for a while now. If construction costs and land costs drop low enough before the sellers cut prices enough, I’ll just have a custom house built. To boot, I’d get to have the warm fuzzies about feeding some otherwise out-of-work construction guys and their families.
Between now and the end of the year, Sellers will begin to get the picture and will continue to lower prices albeit, not dramatically. Many will de-list their properties thinking to attempt again next spring, but more and more will not have that luxury as the pressure will be on to sell.
Sellers will price their homes to chase the market all the way to the bottom.
I hate replying to my own comments, but it just struck me that if the FBs were not very bright as home buyers, they won’t be much smarter as home sellers, so instead of pricing their homes to sell at any given moment in during the bust, the price will always be somewhat higher than where it should be.
The problem is that even if they did price their homes to sell today, there would be too many homes available at that price, allowing a few to sell but the vast majority would be left with no option but to lower even further. Any way you try and slice it, there is no way all these Fb’s are getting out alive.
It’s like the dumb neocon that once said all we have to do to make everyone in the country rich is have millions of Babe Ruth rookie cards. The stupidity of that claim is priceless!
The proverbial “race to the bottom”.
“It’s like the dumb neocon that once said all we have to do to make everyone in the country rich is have millions of Babe Ruth rookie cards.”
I highly doubt that whatever idiot said that was a “neocon,” at least in the original meaning of the term. Originally, “neocon” referred to highly educated New York liberal intellectuals who turned conservative after the liberal promises of the New Frontier and Great Society turned to ashes in the decaying urban wastelands of the 1970s.
Now, I can imagine some mouth-breathing Bible Belt paleoconservative saying something as idiotic as that Babe Ruth line (assuming it wasn’t said tongue in cheek), but there’s no way a Podheretz or a Kristol would have said anything of the kind.
From MarketWatch.com columnist Todd Harrison…5 Themes for the next 5 Years; What investors should be watching out for.
Real Estate
The definition of frustration is repeatedly doing the same thing and expecting a different outcome. The more things change, however, the more they stay the same and that will become painfully obvious as we unwind the real estate bubble. Granted, there is a marked difference between housing stocks, real estate and land. And while the homebuilders seem “dry” after their 50% correction this past year, we mustn’t confuse these disparate elements if and when a relief rally unfolds.
Real estate, as we know, is a lagging indicator in the realm of a business cycle. As the normalized cycle was augmented by central bank agenda (fiscal and monetary policy), the end result will likely be magnified as a result. A correction, as we’re seeing now, is one thing but a regression to the historical mean is another conversation altogether. If excess indeed breeds excess, as we saw with many of the dot.com stocks on the back of the tech bubble, real estate prices, particularly in high-end realm, should overshoot to the downside.
The erosion of the middle class
Caught in the chasm between the “haves” and “have nots,” the middle class is already on its last legs. With inflation in things we need (education, healthcare, energy) and deflation in things we want (plasmas, cars, laptops), mainstream America is stuck in the middle with Yu. While this dynamic is well established, it’s been masked by the benefits of home equity in a finance-based economy. The fork in the road will become entirely more obvious as adjustable rates mortgages begin to reset in the months and years ahead.
The attendant societal acrimony should galvanize as this dichotomy is unmasked and we turn to face our debt obligations. As a result, risk appetites will likely abate and begin to ripple through the pond of our collective spending habits. With total debt more than 300% of GDP, one could argue that the wiggle room is already in our rear-view. There is a massive difference between hypothesis and application, however, and we’ll feel the pinch as this perception and reality meet in the middle.
With 80 million guns in this country, the MC will not go quietly.
The lesson of NO…Civilized government to armed anarchy in 72 hours.
From bank closings to earthquakes. Shit happens quick.
Against the grain…
Housing will bottom in late 2007, when prices reach the level of 2002 prices. Then a long, slow climb back up will begin. 2005/2006 peak prices won’t be reached until about 2013 to 2015.
I think people are paying too much attention to the median selling price. Yes, it is not really declining in many places. What IS happening, however, is that people are already able to get considerably more house for the money than they could at this time last year.
I also believe, looking at some Tampa craigslist “reduced” listings, that realtors/sellers are already beginning to list houses at intentionally too-high prices, then immediately lower them so they can trumpet “reduced” in order to try to attract buyers. Watch for this trend to accelerate.
Well Said Bill.
In a perfectly rational market, you may be correct.
However, I have never run into a perfectly rational market, particularly residential RE.
It will take longer than end of 2007.
House Price Index figures come out tomorrow, and hopefully they will indicate that “more house for the money” is beginning to happen.
“My advice; with enough of a savings to put in a 20% down payment after a 40+% correction, is to not bother. You’ll need that money to survive periods of joblessness in the decade to follow. Cash is king during a deflationary cycle.”
- You’ll need that money to survive periods of joblessness in the decade to follow
I totally agree with this statement. The Ca jobs are changing. Absolute flood of retail employment. That is not the type of income needed to qualify for a home loan.
But, that is not a problem for our friends from south of the border. They move to the Inland Empire. There they can make hinges, doors, tacos etc. Plus, with 5 familes to a house — well, you get the picture.
I predict Tiger will come from behind and win 5 in a row today!!
This is one prediction that’s in the bag.
Instant gratification. That was a really nice front 9 he had today and just held on to it for the rest. Great run for Tiger (assuming he doesn’t 5 putt here on the 18th).
I picked the easiest prediction available. LOL. The front 9 was - WOW!
Tulkinghorn,
No, I’m on the otherside of the river, Northampton. I think you might be right about the timing. Do you think the Berkshires might get it a little worse, because so many are second homes? Second (vacation)homes are likely to take a big hit. Condos in vacation areas are likely to really crash. The rationale for a second home will evaporate for many once they realize appreciation isn’t the no-brainer they thought it was.
I’m hoping to find something on a quiet lake in the Adirondacks in a year or so…
There is a frequent poster here from Syracuse, I think. Not much appreciation up there, as there is no denying the fundamentals.
I sold out of the Boston area a couple years ago and relocated to Amherst. Prices need to go down a lot more before I buy. But with a large family renting really sucks, so I may cave in if prices go down another 10%. That will get us to 2004 prices, at least.
Tulkinghorn-Remember the mantra of this blog.
“If you’re not embarrassed about your offer for buying a house, you’re probably offering too much.”
Good luck but wait a year or two more. Remember Japan.
My family has a house on Paradox Lake in the Adirondacks (exit 28 off the NorthWay).
There has been a crazy runup in prices there; but its on the downslide now. Did not seem to be really caught up in this bubble, the upstate bubble seemed to be a few years prior.
Anyway, homes are pricey up there, but, compared to the rest of the vacation spots, probably look like a bargin now.
“I’m hoping to find something on a quiet lake in the Adirondacks in a year or so…”
Hi Bob, I’m the Syracuse area, formerly of MA poster (formerly Upstater, btw). I wanted to pass on that my inlaws owned in Adirondacks until about 12 years ago. His father had built the place in the mid-50s. My husband said his Dad was almost in tears when he went up there (Old Forge/4th Lake) this summer at all the overbuilding. He barely recognized it. I know if you go way north it’s better….course you better own a snowmobile to get around in an emergency….and telecommute!
Also re: Syracuse values. Syracuse itself is considered going downhill. It was scary when I got here several years ago….forget going thru a recession. There are various people trying to revive things (most notably Nancy Cantor of SU) but I don’t know many who look forward to moving INTO town.
The values of the better burbs outside Syracuse have doubled or better since we first looked to move out here in ‘97/98. So even though it didn’t increase at the same bubblicious rate I always remind my husband that’s how far our values could fall back. Baldwinsville still seemed strong this summer. Manlius has lots of inventory especially in 3000+ sq foot range. I am seeing price reductions. My town is further out and sold well except the million dollar homes are mostly just sitting.
If you do move here, check out the taxes….they are very nasty compared to MA. Newer 2000 sq foot homes on a spec of land in Baldwinsville, Manlius pay close to $10k/year, and that county’s water bill is supposed to increase 50% this year. Good luck.
i used to work at robertos pizza in the 70’s and theyre still rolling out the doe. got to swing by after doing a house out there. beautiful old-style homes and very reasonable.
I predict Intel $hit cans 15,000 people tommorow. This should help the west coast real estate market where they have operations?!?!?
Intel. yee-haw, Happy Labor Day!
It’s going to be a long and nervous weekend for Intel’s employees. The Santa Clara chip giant is expected to announce layoffs Tuesday that could number in the thousands. Paul Otellini, chief executive of Intel, has scheduled a Webcast with employees for Tuesday afternoon to discuss the results of Intel’s ongoing efficiency analysis.
Several Intel buildings in Folsom California have been put on the market for sale,,,,
2-3 chip fabs in Chandler, AZ, just what the PHX housing market needs.
They might be overall winners since OR and CA are higher priced.
I have a friend who works at the Chandler Intel. He told me yesterday they haven’t said he will be laid off, but they told him what his severance package would be. It’s like going to a doctor and him saying, I don’t know if your illness is fatal, but you might want to make funeral arangements.
I think the bandit sign business will be in great demand over the next few years.
“Home prices will continue to appreciate at 10-15% per year, with periods of doubling every 10 years or so.”
Periods of doubling would actually be in the 5-7 year range at those rates. Can you believe that some people thought this sustainable? That half-million home today would be 16 million in 25 to 35 years! Shit, we should all buy seven of ‘em!
I think that quote if from my post; any no, I cannot believe that people really thought that this would continue like this. How could it?
Honestly, if we could really be sure of 10% / year appreciation in home prices, there would be little reason to invest in anything else! People would put together consortiums to purchase homes and rent them out. Anything that you get from the renter is bonus, and your going to gain 10% a year on your investment?
It’s so silly, anyone with the brain will tell you that any investment that is returning 30-40% per year is RISKY! If it wasn’t, everyone would be doing it!
in my country homeprices increased between 600 and 1000% over the last 15 years. And still the Dutch banks predict that prices will again (at least) double in the next 10 years. That probably explains why any idiot can get a home loan from the banks …
ummm, financial advisors tell everyone that the stock market will appreciate at 8 to 10 percent a year, on average, so why not real estate? I still have my advisor’s print out which says: “invest $450,000 and get back $7 million!” After I saw that, I really knew there was a disconnect between labor and capitol gains!
Gary “in the bag” Watts is going to be lynched by an angry mob when he tries to spread a further lie of 2007, The Year of Recovery, and 20% is in the bag. CNN is there to broadcast the incident and capture every groan and yelp of pain from this wretched man.
Sure with inventory skyrocketing and sales in the dump, I can see 20% in the bag (that is down of course :-).
Still wont help me buy a house, as a 20% discount on a $800K house does not help me a great deal.
“My advice; with enough of a savings to put in a 20% down payment after a 40+% correction, is to not bother. You’ll need that money to survive periods of joblessness in the decade to follow. Cash is king during a deflationary cycle.”
Sorry to repeat a recent post, but Galbraith’s description of the deflationary spiral of the early 1930s seems relevant. Nassim Nicholas Taleb’s book, “Fooled by Randomness,” offers similar examples of how investors can severely underestimate the strength and duration of a market downturn.
The question for our time may be whether the Bernanke Fed’s water hoses will work against any conflagrations which might break out as the economy slows against a backdrop of huge imbalances in the housing market, especially when there is so much extra tinder lying around from previous short-term rescue attempts.
Of course, the housing market is unlikely to unravel with the speed of the equity market in the 1930s. But a gradual deflation like Japan’s in the early 1990s, with the Fed pushing on a string in the background, does not appear to be outside the realm of possiblity, especially if Shiller’s graph of the real (inflation-adjusted) price of US housing since 1890 is whatsoever accurate.
“The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximize the suffering, and also to ensure that as few as possible escaped the common misfortune. The fortunate speculator who had funds to answer the first margin call presently got another and equally urgent one, and if he met that there would still be another. In the end all the money he had was extracted from him and lost. The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains. (Not only were a recoreded 12,894,650 shares sold on 24 October; precisely the same number were bought.) The bargains then suffered a ruiness fall. Even the man who waited out all of October and all of November, who saw the volumne of trading return to normal and saw Wall Street become as placid as a produce market, and who then bought common stocks would see their value drop to a third or a fourth of the purchase price in the next twenty-four months. The Coolidge bull market was a remarkable phenomenon. The ruthlessness of its liquidation was, in its own way, equally remarkable.”
P.S. Notice to dips who buy when the stock market (or housing market) corrects: Buy-the-dips works great, until it doesn’t.
“Even the man who waited out all of October and all of November, who saw the volumne of trading return to normal and saw Wall Street become as placid as a produce market, and who then bought common stocks would see their value drop to a third or a fourth of the purchase price in the next twenty-four months.”
I think we are in the Sell-the-tips period, the bear market equivalent of Buy-the-dips.
“The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains … The bargains then suffered a ruinous fall.”
I suspect history will repeat as the housing market falls.
Comment by emcee
2006-09-04 11:17:04
“The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains … The bargains then suffered a ruinous fall.”
I suspect history will repeat as the housing market falls.
The classsic, Wall Street “Suckers Rally”
“The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains … The bargains then suffered a ruinous fall.”
Bernard Baruch (one of the most successful speculators of the early 20th century) was quoted as saying that there’s more money lost buying on the way down, than buying at the top.
Galbraith’s book (”The Great Crash”) notes Joseph Kennedy and Bernard Baruch as two who cashed out their enormous wealth before the deflationary collapse. The next generation’s Galbraith may want to make note of Robert Toll’s stock sales last year…
I’m still struggling with the options - in my country just a return to the historic trendline would be about 85% down from current prices. All the banks and big pension funds are heavily invested in RE and will be bankrupt long before we are there. And I’m sure the banks will close down (Argentina-style) long before we get there as well. So being out of the housing market and in cash would not work very good then.
On the other side, if the waterhoses keep working (and my guess is they will, at least for some more years), cash in or outside the bank is certainly not a good idea either and owning a home plus a huge mortgage might be relatively safe. And it gets even more complicated because there will be many up and down waves before the housing market and economy finally bottom (the last housing crash is one generation ago here; the downslide will take many years and people will be scooping up bargains all the way to the bottom).
It is hard for the average guy (like moi) to figure out a good diversification strategy when too many years of Greenspan puts have shifted risk away from traditionally risky asset classes like equities, commodities and real estate over to fiat currency risk.
What about the Intel plant in Rio Rancho, NM (Albuquerque area)? Are they going to get creamed also?
I’m not an expert on this, but a rule of thumb might be that the older fabs will close before the new ones. It costs at least $1B to build a fab, so you want to recover the cost, but they go obsolete fairly quickly. So if the plants in the southwest are older fabs, they are probably toast. Newer fabs, or ones that have been updated in the last couple of years will probably remain open for now. I think Intel’s sales & marketing groups are going to take a major hit also.
“”From Florida, “I predict numerous Florida cities median prices will be negative yoy for Q2, several already are as of May. I think all of the following will show negative for Q2. Sarasota/Bradenton, West Palm Beach, Punta Gorda, Melbourne, Ft Lauderdale, Naples, Ft Myers, Ft Walton Beach, Ft Pierce.””
That was my quote so lets see how these cities yoy #’s ended up as of the end of July:
Sarasota/Bradenton: -11%
West Palm Bch: 0%
Punta Gorda: -4%
Melbourne: -8%
Ft. Lauderdale: -1%
Naples: -6%
Ft Myers: -8%
Ft. Walton Bch: -4%
Ft. Pierce: -2%
Pensacola: -4%
I just think 2006 will be the year of denial . I think people are being told that this inventory glut is simply a short term correction, it’s a buyers market etc. Some people that really need to sell will hold off thinking the big turn-a-round takes place in 2007 when BB lowers the rates . The builders will lead the market prices down as their inventory builds and they keep building ,(however many projects will be cancelled ).The inventory glut will remain and increase to the point that even interest rate decreases won’t re-start the market .At that point in late 2007 the people who can’t afford their loans will need to sell at reduced prices or they will be foreclosed on ,( adding to inventory further reducing prices )
In other words …..The inventory glut in most places will not be reduced from now onward for years ,therefore prices will continue to fall even if interest rates go down on loans . Also borrowers will not be interested in the Adjustable loan products the secondary market offers/tight underwriting causing a further decrease in qualified buyers .Big supply with low demand will insure a major correction in most areas
I predict that Georgians will try to ignore the problem as long as possible, believing that the housing bubble exists elsewhere but not here. They will take false comfort in the fact that by-and-large prices are lower here than elsewhere, without stopping to think about why that is so. Only when prices have already dropped significantly will we hear anything about the local housing bubble, and even then we will jump up and down like a bunch of high-school cheerleaders telling everyone that it’s not as bad here.
Witness the latest articles regarding Atlanta’s abysmal placement in the SATs if you have any doubts about this prediction. Headline from the Aug. 30 Atlanta-Journal Constitution: “State SAT rankings look up.” Subheading: “Scores haven’t risen, but we’re not last, either.” Article: Scores in a couple of other states have fallen, so we’ve “improved” our national ranking by default. Rah, rah!
Why are housing prices so inexpensive here? Oh yes, that’s right. If you care about your child’s education, you’ve got to fork over the dough for private middle and high school…private grade school if you are rich, upper middle class, or just aspiring to be.
It’s different here. It sure is. Rah, rah.
It IS a lot different in Atlanta than in Westchester Co, NY!
The gaps between the Haves and the HaveNots are much greater (making area averages meaningless)…
Many more people are moving here…
However, many more new houses are being built (mainly quite far out).
The gaps in education, job potential and wealth for the people who live in Cobb Co/Buckhead/Midtown vs. South of Downtown/SW of Downtown is truly mind boggling.
Westchester? I’m not comparing Atlanta to Westchester. I have never lived in Westchester, though maybe you have?
You are correct that there is a huge gap in the Haves and Have Nots in Atlanta. The same is true here in Savannah. Sometimes I think that Georgia is simply ‘fast-forwarding’ into the future without a middle class more quickly than the rest of the country. Was that your point? If so, I agree.
My point is that conditions do vary from state to state and even neighborhood to neighborhood. It IS different from place to place and while there is a national housing issue that will affect everywhere, the reactions / deflation amount will vary.
Actually, Georgia had little middle class in the 1850s even less so than now. There actually is a fairly good sized middle class here it seems. So it’s not just the future, it is also in the heritage, though the the future will not look like the past.
That’s a valid distinction. Perhaps its not so much the middle class that I see disappearing as it is the support system for the middle class. The state of public education here in Georgia really is sad, and I see more and more people coming into the hospital without health insurance, despite the fact that they are working full time. They don’t have access to group health, and they cannot afford today’s high premiums for individual insurance.
Those are but two of the reasons it seems as though the middle class is shrinking. But you are right that the middle class people are still here. Its just that many of them are no longer living a middle class lifestyle.
No bailout, because no need, unless you, together with the MSM, assume that the United States of America consists of the following states: California, Florida, and New York City.
The vast majority of America has seen no big run-up in the last few years, and are tired of hearing about local problems in select markets as though they are concerns of the entire country.
Most areas probably have some number of recent buying victims who are in over their heads. But there are many many more folks that just do not have these issues. The ones who do not have the issues will not particularly be pleased to pay for those who do, and will not be convinced to do so. It’s a matter of proportion.
You better be friggen concerned…Given the size of the California & New York economies, if they go, everybody goes….
California & New York may prefer to think the country revolves around them, but 90% or more of US taxpayers are unaffected. And of those that are affected, maybe half (the house buyers) are ecstatic.
In the late 80s, local house prices in the NE and West were slashed, and life went on.
Is it ‘different this time’ on the way down, just as it was on the way up?
California alone generated 17% of US GDP in 2004 with only 12% of the US population. if both California and New York go down, the rest of the country is not going to be a happy place that can ignore the problem.
The farmers didn’t care about the depression’s stock market crash… until their customers stopped buying premium product in the volumes they used to.
Trust me, this will not be isolated.
1.The cattle farmer selling premium beef is not going to find many customers in a year.
2. Jack Daniel’s will still sell old number 7, but they’re going to have to discount to keep up the cash flow (resulting in less money in that region). Premium liquors will all come out with “volume” brands to stay afloat. Oh, they’ll make more money net, but its going to be at less profit per unit (but expect volume to explode).
3. Due to a reduction in air travel, Ohio, Wichita, Upstate New York, and anywhere else they make replacement parts for airliners will see layoffs.
4. New car sales will drop. So the pain in Detroit, Ohio, and other car production states will increase.
5. Liquidity is going to drop. After the “wealth effect” reverses… trust me, there isn’t going to be a spot anywhere in the US that doesn’t feel this. We’ll buy fewer TV’s, eat out less, etc.
Folks, I’m not predicting a depression. But this is going to be the worst recession of my life and I saw the 1991 so-cal recession first hand. I recall the earlier 1970’s recession too.
I expect we’ll have to start a public works program and fast. That’s good if the money is well spent (e.g., rail transport, airport improvements, freeways, bus terminals) but not if it isn’t (pretty buildings that add zero to the economy).
Neil
During the 90s, literally half of the homes went into foreclosure in Lancaster, CA. Roughly 2,000 to 4,000 units per year went into foreclosure from 1991 through 1999, in a place where there’s only about 40,000 housing units. The city took a big hit from layoffs in the aerospace industry. Downright scary. When it bottomed out in 1997, you could pick up a new home for roughly 75K. Now, prices are back up around 350K, but there is glut of homes waiting to be built, setting up another scenario of oversupply. There is still very little industry here, since folks travel 1-2 hours to L.A. to work. I think it’s going to get very ugly here very soon.
I think you’re VASTLY underestimating the magnitude and scope of this bubble. Based on my research (and countless news stories from all over the country), there are currently bubbles in the process of bursting (besides CA and NY) in Virginia, D.C., Massachusetts, Rhode Island, Arizona, Nevada, Texas, Florida, Michigan, Minnesota, Illinois (need I go on). I mean, if you really believe Mr. Bubbles Alan Greenspan and his “areas of local froth” argument, hey, that’s your choice. Me? I’m going to go with the evidence which shows that while the speculation/implosion may be the WORST here in FL, in CA, etc., many of the same trends (multiple property purchases, mass conversion of apartments into condos, conversion of warehouse/unused industrial space into lofts, overbuilding of subdivisision/McMansions, etc., etc.) are evident from one end of the country to the other. Sorry to be the bearer of bad (but realistic) tidings. But it is what it is.
oh, and I forgot places like Iowa and Idaho. No joking — Boise is one of the worst speculator-infested markets in the country, and there were some great stories a while back about how the Quad Cities area (Davenport, etc.) was seeing a surge in condo construction because — supposedly — just like every place else in the country, a gigantic Mongol horde of downsizing Baby Boomers couldn’t wait to get rid of their big suburban manses and buy an ultra-chic condo downtown. Too bad this story, which actually has a kernel of truth to it, got bought hook, line and sinker by every developer out there with a pulse. Truth is, they built way, way too many units — plenty to satisfy the Boomer horde and a whole lot more. That worked when specu-idiots were there to buy condos 10 deep just from looking at a floor plan. But now, it’s a “business plan” that’s showing its true stupidity.
Friends, happy to disagree, but I’m sticking by my Labor Day predictions. I think we have tracked this so enthusiastically on the way up that we may now be guilty of the same irrational exuberance on the way down.
There will not be a government bailout of homeowners. The poor would object, the rich would object, and 90% of home-owning taxpayers would object. Think of these people as voters.
The West has a couple-century history of boom and bust, and Florida has a similar tradition. Within the last couple decades, the same has happened in the NE. Flyover country? Not so much. Hasn’t been an individual property-owner bailout. Things aren’t THAT different this time.
However, there may well be a bailout of overextended financial firms… but not of individuals
However, if we are really talking long-term predictions… the Western states (read, deserts) will further devaulate precipitously once the water wars hit in 10 years. The Great Lakes states will be the place to see a resurgence of values.
I don’t see how the goverment can bail anyone out with 9 trillion in debt.
ronin– can you please advise where there are 4 or 5 cities of a million or more that AREN’T experiencing the bubble? I’ve heard Detroit, Toledo, Cincinnati maybe.
From what’s posted here, we’ve heard all of CA, FLA, NY, most of OR, WA, AZ, NM, TX, etc. Pretty hefty percentage of the US of A.
90% or omre of US taxpayers are unaffected
Considering that California alone has more than 10% of US taxpayers, I have to wonder about where you get your info.
I don’t know about that. Texas and Oklahoma may not have had the huge runups but they were both over 10% subprime as of 2003.
http://www.usatoday.com/money/perfi/housing/2004-12-07-subprime-day-2-usat_x.htm
Some of the highest foreclosure rates have been in midwestern states as well. For example, CO leads the nation.
Your thinking would be correct under the assumption that there are the same number of people living in each state. So you are thinking take out 3 states–that is 6% of the population. Not so, someone will correct me, but it is more like 50% of the population.
You also must also be assuming that the banks and businesses in your area are all locally owned and not nationwide.
July 2005 population of the US - 296 million.
CA - 36 million
TX - 23
NY - 19
FL - 18
IL - 13
PA - 12
OH - 11
MI - 10
All other states are below 10 million in population. CA, NY, FL are about 25% of US population. I suspect that the share of national income is about 30%. Share of housing might have been 50% in July 2005.
Among the worst states are Mass, Maine, DC (not really a state) and Florida. The worst states for foreclosures are Colorado, Indiana, Ohio, Michigan and Texas. This does not look so localized
I predict this is the Big one.
Cash and high mobility will crown princes.
Boomers meager retirement savings will be wiped out.
Homeowners will be faced with lose now or lose more later.
Highly mobile people will be able to follow the jobs.
Homeowners will have a choice between a $20,000 yr raise or coming up with $60,000 at closing, for current home.
It will dawns on employers that they have a captive employment
pool, as people are chained to their mortgages. Wages decrease.
Banks will struggle with the masses of defaults.
Mortgage lending will dry up.
China’s rocky economy will collapse.
Walmart’s always low prices will be always high prices.
Renter’s who can move to higher paying areas will be able to pay their rent.
Anyone with a mortgage will be struggling to pay it.
Only way to buy a home is all cash.
Home prices will be a few cents on the dollar as no one has cash.
A few with cash will buy a lot of property.
THEN, we can say, “If you don’t buy now you will be priced out forever”,-or at least your lifetime.
THEN, the media will report on how smart those few individuals were.
I like your predictions because I am highly mobile and can move to another part of the U.S. well within a week if I must do that tomorrow. Consulting engineer, renting, and especially renting in an apartment complex owned by a big corporation where I can transfer my lease (with a $250.00 charge, big deal) at any other complex the corporation has. And they have apartments in all the high-paying areas of the U.S. I already transferred this way once from north Phoenix to Ahwatukee. No spouse, no children in school - only a cat. I’ve been on the go since 2000 (Scottsdale, New Jersey, Los Angeles, and now Phoenix), with only a total of 6 weeks downtime between engineering gigs. Job shopping is the way to go, especially when regional economic crises happen. This happened in 2002 in Phoenix when Motorola s*#t hit the fan and every unemployed engineer in Phoenix who refused to move out of town either had to take a big cut in pay as a direct hire, or had to be unemployed for months. This is probably going to happen again in the next few months with the fallout from Intel’s announcement Tuesday. I’m prepared to go to the East coast next year if I must. Have about 250,000 of frequent flier miles anyway.
Hi Bill, I agree. whats the point of having a home now especially if you are in engineering. I was stuck in Cali during the 1990’s defense downturn and had to rent out my Townhome when I got transfered. Highly mobile is the way to go in this field. Another spooky recession is on its way.
Better take care of that cat. They can be ferocious beasts when disturbed.
My cat is exactly that. she’s a two year old with an innocent looking face most of the time and enjoys company, very affectionate, but gets very active at night and likes to destroy my things - my headphones - ruined 3 weeks ago. My sister’s headphones got ruined 2 days ago. My frames on my glasses were irritating me behind my ears for a few days when i decided to take a look at them…Chewed! And I don’t chew on my frames! Gotta be that cat!
If housecats grew as large as cougars, they would happily eat their owners for dinner.
Now that’s a keeper!
I’ve been noodling over what, if anything, I can contribute to the fount of knowledge that is available on this blog. I have decided that I will piece together out-takes from different articles in an attempt to forecast the future from the past. I believe it was Mark Twain who said (and I paraphrase here) “history never repeats but often rhymes”.
To start I thought I would offer an excellent piece about the fundamentals of money and credit. This out take is from an excellent pay site called “The Privateer” and I highly recommend it. http://www.the-privateer.com
Fundamentals:
Economics deals with four fundamentals. These are consumer goods, producer goods, money and time.
All true real wealth consists of UNCONSUMED economic goods. These unconsumed goods can be in
the form of consumer goods or producer goods. All the early barter economies functioned on that basis.
Historically, debt and credit arrived before money did. Across present day Iraq, the bane of the
archeologists are clay pieces with mundane writing on them to the effect that one person owes to another
eight sacks of grain, three fields to be plowed, eight goats, all to be repaid on a certain date. Money came
later in the piece. Money, in coined form, allowed sellers of goods to sell for money and also to buy with
the money so earned. As a result, money prices for goods arrived and man could economically calculate.
It is a simple and irrefutable economic truism that doubling the quantity of money in circulation will not
add one iota to the combined stock of unconsumed economic goods. All the arrival of this additional
money will do is to cause added consumption of the available consumer goods and under investment in
producer goods while, for a period of time, disorganising the entire money pricing system. Time is
inherent in all human activities. This is why an apple a year ahead is valued less than an apple today.
This difference in valuation, the “discounted” value of the future apple, IS the rate of interest. If a man
won’t pay a Dollar for an apple a year ahead, it is because he values a Dollar today more highly than an
apple for that price in a year. But if he’s offered the future apple for 90 cents and says yes, it means he
values an apple a year ahead more than 90 cents today. “His” interest rate is 11.1 percent.
The Privateer - Number 560 Page 4
Fundamentals - Continued:
The fact that time is inherent in interest carries directly across to today’s credit money system. The
difference here is that money today is compared (in effect discounted in the same manner as with the
apple example) to money in the future. Economically, it goes like this. A man with a Dollar in his pocket
and no particular reason to spend it meets a man who would really like an apple but, sadly, does not have
a Dollar, so he can’t get an apple. After a short discussion, the man with the Dollar agrees to lend it to the
other man for a year, with the proviso that one year ahead he gets one Dollar and 11 cents paid back.
Economically, what happened here? The man with the Dollar obviously values one Dollar and eleven
cents a year ahead higher than he valued the Dollar in hand today, so he lent it. The other man, badly
wanting an apple but not having the money, values an apple in hand today higher than one Dollar eleven
cents one year ahead. A credit transaction ensues and the happy borrower goes to eat the apple.
Money Prices:
The above also explains the formation of prices. ALL PRICES ARE RATIOS - the ratio between the
money surrendered for an economic good or what the surrender of an economic good in the market can
earn in money by being sold. Please notice that here too, there are two different valuations.
The seller of the economic good (at a given money price) values the money received higher than the
economic good surrendered in the exchange. The buyer values the economic good he gets higher than the
sum of money he surrenders in the exchange. After the trade is done, both the parties see themselves as
being economically better off than before. They each surrendered their less valuable good for more
valuable goods, each from his own perspective on individual valuation, and now both are now better off.
ALL Credit Transactions Are INCOMPLETE Exchanges:
They are never completed until full due payment is made. Now we get to the economic nub of the matter
of the massive crisis facing the US economy. On August 15, 1971, when the US Dollar was turned into a
piece of paper with only numbers on it, the worldwide monetary problem began. Back then, the US
Dollar was the rest of the world’s reserve currency. After the near death experience of the US Dollar in
1980 when Gold soared to $US 850 per ounce, the global monetary problem has been grotesquely made
worse by the sequential US credit expansions, each new one vastly greater than the preceding one. Now,
the US owes the world more than its own internal economy can even get close to producing. On top of
that, tens of millions of Americans owe their banks more than they can ever hope to earn and repay.
A Double Bankruptcy In The Making:
The US is in an economic “double jeopardy” situation. The US economy cannot repay the world what it
owes. Americans cannot repay what they themselves owe to their US lenders.
All Credit Is Present Goods For Future Goods:
Credit is to be repaid in the future. When the future arrives, all credit is DEBT. At that point, the only
way the debts accumulated can be repaid is with the debtor’s PRESENT GOODS. If the debtor has
insufficient goods in hand with which to pay the debt, the debtor is bankrupted. If there is still an unrepaid
part of the debt owed, then the lender, the one who gave credit, takes the hit for this part. That is
the central point of the global economic and financial crisis which is now looming over the horizon.
The US Treasury is bankrupt. If it tried to cover its present spending and future liabilities with matching
taxes, it would drive American businesses and households into bankruptcy under the load of taxes. The
government can’t help Americans and Americans can’t help the government. The crash starts here.
The Privateer - Number 560 Page 5
Recessions Start As Intellectual Events - And Then Become Economic:
The October crash of the New York stock exchange in 1929, the crash of October 1987 and the Nasdaq
crash of March 2000 all had one thing in common. Suddenly, a lot of people realised that valuations were
wrong. All crashes start as internal intellectual events taking place inside peoples’ minds.
Others, who came later, had to see the external demonstration before their eyes that prices were breaking.
Seeing this happen, they too realised that valuations had been wrong. It is only later, when portfolios are
re-valued at the now lower prices, that people see the direct financial effect. A month or so into the
market’s dive, a portfolio of stocks which could have been sold for perhaps $100,000 only a month earlier
will now only fetch perhaps $70,000. At this point, a market dive starts having real financial effects. If
such a portfolio is sold at this point, the seller stands with diminished ability to buy in the more general
market. This is the point at which a market dive starts having an economic effect.
They Can’t Buy As Much As Before:
When those with losses in the stock market start making fewer purchases in the broader economy, that
shows up as smaller cash flows across the retailers. As retailers react in turn by buying less from
wholesalers, valuations and also prices change. Now the event starts to have real physical consequences
across the economy. As less is being bought and sold, the entire interconnected chain from raw resources
to final consumer goods starts to slow down. Factories slow to a lower speed of production and the
transportation system hauls fewer goods. That’s when the layoffs start.
The forward economic sequence is first intellectual (valuations), next financial (portfolio losses), and in
the end, physical (economic slowdown and layoffs). At this point in the US economic drama, we are
entering the intellectual stage of realisation that valuations are not only wrong, they are way too high.
Me? - Play Futures? - You’ve Got To Be Kidding!:
Most people think that trading derivatives or futures because of the enormous leverage one can find there
is a version of near mad gambling. A lot of these same people don’t bat an eye and see nothing wrong
with living in a no money down, interest only, totally mortgaged house with a debt of $300.000 or more
leaning against it. But when the actual leverage between the fully mortgaged house is compared to
derivates or currency futures for example, a professional trader in futures would blanch at the risks being
taken by the even more highly leveraged house/mortgage traders.
Historical Market Lore - Or - The Olde London Rules:
During the 1830s to about the 1850s in Britain, people looked first in wonder and then in growing dismay
at the British boom - bust economy. At the time, a great historical debate took place between the Banking
School and the Currency School as to what was the real cause of all these repeated economic booms and
busts. Hard headed traders in the London stock market formulated the adage that a boom was only really
over or close to being over: “When the little man was fully in and up to his neck”.
Well, the “little men” so beloved of those former London traders are in today up to their necks. But they
are not in the US stock market, they are in the US real estate and mortgage market. From here on, it is the
huge US real estate market which has to be watched closely. When valuations and prices break here, that
will take the near inexhaustible American consumer down with it. Americans are trapped in their houses
because when valuations and prices go down, the mortgage debts owed against them do NOT go down.
These millions of Americans might as well have been playing currency futures with “no money down”.
When the US real estate markets break, US stock markets will quickly follow. Then the game is OVER.
Nice one Auger, I think I will go out back and dig a hole and just get in.
wow! that brought tears to my eyes.
Interesting stuff, but there seem to be some math problems with this. Even taking a severe economic recession into account the GNP is likely to continue to grow by at least 1-2% per year which over the next decade or two makes it quite large even in comparison with the current debt. Our situation is dire, but serious work with the numbers suggests that all we have to do is stop abusing credit like crazy both as individuals and as a nation.
For my second post I would like to excerpt some very important paragraphs from the article that TX Chic posted a few times in the past, most recently today. This from http://www.itulip.com concerning past actions of gov’t during our last depression. The whole article is excellent and a “must read”. I would like to draw attention to this excerpt though.
When FDR took over in 1933, he had a similar problem. Thousands of very rich buying super cars cannot generate enough demand to employ millions of workers. The problem was not unique to the U.S. but was global, just as housing and other related credit bubbles today are not unique to the U.S. Both eras’ stock market and credit bubbles produced wealth inequality. The economic crisis that followed turned this inequality into a political nightmare. The way it was addressed in parts of Europe was the wholesale redistribution of wealth in Communist movements. There was a period in the early 1930s when many were convinced that a Communist movement was all but inevitable in the U.S. In his memiors, Alistair Cooke noted that he came to the U.S. from the UK to cover the Communist revolution that was at hand, seeing this as a once in a lifetime career opportunity for a young journalist.
Political developments overseas made FDR’s solution an easier sell to the wealthy elite in the U.S. when he came into office. The U.S. president that follows the administration that follows the Bush II administration, take note.
FDR offered the top 1% in American society a better option than Communism: “Turn in your gold and the government we will pay you in currency which we will then inflate. The impact will be that your money will be put back into circulation to get the economy moving and we’ll get the banking system working again. Everyone wins, and it’s a better deal than the creditor class is getting in, say, Hungary. This will cost you only 30% of the purchasing power of your wealth.”
Most responded by voluntarily turning in their gold to the government in exchange for currency. To take care of stragglers, Executive Order 6102 was issued in April 1933 (repealed in 1975), making private gold ownership illegal in the U.S. This law was intended to keep bankers from cutting deals with their wealthy clients. Once the government had the gold, they marked it up from $20 to $35 an ounce. At once, a 30% inflation occurred to halt the deflation that had been crippling the economy.
Its funny you bring up FDR auger…two nights ago I was rereading his “the only thing we have to fear is fear” speech.
That is why one should never have more than 10% of his net worth in precious metals. But wait. The directive was about gold, not silver and not platinum. Also, I wonder if Executive Order 6102 was effective immediately so that banks would forbid people to access their safe deposit boxes that same business day or the next business day morning? For those people who do not have land and who do not own a house, it may be a good idea to store more expensive things in a generic storage unit, such as one you’ve already been renting for months. Safe deposit boxes would obviously be off-limits right away. At least with storage units, you will have time (maybe a couple of weeks) to get to your gold and move it to a different (safer?) place before the goons order them locked searched.
One of the purposes behind quoting that particular paragraph was to demonstrate that the U.S. took something recognized internationally as having value (gold) away from “the people” and devalued the currency it backed. This inflation mainly hurt the U.S. citizens as the U.S. gov’t didn’t have an external debt problem at the time but each U.S. dollar was still backed by gold for purposes of foreign trade up until 1971 at a different ratio. Therefore international CONFIDENCE in the dollar was able to be maintained while inflating domestically. No such mechanism exists today as we are on a pure fiat monetary system since 1971. BTW, pure fiat (unbacked) monetary systems are something like 0-400 in their ability to exist without inflating themselves into extinction. Bretton Woods allowed all the currencies of the world to go off the gold standard and peg foreign currencies to the U.S. dollar which was to remain gold backed by, at the time, the world’s largest hoard of gold at Ft Knox (which has not been allowed to undergo an audit since the 50’s I believe). The world un-tethered from gold in 71′ when Nixon defaulted on that agreement. To get to a reserve currency that garners confidence (assuming a future U.S. default internationally) going forward will require either a mechanism similar to the gold standard whereby a country can not print/inflate it’s currency faster than supply of the commodity grows (and this is problematic for a number of reasons) OR something happens that repeals the nature of man (and therefore gov’ts) to covet money/power and china, russia, iran, etc., all agree to a single currency for the world (which I believe is a low probability event). Basically, to boil down my observations, we are at a point never before in the history of the world. The BASIS (U.S. dollar) for valuing every currency in the world is in technical bankruptcy as evidenced in my earlier posts. Anyone who is trying to game this event is in unknown territory. When this event unwinds and banks become insolvent (default on MBS occurs), the FDIC is supposed to replace those funds up to 100K. Should this happen then I wonder out loud what the purchasing power of those dollars will represent? It is unknowable at this time but logic would dictate caution in thinking that this will result in a stronger dollar, imo.
The US paper money/monetary system is completely disconnected from gold today. The alternative to this today would be to forgive mortgage debt or pay down mortgages with government “printed” money to relieve pressure on the “masses”.
That would induce a 30-40% inflation to stop deflation.
BTW, in Austin TX, people foreclosed on with FHA (and maybe bank) mortgages were implicitly forgiven (no one pursued them) and able to get new mortgages by 1989-90 to help restart the system and begin to take the huge inventory of unoccuppied and govt/bank owned properties off the market at 50c on the dollar for suburbia and 75c on the dollar for in town nicer/higher end properties.
The problem with looking back to what FDR did during “The Great Depression” as a possible blue-print for what may happen in the near future to deal with the coming “Greater Depression” is that FDR’s policies didn’t work. World War II is what ended the Depression…not Socialism Lite. We can fix our government debt problem by trashing Social Security and Medicare. We can fix our currency problem by making it not cool to buy so many imports either socially or taxwise. Our problems are all fixable and simple…but they are not easy. People will have to get real and stop spending more than they earn, stop importing more than they export, and stop voting in people who promise from future generations.
Uh-huh. And what was WWII except for socialism full strength?
Government spokesperson, “Everyone will now drop whatever they are doing and come work for us. Some of you will go off to fight and die. Everyone else will go to the factories to make what we tell you to make. Everyone will earn what we tell you to earn. Prices will be what we set them to be. Anyone who objects is an unpatriotic traitor and will be sent to the front. That is all.”
So, why wasn’t the US “full strength communism” after that? What was the difference?
Hmm?
the recession of 37
fdr and the socialists made the deflatio endless
1921 was a bigger decline in CPi than any year of the depression
no gov programs = no problem
just get ready to be lynched after you runout of bullets.
Exactly. Seems a lot of Darwinian capitalists don’t get this point.
More than anything, IMO, socialism works to create a safer environment for the greatest number of people. Whenever you get the tremendous wealth disparities which exist under Darwinian/libertarian capitalsim, social upheaval will result.
Best to keep the sheeple placated. Keep them from being so rich that they do not have to work, but give them enough so they don’t panic and overthrow those in power. As others have mentioned here before, New Orleans (and any area after a disaster) is a good indication of what society would look like if the masses are kept hungry, cold and tired. Be careful what you wish for.
I disagree that the problem in the 1930s was income inequality produced by the 1920s investment bubbles. I think it’s more likely that the bubbles of the 1920s were the result of income inequality.
What Marxian economists and propagandists in the 1930s failed to understand is that while capitalism does tend to increase income inequality in an expanding economy, it generally doesn’t mean the rich get richer and the poor get poorer. Just as the apex of a pyramid is higher when its base is larger, the economic altitude of the relative few who control large economic enterprises increases as those enterprises grow. The “building blocks” at the bottom aren’t any poorer, but because there are more of them, the peak is higher — and the distance between the peak and the base increases.
Compare a mom & pop store with two or three employees and, say, Sears. Both may pay essentially the same wage to the most junior employees — the prevailing wage for unskilled retail labor — but obviously the people at the pinnacle of the Sears enterprise are going to take home more money. The income disparity between the executives and large stockholders of Sears and its most junior workers dwarfs the disparity between the mom & pop store’s owners and its junior workers — but the junior workers at Sears are no poorer for this (in fact, they’re likely to be better paid, given the large store’s ability to utilize economies of scale.)
Back to the 1920s. The problem during that period wasn’t that the workers had less money to spend on consumer goods; in fact, they generally had a great deal more absolute wealth than they had had previously, even as they lost comparative ground to the rich who were getting rich even faster.
The problem wasn’t so much a lack of middle- and working-class purchasing power; there was plenty of that. The problem was the bursting of the 1920s asset bubble, and the misguided government response (increased taxes, increased tariffs, pressure on industry to keep wages high, and tight monetary policy slamming the barn door after the horse had left the barn). And therein lies the one legitimate critique of economic inequality: It was one of the main reasons the bubble developed in the first place.
The wealthy generally don’t stuff their money in mattresses. They either spend it or invest it. Ordinarily, that is just as healthy for the economy as spending by ordinary consumers; consumer spending is consumer spending, and to the extent that investment increases productivity, it has the potential to make everyone better off.
The problem with this is that sometimes growth leads to euphoria, and people start demanding returns on investment greater than even robust growth can produce. Coupled with loose monetary policy, and you get asset bubbles — which is exactly what happened in the 1920s. There was simply too much money in the economy to be utilized rationally — and since industrial capitalism and its economies of scale tended to concentrate wealth in the hands of people whose ratio of investment to consumption was greater than average, a greater than average proportion of the loose money wound up being invested rather than spent. The natural result was an inflation of asset prices rather than an inflation of consumer prices.
What should have happened in 1929-1932 was what Andrew Mellon prescribed: Liquidate the bad investments. (The government should also have provided some relief for ordinary people who found themselves in dire straits because of the downturn, but in attempting to do so, President Hoover, and later President Roosevelt, actually made it more difficult for the dead wood to be cut away, perpetuating losing enterprises just as Japan’s banks have done with their long downturn.)
We’re seeing a similar pattern today with the housing bubble, which, as others have pointed out, is actually a credit bubble. Individual homebuyers who have bought properties on what should appear to everyone to be wildly speculative terms (using exotic mortgages, “flipping,” etc.) may not have had any great increase in disposable income. But their lenders have. Specifically, the moneyed interests that have become wildly richer through globalization (even as the rest of us have also benefited, just not as much) have poured mind-boggling amounts of capital into mortgage lending, generally through purchases of mortgage-backed securities. As in the 1920s, there is more money being made available for this sector of the economy than is justified by the reasonably foreseeable returns on investment; the risk premium of negative-amortizing and adjustable loans has been eclipsed by the consensus that real property will continue to appreciate fast enough to keep highly leveraged buyers out of trouble.
In other words, investment decisions are being based purely on the assumption of future appreciation — the classic definition of a speculative bubble.
Whether the inevitable bursting of this bubble results in a minor or a major recession (or a full-blown 1930s-style depression — the result of the last bubble of comparable magnitude) depends on whether government tries to bail out the doomed speculators (including, in this case, individual homeowners who bought more house than they can afford). If a bailout is attempted, expect a lost decade like Japan’s. If not, then we can take our lumps, screw a boatload of hedge funds (and pension funds, unfortunately) and get back to rational business in a couple of years.
House prices level off a bit lower, then the resets hit and foreclosures spike. Prices at YE are about 15% lower in CA, 10% lower in other bubble markets.
The fed lowers fed funds to 4% by YE. No chance of raising interest rates in a recession. BB’s seminal work was on the great depression. I don’t think he wants to repeat that. AS far as gas, etc. alot of that is due to factors other than monetary growth, like peak oil, increased demand from China. AS long as inflation isn’t in labor markets, the fed won’t be worried. A recession hurts job markets and thus labor markets are slack.
AS for non-bubble markets. Land prices here in S. Georgia are 10K per acre. There is no bubble, because there was always an abundance of cheap land to build on. House prices could fall, but if they do then land will be worthless, and builders won’t be building if they can’t sell their house for more than materials and labor. Contrast this with CA were the house built still sells for much more than labor and materials…in other words land prices are still very high. HIgher than GA anyway.
declining interest rates in the early 1990’s didn’t save overpriced RE.
Same story in Japan for the last 17 years.
Comment by Sunsetbeachguy
2006-09-04 11:31:09
declining interest rates in the early 1990’s didn’t save overpriced RE.
Same story in Japan for the last 17 years.
I recall it well and this is a BANG ON FACT!
Sorry kids but a LONG double post will appear. I sent the first one and it took over a half hour to appear so I re-sent it. apologies and if you are out there BEN, please delete 2nd.
Sometime within the next year David Lareah becomes the Real Estate bubble Pinata(sp?). Well deserved too.
Here’s some facts, not prediction from Greeley, CO, the state with the highest foreclosure rate about one area which is affected worst. These are recent sales since July of this year with their history from public records.
1118 5th st-Sold for $73,200 it had last been sold in 9/2004 for $140,000 with two mortgages for 140,000. Foreclosed by Cit Group
736 43rd Ct- Sold 8/18 for 73,000 from an asking price of 74,000 from FNMA. In March of 2002 it had two mortgages taken out from Greenpoint for $155,000
1519 11th St sold 7/16/2006 for $69,900 with $2,900 seller’s help. A year earlier it had been foreclosed on by Wells Fargo for $106,763
2336 6th Ave sold in July for $65,000. It had been foreclosed in January by Chase for $96,235.
516 15th Ave Ct sold for $65,000 in July. It had been foreclosed in March by Countrywide for $101,704.
512 21st St sold in August for $65,000. It had been foreclosed in January for 115,236 by Wm Mortgage Specialty.
2516 10th Ave sold 8/28 for $63,000. It was foreclosed by Wells Fargo $107,647 forin April. It looked like a second mortgage was on this property from Lender’s Spectrum for $38,000
405 16th Ave Ct sold for $ 53,000 on 7/10 from HUD it was last sold for $107,000 in 12/2002.
418 14th St was sold 8/24 for $53,000 It was foreclosed on by Chase for $89,811 in 2/2006.
I could add so many more from Greeley and Weld County and also do the same with those which are for sale now. These were all smaller older ranches. Is it an indication of other areas? Greeley is about an hour from Denver, but I can show similar things in Commerce City which is minutes from Denver and probably Aurora. This is the low end of the market but could these be the houses people would sell to move to newer and larger places. The question is, is this the foundation which will collapse or just weaken to bring down the rest of the market (and banks)?
Good post. Thanks!
My third post is an article I can link to (finally)
http://www.gold-eagle.com/editorials_05/milhouse071806.html
Two important excerpts though. One is an old greenspan speech I posted several days ago. The second part which follows is an important observation which I believe goes to the heart of what I believe we are going to witness at some point in the near future
Bernanke’s November-2002 speech garnered a lot of attention in the financial world, but similar sentiments were expressed just as clearly in a little-known speech by Alan Greenspan in January of 1997. According to Greenspan:
“When there is confidence in the integrity of government, monetary authorities — the central bank and the finance ministry — can issue unlimited claims denominated in their own currencies and can guarantee or stand ready to guarantee the obligations of private issuers as they see fit. This power has profound implications for both good and ill for our economies.
Central banks can issue currency, a non-interest-bearing claim on the government, effectively without limit. They can discount loans and other assets of banks or other private depository institutions, thereby converting potentially illiquid private assets into riskless claims on the government in the form of deposits at the central bank.
That all of these claims on government are readily accepted reflects the fact that a government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit.”
Note the liberal use of the terms “without limit” and “unlimited” in the above. Note, also, the qualification: “When there is confidence in the integrity of government”. Once confidence collapses it becomes counter-productive for the central bank or the government to issue more “claims” (money and money substitutes). When that point is reached you don’t get deflation; you get a total collapse and a new monetary system.
Right now the inflation argument is an easy sell thanks to the sharp rises in commodity prices over the past few years. However, it wasn’t an easy sell when we were trying to sell it in 2001-2002 and there will again come a time when it won’t be an easy sell.
We suggest you print the above-referenced speeches and refer to them the next time the deflation argument appears to be gaining the ascendancy.
To wrap this up I would like to observe that 1). As itulip notes, the U.S. gov’t rewrote the rules in 33′ to call in gold. That should dispel any notions that the U.S. gov’t will restrict themselves to current law should circumstances dictate otherwise.
2). The difference between 29′ and today is the INTERNATIONAL debt that the U.S. currently owes the world (as noted by the privateer).
3). Should the world lose confidence in the U.S. dollar (see first post from “the privateer) the result is the collapse of the dollar, not deflation as some would currently argue (as suggested by Saville in this post). http://www.speculative-investor.com for those interested in signing up.
And finally, I would invite you to read this definition from wikipedia
http://en.wikipedia.org/wiki/Money#Essential_characteristics_of_money
Please note which characteristics do and don’t compare well with that of the U.S. Federal Reserve Notes.
Good point. The author is saying that it’s an easy misconception to think that since China and India are flooding the U.S. with lower-priced products, we are witnessing deflation. He is correct in saying the bottom line is that the Federal Reserve actions are showing inflation. That is, an increase in the money supply. This oversupply of money has ripple effects and can take years to effect the consumer directly. This is why I think federal fund rates in a few years will have to go up to reverse this loose money. In the short term, 3 month (or less) T-bills, Money market funds, and precious metals are great areas to park your wealth.
Auger–I don’t have a very good head for economics, but should the world lose confidence in the USD, the result will likely be the collapse of the dollar but could also be deflation on a global basis. It all depends on the context of the larger picture. For instance, the world can lose confidence in the dollar but have even less confidence in the other major world currencies. This means that while the dollar collapses, it collapses less so than the Euro, the Yen, etc. Then you have the metals, real estate and other markets to consider in the mix, all of which, along with the dollar, can seem to move in connected fashion until the day they don’t. Market technicians will know what I mean. Each market, each chart, is a thing unto itself with its own psychology. I came across this quote from Bob Prechter of Elliott Wave fame from a recent interview. He’s an interesting observer and analyst who is lauded and derided by other financial/economic ‘experts’ in various measures, depending on how well he syncs up with the opinion trend, seems like a 180-degree contrarian to it, or occupies that troublesome turf in between. As with all of this stuff, there are smart people out there with ample evidence to support any prediction. But I tend to like him, maybe because he’s a Mensa member and because the Wave theory seems well borne-out over time, even if its predictive qualities depend largely on the skill of the interpreter. Whatever. I picked this up from http://www.elliottwave.com/features/default.aspx?cat=pmp&aid=2589
Bob Prechter: I think it’s vitally important that gold, silver and the DJIA peaked within the same 24-hour period in May. The Dow topped on May 10, the metals on May 11. I have been making the case that liquidity has been driving all the hot markets together, and that includes real estate, copper, oil, foreign currencies and junk bonds. I further contend that when deflation hits, these markets are likely to go down together. So there will be no “hedge” investment, no markets in which to get rich while other suffer as there were in the 1970s. The only refuge will be safe cash equivalents, and they are few and far between. If you want to get safe from the crash, I spelled out how to do so in Conquer the Crash. Look around. Real estate is slumping fast. Gold and silver are down from their highs. The S&P is still 15 percent below its 2000 high, and its rally from 2002 looks tired. The hype on oil is relentless and deafening, but its net gain for the past year is zero. Despite massive credit inflation, grain prices have been falling. I think these are warning signs of the crash I’ve been talking about. Gold bugs say that the Fed can inflate the economy out of any difficulty. I guess we’ll soon find out.
This gold bug doesn’t think the Fed can inflate the economy out of any difficulty, just that it will more often than not, try to.
“[Privately owned] Central banks can issue currency [Federal Reserve Notes], a non-interest-bearing claim on the government [the people], effectively without limit. They can discount loans and other assets of banks or other private depository institutions, thereby converting potentially illiquid private assets into riskless claims on the government [people] in the form of deposits at the [privately owned] central bank.
That all of these claims on government [people] are readily accepted reflects the fact that a government cannot become insolvent with respect to obligations in its own currency [Federal Reserve Notes of the privately owned Federal Reserve bank]. A fiat money system, like the ones we have today, can produce such claims without limit.”
Yes - this will save us. The owners of the Federal Reserve will print Federal Reserve Notes (debt obligations of the people) and buy the assets of the people.
Good link… Apparently resturaunts in the West Palm Beach area are showing some very soft sales:
http://www.palmbeachpost.com/accent/content/accent/epaper/2006/09/04/c1a_summerdine_0904.html
Kind of stinks when you actually have to pay the bill, not have your house pick it up?
Events happening in Las Vegas, Phoenix, San Diego and certain parts of Florida will be you guidepost for what is to come for your neighborhood.
This will be true for at least the next year probably 2.
As in, when you start to see dramatic numbers in some segment of the market in these areas, you can then use that to predict that your market will follow the same pattern three to six months after.
So many good predictions, it’s hard to add much to the collective wisdom here.
My prediction is this: We will all be surprised at how quickly this bubble imploded and the breadth it reached.
At Labor Day 2006, we are (depending on local market), anywhere from 3 to 15 months from peak. As of today, we do not know when the absolute peak occurred (Robert Cote says it was the day his housekeeper bought an $400k house, others put the peak at the Time Magazine cover, my date is 10/17/05 — enactment of the new bankruptcy bill). But when you consider that residential real estate has either trended flat to up for at least the last 10 years (and has been generally and broadly up for the last 30, tracking inflation), a decline that lasts 3-4 years will seem brutally fast, historically. By this time next year, the idea of real estate as an “investment” will be thought of in the same way that Pets.com or Beanie Babies are today.
By Labor Day 2008, we will see absolute economic carnage in many areas of the US. Everyone speculates as to “how low will it go” — I think it’s an easy answer. Take the average or median monthly wage in a particular area, muliply by 28%, look up the corresponding 30 year mortage payment and you have the affordable price of the house. I think we’ll be there in 24-36 months (Labor Day 2008-2009).
In addition, by Labor Day 2008 many of the most speculative areas will be modern day ghost towns. Abandoned sub-divisions. There was no economic reason to build these beyond speculation and absent speculation there will be no reason to buy.
We will learn just how broadly the speculation has reached into Middle and Upper-Middle America. For many people, this was the last, great chance to get rich. Many people went “all-in”; a HELOC to purchase an “investment property” which not only can’t be sold at a break-even or small loss, but which in some instances can’t even be given away (McMansions in Boise?). This, I think, is what will take down many of the upscale areas in CA — out of area speculation.
Finally, no bailout. Well, no bailout for overextended real estate purchasers. Maybe a bailout for banks (the FED exists to maintain the stability of the banking system). For those of you who believe that the “government” will help bail out the typical overextended person, guess again. The latest bankruptcy bill is only a step away from reinstituting debtors prison. The only bailout may be that in the case of fraud by the borrower that the lender can go after retirement funds (hmmm, should I check “owner-occupied” on the application for my Miami/SD/Boise/LV/fill in the blank condo mortgage).
PS — the bottom? When you overhear a telephone call touting the value of renting (no maintenance, don’t have to cut the lawn, etc) and that you’d have to be crazy to buy.
‘the bottom? When you overhear a telephone call touting the value of renting (no maintenance, don’t have to cut the lawn, etc) and that you’d have to be crazy to buy.”
I’ve been renting for most of the last 21 years (except a 6 year stint when I made mortgage payments on a declining house in the last bubble). I never had such a phone call. I do notice the Trillium rental sign twirlers have been actively twirling on Ray Road west of I-10 in Phoenix this weekend. Trillium is said to be good quality.
I think your right on the mark. The government is telling us where they are headed. The BK law change is one BIG signal! I think that you’re right about places like Orange County Cal. Their was a lot of money pulled out of here to buy in Idaho, AZ, and places like Texas.
These people are, just now, feeling the pinch. Start watching the local restaurant, car dealers, starbucks, for falling traffic.
I know of two people, who own in South OC, who, last year pulled a lot of money out of their $1,000,000.00 ( Almost paid off) homes to buy investment homes in AZ.
I tried to talk both of them out of making such a stupid investment. Both of them thought I was nuts.
Today, I find myself avoiding them because they know that I know what they did. I just don’t want to be drawn into that conversation.
Amen! I have seen it also. I live and work in Irvine and many Irvineites have invested like the ones you described thinking they had more investment knowledge than anyone just because they live here. OUCH!! The pain will be long and hard…
Banks will realize they are in major trouble by the end of this year. By mid to late 2007 there will be a banking collapse across the country due to the number of foreclosures.
I check this website every couple of weeks. It’s up to 712 total listings for AZ….last time I checked, it was about 425. Lots of homes off the MLS radar, and beyond the reach of statistics, median prices, etc. And this is just one of the fsbo sites out there!
http://www.forsalebyowner.com/
My own predictions (finally) for Labor Day. I guess I will have to define the duration. Short term: 18 months through February 2008. Medium term: through 2012. Long term: Through 2020.
For the short term, I expect federal fund rates to vary between 5.25% and 6.75%. Sometimes up and sometimes down. I expect oil to fall to $50 per barrel this Fall but by February 2008 reach $80 per barrel. I expect gold to break $825 per ounce in the next 18 months.
In the intermediate term we’ll see interest rates forced to 7.75% and top out at 9%. Long term bond yields will finally creep up to 9%. 10 year notes 9%. Gold will cross $1000 per ounce. Oil will be priced at $150 per barrel. This is the time when I will sell off half my precious metals and buy Treasury notes/bonds. Houses in the exurbs will be all abandoned. Example Some $900,000 (2006 prices) Queen Creek (near Phoenix) gated community homes will be reported in the AZ Republic of becoming vandalized meth labs by 2011. Tech stocks selling in the 20s and up will be pink sheet. Municipal bonds will be king. Many municipalities (I expect) will be seeing nuclear power plants under construction in 2010-2012 (at last). Electric cars (for those who can afford them) will be one in four cars on the road.
Longer term: I’ll skip this, but, ironically, I am very positive on the long term for the United States and the world. We eventually have to feel the wrench of reality. Truth, good, and reason always win in the long run.
bill, you’re an optimist and a luminary!
let me add my own optimistic prediction … probably concurrent with the reversion to the mean in r.e. (2014 or so…):
we will by 2015 have a reasonably priced, truly and fully electrified car, with 4 coffee-can sized motors, one at each wheel (all computer controlled), getting us from here to there on 300 miles-per-charge (off a nuclear-powered grid). that will be the indication that we may successfully weather peak oil, which, as i previously predicted (along with warren buffett) will be at $150+/barrel within 5 years.
so i’m an optimist, too. but in the meantime … oh, say 10-15 years, we’ll be in epic deep doo doo.
my point regarding a hopeful future for the affordable electrified car, a lot of real estate (the exurbs!) will be toast. forever.
my point regarding a hopeful future for the affordable electrified car, is that without a cheap and convenient mode of personal transportation, a lot of real estate (the exurbs!) will be toast. forever.
We just need to revive the Stanley Steamer, and retrofit it to burn coal, wood pellets, or promotional AOL cds.
“…burn coal, wood pellets, or promotional AOL cds.”
AOL85! (it’ll burn 15% methanol from hogwaste.)
Manhattanite, you probably heard Bush months ago say this. But he’s repeated it again: http://www.msnbc.msn.com/id/14668738/
I don’t care if it’s Bush, Clinton, Carter, or whatever. They know the same things Matthew Simmons knows. There are people in Congress who are aware of and concerned about peak world oil. I am sure the President is informed of these problems too. Fact is, these politicians work slowly and are stretched on all sides by all forces, so come across as middle ground. In private, the concerns are, I would wager, more amplified.
Agreed that electric cars would be a boon, but we could cut out a lot of unnecessary mileage by finding a way to effectively manage distributed workforces. For example, a two-hour commute one day per week but work four days from home or a local neighborhood office building.
Bill in Phoenix-How refreshing! I am long term bullish also. Believe we will muddle through this rough spot. It will be difficult for many short term. I believe someone posted a few days ago and asked something to the effect of, aren’t falling housing prices a good thing? I happen to believe they are. In another year or two, My children may be able to afford a house. In my opinion, we are witnessing the collapsing of a huge bubble and we will revert to the mean. Nothing more and nothing less.
Peter, I hope you’re right. Historically, the collapse of a bubble does not bring about reversion to the mean. Rather, it overshoots below the mean in much the same way the bubble overshot above it. That’s why the aftermath of bubbles is so incredibly painful and destructive. It wipes out a heck of a lot more than the bubble gains that are above the mean. That’s what we may well be headed for. For historical comparison, you can look at the Great Depression as the reaction to the bubble that preceded it. By any measure, the financial bubble we’ve been in the process of bursting since 2000 was far more extreme than that one was. That’s why it’s taken six-plus years and counting to just pass through the peaking-and-bursting process. And while I also believe that progress wins out, keep in mind that the Middle Ages lasted for centuries before we started the next cycle up during the Renaissance. I’m being very extreme with that comparison (I sure hope so!), but the bad times can last a lot longer than we tend to believe.
“keep in mind that the Middle Ages lasted for centuries before we started the next cycle up during the Renaissance.”
I say the Middle Ages get a bad rap. The late Roman Empire pretty much sucked culturally. The High Middle Ages — think Gothic cathedrals, the Norse sagas of the 1200s vintage, Eschenbach, de Troyes, and the rest of the chivalric romance authors; Aquinas, Anna Comnena, Averroes, Avicenna, al-Farabi — the world was a more advanced place around 1200 than it gets credit for, considering that a Little Ice Age had descended on the world and basically ruined the civilization that developed during the Classical Warm Period. (Now, we’ve got global warming — so nothing to worry about, right?) Housing-wise, the urban markets took a big hit during the barbarian invasions, but farming innovations seem to have raised the value of agricultural property, and developers scored big building out the Venice tract on a reclaimed lagoon. (”Desirable new home on waterfront property, Levant-convenient, plus Goths can’t swim so they can’t pillage you here. Seller financing available.”)
True, the Black Death did clobber the European housing market (Craigslist was running countless ads for “1 BR hovel REO, sold as is; seller credit for costs of removing previous occupant’s rat-gnawed corpse”), but then you got the Renaissance starting a few decades later, which meant the stagers could dress up their properties with Italian art.
George Carlin, Who Really Control America
http://www.xanga.com/home.aspx?user=russwinter&nextdate=9%2f4%2f2006+23%3a59%3a59.999
My prediction
comments go over 300 before next topic comes up.
and you can take that to your bank!
Predictions for the housing market.
We get a recession ( we have a inverted yield curve now) next year. Recession brought on by the slow down in consumer spending as they “consumer” gets real about saving money. They haven’t had to the last few years because RE went up so much often more than their yearly salary. Prices were the rich live will go down less. Areas of speculation without good jobs there -RE will go down. Way down. The ownership society were you make it by owning RE will be put on hold. I guess at least 5 years before RE goes up again.
Anyone care to hazard a guess on how rents will fare as the face of this bubble goes through its metamorphosis? So far, no one has addressed this (unless I missed it….220 posts!!!)although it will definitely be affected as this thing plays out.
BayQT~
Rents are based on fundamentals of the area.
Thanks. Well aware of that; RE prices are supposed to work that way, as well, but we see how that went.
BayQT~
I agree, rent reflects reality. Rent is what people can afford to pay to live in a particular area; once you take out the 40% appreciation YOY.
So, to answer your question, I think you will see rents fall short term (as there are so many flippers desperate to get someone into their home/condo). Medium term (2-4 years) you will see rent start to come in line with the cost of ownership (300K home, rent between 2300-3000/mo). Long term? Who knows. We may see a huge increase in rental demand after flippers start losing their homes. I can’t really think of a good way to predict it.
Anyway, long term, you should be looking to buy anyway. 4 years from now I think we will be through the downturn; popular wisdom will be “You would have to be crazy to buy” because of how bad people will have been burned. That’s when you should be looking to buy.
Honestly, its really easy to know when to buy. When rent = cost of ownership (or close), and/or median salary can afford median home, the time is right. Even if housing continues down from there, it will bounce back.
Don’t try to find absolute bottom, try to find a “fair” price. When the fundamentals are strong; you will not lose money (in the 3-5 year term anyway).
Anyone here able to comment about Vermont ? I’m interested in the Burlington area in particular, Waterbury Center to be specific.
I predict that then next Congress, having had a fearful earful from the folks at home over the holidays, will start making noise about the housing bust. Given that, it’s easy to predict that all manner of truly stupid ideas will be floated over the next two years, and some may become law.
Longer term predictions:
The big cities are toast. It’s becoming harder and harder to justify their existance, except as transportation hubs, which is the reason most of them exist in the first place. Ubiquitous Internet connectivity combined with the loss of 20th century mass production industries will allow the population to spread away from the big urban centers. I know this suggestion sounds *so* last decade, but it has already happened to a fair extent, and I expect it to continue.
Now here’s a wacky one: Investors will end up owning a big chunk of the nation’s housing supply. Not the washed-out “flipvestors”, but big purpose-created investment pools and REIT-like financial structures. This is not as far-fetched as it seems, when you consider that REITs are already consolidating the apartment market. Similar operations could buy up wiped-out SFH and TH developments at rock-bottom prices and rent them out to the homeless FBs. And there will be a big market of FBs ready to rent houses from the consolidators, because the FBs will be in hock and unable to borrow for years to come, but will still need a place to live. Think “company towns” without the factory, but with plenty of company-owned retail and service operations.
“The big cities are toast. It’s becoming harder and harder to justify their existance, except as transportation hubs, ”
There’s where I disagree. First, unless we have discovered 3 times the size of Ghawar worth of oil fields, I would say any place where you have to drive at least 15 minutes to get to work, and there is no mass transit - that’s toast. I think oil will go over $150 per gallon in a few years. Combine that with the fact that most high paying jobs are in the big cities. Let’s face it. Employers do not trust people to work from home on their computers. They want them in person. They want to be able to look over their shoulders so that they can see their workers aren’t on the Ben Jone’s blog all day. Big cities have better paying jobs, more universities, more amenities to attract people.
Sure, Los Angeles has been getting more expensive and the housing bubble made hiring engineers lately a difficult task. My own client has opened up a Phoenix office last year because it cannot attract engineers to the Los Angeles area. But Phoenix is not a small town anyway. It’s the 5th largest city in the United States. In time, LA prices will head south and affordability for white collar professionals will be back. That will draw the professionals back to California. I look forward to moving back one day, although I love Phoenix too. When I lived in LA, I only had to drive two miles to work. When I lived in Tucson, I had to drive 35 miles to work. In 5 years, that Tucson commute will be very expensive. The one in LA? I would probably just ride my bike to work if I go back to that same company and apartment.
The big cities are toast. It’s becoming harder and harder to justify their existance, except as transportation hubs, which is the reason most of them exist in the first place. Ubiquitous Internet connectivity combined with the loss of 20th century mass production industries will allow the population to spread away from the big urban centers.
I think your right, Urban centers are toast.
Perhaps I should have said “transhipment hubs”.
Office hubs do not need to be near transhipment hubs. I agree that commuting is unsustainable, especially for greater than 15 minute runs. One thing I have realized about big cities: living in them for proximity to their attractions is comparable to buying a vacation house when you could just as well rent a hotel room for the two weeks a year you spend there.
I know that running telecommuting teams is practical, I have done it almost continuously over the last ten years. You only need really need physical supervision if you are running manufacturing workers or laborers. More employers are simply going to have to learn how to operate distributed teams.
Here’s a question for ya. Do transportation hubs, as in “rail ports” only work in urban centers? Would one work 4 hours from the nearest urban center in a small rural town? Say, like Elko, Nevada?
There’s a giant Wal-Mart distribution hub out in the middle of desert nowhere a few miles north of St. George, Utah, which has boomed but isn’t “big” by any stretch of the imagination.
“oil will go over $150 per gallon ” 55*150=8250/barrel. Not likely, but I agree with your point in general.
“Now here’s a wacky one: Investors will end up owning a big chunk of the nation’s housing supply. Not the washed-out “flipvestors”, but big purpose-created investment pools and REIT-like financial structures.”
Has this ever happened in the past? Maybe if the country turns communist, but not in a democracy. The carrying costs would kill them.
1) David Liarreah and Leslie Appleton Young are driving along a road at night
House prices fall and people just walk away from their homes
2) They are speeding to get to the next rah rah session to stem the tide in CA and their presence is seen as critical to keeping the RE-based economy from crashing
3) As they round a bend in the road there in the middle of the road is a raccoon
4) LAY is driving and swerves to avoid the animal
5) They both die as the car runs into the granite countertop of a new McMansion
6) NAR loses its two biggest mouth pieces and nobody is there to spin the bubble burst…investors see it as a bad omen and panic
7) Without all the rah rah the news becomes more bearish on RE
9) Consumers stop spending
10) Layoffs
11) The stock market crashes and my 401K is just a fraction of what it was
12) FED starts stoking M3 and dollars become worthless
13) Foreign investors panic and pull out of U.S.
14) Banks start going bellyup
15) The bank where I have my 150K from the sale of my house goes bellyup
16) I am left with only 100k (insured by government) after the bank collapses
17) Government defaults on insuring money in collapsed banks (I lose my remaining 50K)
18) My company goes out of business
19) Company pension fund was maxed out in RE holdings and is gone
20) The government continues the “War on Terror” and cuts back SS payments to pay for as “Americans must dig deep to stay safe and free”
21) I get a small monthly SS check and a bit from the ruins of my 401K
22) But by now we have Argentina style hyperinflation and my dollars are used to stoke the fire in the refugee camp where I now live
23) My friend who bought gold coins to barter with is followed home and killed for his gold coins
24) Microsoft announces Vista service pack update 12….but by now nobody cares
25) Hillary Clinton wins the electon (5% turnout) and promises a “piece of bread and a cup of soup for all”
Will it as bad as the above…probably not…but it is gonna be far worse than most people suspect.
I thought you were going to say that they come back as ghosts to haunt Cosmo Flipper…
Ah, George and Marion Realtor.
When you got to #20 (government cuts Social Security), you left the realm of reality. The sun could explode and reduce the earth to 20 mile wide cinder and social security checks would still go out on time for the full amount. Social security is politically untouchable. Period. But seriously, I was on board for #1-19!!
Hedge funds failing will be the first signal of our failing financial
system, followed by banks… Soon after that, our currency will be worth less than toilet paper… There will be massive rioting followed by anarchy in the cities. Those that planned for this will be lucky to keep what they have. If you survive the first two years, you will sustenance farm and barter in local small markets. The cities will no be sustainable…But, the price of oil will come down.
Monterey, CA sales drop 50% YOY…
http://www.montereyherald.com/mld/montereyherald/15436716.htm
The article says the big news is a slowdown in sales, not the 40% annualized rate the median price dropped from June 06 to July 06 (”Ignore the man behind the curtain.”). It also mentions that “prices in Monterey County haven’t dropped as drastically as in some regions of the country,…” . Can anyone cite examples of where the median price is dropping at a more drastic rate than 40% annualized?
Link here to see the drop in median incomes nationwide, state by state:
http://www.washingtonmonthly.com/archives/individual/2006_09/009444.php
Ouch! Isn’t income supposedly one of the fundamental factors propping up these record-high housing prices?
good question …
No, housing prices are propping up income. Haven’t you heard?
The world has turned inside out.
IMHO, the problem with big cities becoming the new hubs of the world is crowding and traffic snarls for one thing, and the massive amount of crime and poverty is another thing.
If given a choice between having a high-tech job while living in a hellhole like Baltimore City (a murder a day keeps the middle class away) or becoming a farmer in the boonies or something, I’d have to think long and hard about that choice… Unless the cities can be cleaned up and made worthwhile places to live, I don’t see people moving back to them in large numbers unless they have no other choice. Peak Oil or something similar may force peoples’ hand, but the response is hard to predict.
Washington, DC and NYC, San Fran are all good cities to live.
People still want city life - night life, dining, theater…. But people with kids generally like suburban or rural. High income is must for city life.
City life sucks… you make alot… you spend alot. in then end you spent your life, boozing, breathing cruddy air, and contracting diseases on public transit.
A tremendous set of posts everyone!
Here in the OC listing prices will stay at their high level for now, RE will continue to rah rah and claim this is a short term lull publicly, but agencies will begin cutting heads and pruning accounts that will not reduce prices to foster sales. New home prices will continue to lead the market down as developers do whatever they can to make the deals. Overall inventory will grow with dips as RE tries to manipulate the stats with relistings and other unethical tactics. Owners with toxic loans will suffer serious pucker factor, but believing RE’s kool aid kumbaya of it’s only a temporary downturn will hold on till it is too late. The OC market will behave like mondo wave at the Wedge, it crested last year and now there is a huge amount of inventory hanging out over nothing with prices about to collapse. And Gary Watts is trying to serf the tube — WIPE OUT!! Whoa G Dude, that was gnarly, I saved your teeth dude in this baggy, but that shark got yer nuts. And finally, when the tide goes out and prices revert to the mean, Dick Dale can move back from the desert and live by the sea once more.
I cannot see a senario where inflation does not continue to increase. A LOT of debt can go away with high inflation, but not without a high cost. Any takers for the alternative?
I tend to agree with you. Although I’m not sure which side of the inflation/deflation/stagflation debate I’m on, it seems the best (of the worst) choice would be inflation. Very possible we end up in a protracted stagflationary period, though.
What if we paid off our debt with inflated dollars, including international, which would cause imports costs to rise (not sure how currency pegging would come into play here)? Would we get back to manufacturing things in the US? Since we are fortunate enough to have bountiful natural resources, we do not really **need** to trade with other countries, at least for the short-term. I really think we will see a period of high inflation and national isolationism. Definitely interesting times ahead…
I believe we have stagflation right now (at least I do
The problem many of us face now, is that we are starting to hit the upper tax brackets, so I am finding that in order to make up for say a $500 a month cost of living increase, it takes a $1200 raise in before tax income to make up the difference. Anyway, I agree with abundant cheap foreign labor and off shoring, it is unlikely wage increases will be around for a long time. This leaves a situation where we are in uncharted waters in the bankruptcy arena, and high fees or not, billions of dollars in debt will go unpaid and millions will be forced into the underground economy. Personally, at least right now, I like protectionism and wage inflation for this one.
I would predict that inventory will continue to increase in most places and builders will lead price reductions.
Once excess builder inventory is cleaned up with price reductions, builders will build fewer homes and will probably build smaller homes. This will help force down the price of land.
It will be a long scary winter for many sellers, some of whom will be experiencing their second winter in a row trying to sell. Whereas such sellers may have steadfastly stayed close to their original prices in 2006, in Spring 2007, many will list their homes at reduced prices.
In the extremely overvalued markets, in the weakest segments, in the less desirable neighborhoods, prices could fall 30% versus their all time highs by the end of 2007.
In the next most overvalued group of markets, prices could fall 15%. In the highly desirable neighborhoods, e.g., the great school districts such as Chappaqua and Scarsdale, in Westchester County, NY, I could see a 5% drop versus historical highs. By the time housing hits bottom, I could see a drop of 10% in such places.
My guess is that won’t happen until 2008, after which I see prices staying flat for a 3-4 years. By 2012, it will be 7-8 years from the peak and at that time, RE should start moving up again.
Bill Gates: “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.”
By the time we hit 2016 (10 years from now), home prices will be up by 50% versus their 2004-2005 highs, if not substantially more. In real dollars, the percent increase will be far smaller.
I believe almost every market is already 10% off peak in late 2005. I think price drops of 10 - 30% are very optimistic, given the fundamentals which are in play. It is not the excess builder supply that will need to be cleaned up, but a vast number of foreclosures beginnning in 2007 and probably not peaking in number until 2009. The same forces which drove prices to current levels will now work in reverse. I agree with your assessment for 2016, since we almost certainly have a period of 10 - 20% inflation heading our way, if it is not already here.
snip …(from Canada)
Think it all doesn’t matter to you? Think again. For nearly a decade now, the United States has been the economic driver for much of the world — Canada included. The United States has been sucking up excess savings and consuming everything in sight, from cars to homes and everything that goes in them.
“It’s hard to imagine that a U.S.-centric global economy wouldn’t be at risk in the aftermath of a bursting of the U.S. housing bubble,” warned Morgan Stanley chief economist Stephen Roach, one of Wall Street’s most outspoken worrywarts.
“The non-U.S. world remains heavily reliant on selling exports to wealth-dependent American consumers. As the United States comes to grips with the aftershocks of another post-bubble shakeout, so too must the rest of the world.”
As he put it: “If the American consumer sneezes, countries in both the developed and the developing world could easily catch a cold.”
How Potomac real estate became a leading indicator for the global economy is the story of a silent transformation of the U.S. economy.
snip …
http://www.theglobeandmail.com/servlet/story/RTGAM.20060903.whousing0903/BNStory/Business/home
I think one factor that may change it all is another 9/11 type event that will make 9-11 look like a picnic. In the last five years we’ve gotten really complacent again, and I think it’s just too easy for some real damage to occur. Not only that but the Middle East could blow-up on us in a really ugly way (think Iran + nuclear).
I remember back in 2004 we thought prices were high then, now people are saying ‘04 prices were cheap. I could’ve bought back then but didn’t, feel like I really missed out on some equity gains. Since then I’ve started my own computer business which went ok till about June of this year then just really slowed down. I think the whole computer industry is in a downturn (not just Intel). My only problem is I financied a lot with CC debt so I may have to file BK in ‘07. Now I’m thinking I would’ve been better off buying in ‘04 and gotten a HELOC instead, either way would I have been screwed? Any comments appreciated either here or to email: nidi@cox.net
I hate being in this position and am having problems sleeping, but after being laid off from Gateway Country retail in ‘04 it left me little choice but to start my own business. Sorry for the kinda off topic post here folks but I read this blog every nite hopeing I made the right decision by not buying but I’m really having doubts now.
believe it, you are better off, especially if you are having problems paying credit card debt. Imagine a huge mortgage or refi loan …
read this:
http://ocregister.com/ocregister/money/housing/article_1206268.php
Midi:
I feel for you. Many in the computer/tech arena have been devastated due to the excesses and then pull back of 1997 to current.
it is always “easy” to look in the past at what “should” have been done. It seems so 20/20. However, you made the best decision possible at the time you made it. Few could have APPROPRIATELY forseeen the huge advances in equity that occured since 2004.
That said, I have several friends/family (I’ve posted of them before) who now are terrified of life due to purchasing in 2003-2004, even in the overheated markets.
Yes, it SEEMS like you would have had tons of equity today had you bought in 2004, but that would be PAPER equity. The problem is that it doesn’t become realized until you sell. And today, in most markets, nothing is really selling.
So in your current situation: you have a lot of CC debt, which is UNSECURED. If you file BK, it will be wiped out, you will have the proverbial clean slate. It seems to me, that your BK is a “reasonable” one, and the reason for which BK was intended (as opposed to using CC to go on buying spree). Once you file BK, you can restart your credit life relatively quickly (although it will make extension of business credit difficult for quite a while). So BK sucks, but your life will go on.
If you would have HELOC’d yourself, you’d be in a BIGGER bind. This would be because you’d not only owe for your HELOC, but also for the ORIGINAL MORTGAGE. Which would be a LOT higher! So in this case, you’d need to go big time BK, lose your credit AND YOUR HOME to foreclosure. In addition, when it comes to buying a home in the future, lenders care more about foreclosure than they do about BK. So you would have delayed the option to purchase a home much longer by doing this.
Lastly, home values will likely continue to fall. Imagine having your business debt, and then seeing your home value fall by 10-20% per year (with your mortgage staying the same). that would be a DOUBLE hit to you.
I think you made not only the correct choice, but the best of the two choices for your eventual outcome. (it just sucked that you had 2 bad choices from which to choose).
good luck
clouseau.
My prediction:
We will all find that the Housing downturn affects us more profoundly than we think.
Those who are happy for the downturn will find out what a real recession is like (and maybe depression). They will find out that they won’t escape just because they saw it coming.
Those who have planned for but still fear the recession (like me) will find that our planning will help, but we’ll be hit in unexpected avenues anyway.
Those that are blindsided by the downturn (the so called sheople) will be devastated.
It’s like a car accident. The sheople have no seatbelt. Those like me are wearing a seatbelt and bracing for impact. The gloaters are wearing a seatbelt and smiling. As we crash into a wall. The sheople die on impact. The gloaters get severe injuries from their seatbelt, and their smile gets bloodied by impact and the shards of glass that go flying. I get severe injuries as well though, from the seatbelt, but I may live. We’re all hurt (or dead)
To me, this is one of those “defining moments” of our nation. If we can pull through this intact, we will be stronger indeed. If not, we could see ourselves turn into a Banana Republic.
Our entire financial system and capitalistic model has been based upon a model of debt. As debt increased, so did our “power”. I feel we’re nearing the limits of debt at this time. We must thus find a different model to spur our version of capitalism/finance. Can it be done? Probably. Will it be done? who knows.
clouseau.
(We will all find that the Housing downturn affects us more profoundly than we think. Those who are happy for the downturn will find out what a real recession is like (and maybe depression). They will find out that they won’t escape just because they saw it coming.)
I think the jury is out on that one. It depends on how many people purchased at the peak with unaffordable mortgages, or HELOCed their way to the same position, and how much of our economy (as opposed to China’s economy) depends on our excess spending.
Most people don’t realize that the “soft landing” means people have less to spend and feel poorer, but remain employed. The hard landing means many people become unemployed. The jury is still out on that one. Unemployment has become structurally lower now that you don’t have the whole baby boom and women flooding into the labor force every year. Were it not for immigration, we’d have a crunching labor shortage.
“Unemployment has become structurally lower now that you don’t have the whole baby boom and women flooding into the labor force every year.”
True.
But underemployment seems to be rising. And overall wages are falling when adjusted for inflation.
It is true that our employment picture is structurally different now compared to the past, but not soley in “good” ways. We’ve lost our manufacturing base, and we increasingly rely on the “service” sector, including banking/finance. We are in the midst of worker arbitrage, so many people find that they must concede to lower wages in order to “compete”. Corp profits are near all time highs, wages are sluggish at best, and negative after inflation is taken into account. what will wages do when corp profits fall?
I see “the bubble” really as a credit bubble, with secondary manifestations in the housing market. If we do truly hit a credit crunch, we could have severe issues with housing as well as credit and finance.
How many US jobs are related to housing + finance + credit? How many HIGH PAYING US jobs are related to the above.
I agree with you that the extent of damage is yet to be seen. It may be mild recession, or moderate recession, or severe recession, or depression. That said, any of the above will affect most Americans in a negative fashion. Few will escape unscathed. It doesn’t mean that we’ll all die of starvation… but I think many posters underestimate how intertwined we really are.
My own personal example:
I have a very steady very high paying job. But my customers rely on having insurance-either state paid (i.e. medicare/medicaid/medical assistance) or private (Blue Cross, etc). In good times (like now), my cup runneth over. my group is enormously profitable. We are double booked every day. I’ve tried to recession proof my holdings by diversifying into multiple cash options (money markets, savings, gold, international funds) as well as keeping in the general stock market etc. I feel invincible!
but wait. if a recession hits, jobs are lost. People lose their insurance, even if they don’t lose their jobs. People can’t afford copays. State paid medical assistance programs are often slashed. People come to the hospital/clinic less. Suddenly, my rock solid paycheck might lessen.
During this time, the consumer pulls back, thus corps may have less earnings, my stocks may take a hit. Depending on the relation between US consumer and Foreign producer, my international stocks may take a hit. the Fed may drop rates in response to this, so my CD’s/Savings accounts may take a hit (like back in 2000, when I was getting 0.5% or less in some savings accounts, and only 2% in INGDirect),. there may be a taxpayer funded bailout, and I am a prime target since I’m “rich”, and because all of my wealth was gotten because I’m “lucky” (never mind that I spend like a person who makes 1/5th of my income and saved the rest diligently by sacrificing consumption)
It is also possible that the credit/finance field will near collapse due to the unknown risks of hedging. My funds could be held “in the interest of financial stability” for a good long time. One bank could pull all others down (Wells Fargo anybody? WaMu? Countrywide- I know not technically a bank). Gold could be made illegal again.
there are good arguments for deflation, stagflation, inflation, hyperinflation, or a mixture of some/all of the above. Thus, I am subject to currency valuation issues.
So I can know what’s coming, try my hardest, and get screwed anyway by a thousand different arenas. (taxes, currency valuation, job security, salary, benefits, interest rate changes, inflation, changes in rules, and so on)
I stand by my claim:
almost ALL of us (99%+) will be affected by the coming storm, mainly in negative ways. few will remain completely unscathed. It might not be armageddon, but it also might be. Some will be hit more mildly, some more severely, but almost all will be hit IMO)
Too many people are smug in the knowledge that they foresaw this correctly, and think they will profit unduly from that knowledge. Some might, but I doubt it will be as peachy-keen as we like to believe.
clouseau.
Good post clouseau
The government will bail homeowners out of the real estate bubble the same way they bailed New Orleans out of Katrina. In other words you’re on your own. I lived in an area where real estate crashed in 1979-1980 due to high interest rates and high regional unemployment. People were literally dropping their keys off at the banks by the hundreds. It was breathtaking how fast prices went down especially, after all the foreclosures came back on the market. Prices dropped as much as 50% on some properties within a two-year span. By 1985 rates were down, the economy had turned around and area real estate enjoyed a nice recovery. Since interest rates are still low by historical standards and the employment picture is OK, I don’t expect a wholesale selloff, but I would not be surprised if many areas give back most of their gains of the last few years. Since greed was the only factor driving these markets up, fear will probably do just as good a job of driving them down.
“Since interest rates are still low by historical standards and the employment picture is OK, I don’t expect a wholesale selloff, …”
I don’t expect that you know much about the Japanese RE implosion of the early 90s. Or is it that you are of the “it can’t happen here” school of thinking?
from boom to blah:
http://bakersfieldbubble.blogspot.com
Wow. Was this a record number of posts?
2nd Quarter OFHEO report is out!
OFHEO House Price Index Shows Largest Deceleration in Three Decades
http://www.ofheo.gov/media/pdf/2q06hpi.pdf
2006-09-04 13:17:22
My prediction see above.
I won on my prediction.
Over 300 comments before next topic.
april fools day?
U.S. 2Q OFHEO HOUSE PRICE INDEX UP 4.7% ANNUALIZED
U.S. 2Q OFHEO HOUSE PRICE INDEX UP 10.1% YEAR-ON-YEAR
OFHEO: FASTEST DECELERATION IN HOME PRICES IN 3 DECADES
http://www.immobilienblasen.blogspot.com/
OFHEO data is great, but remember this news is about six months old. 9/5/06 is for April-June quarter: assume average closing date in that quarter of mid-May and therefore average contract date of mid-March. I sold a house in Va. in exactly that period at a nice price including some very slight appreciation over 2005. House could not be sold for same price today.
danke / thanks
U.S. home prices were appreciating at a 4.7% annual rate in the second quarter, the slowest gains since 1999, the Office of Federal Housing Enterprise Oversight said Tuesday. In the past year, home prices are up 10.1%. The purchase-only index is up 8.3% in the past year. The deceleration in OHFHEO’s home price index is the fastest in the three-decade history of the index. “These data are a strong indication that the housing market is cooling in a very significant way,” said James Lockhart, OFHEO director. In the first quarter, home prices had risen at an 8.8% annualized rate, with prices up 12.8% year-over-year
no fools day. missed the smallest gain
here is one article from irelnad that makes me feel like they are for sure the ground zero for europe. the simularities with the us are very very strong
In June, would-be property owners lined up for as long as four days to secure apartments at the Hunters Wood development that is still under construction
The Dublin commuter belt has expanded to reach 100 kilometers from the city, from 25 kilometers in the 1980s
sound familiar?
rest of the story here.
http://immobilienblasen.blogspot.com/2006/09/irland-ireland-usa-reloaded-20042005.html
Thank you, clouseau & NVMojo for the reponse. I am currently still renting the townhome I could’ve bought from the Landlord back in ‘04. Rent has stayed the same since living here at $885 for 1234sf.
Your right, I’m way better off w just CC debt than HELOC/Mortgage debt, it’s just that I see articles like this and they talk about 24% gains in AZ over last year and that’s when I get renters remorse:
http://money.cnn.com/2006/09/05/real_estate/Ofheo_home_prices/index.htm
But maybe the higher they rise the more they will fall, house prices in Tucson seem to be crazy lately. BTW, not sure we can post our email here but if anyone would like to offer any support at all, my correct email is midi@cox.net, thanks again guys, I love this Blog!
By this post, I assume you’re near Tucson.
Tucson seems poised for a HUGE fall.
here is an example of how YOU could be stuck.
http://www.websitetoolbox.com/tool/post/sdcia/vpost?id=1205179
It’s a RE investor website. Tucson was flooded with speculators, who are now just starting to feel the pain.
Read this and see how lucky you really are. And remember, that website is a Rah-Rah RE only goes up kinda crowd. if you dig deeper into the website, you’ll see that they all jumped in in 2004, 2005, and early 2006 and talked about how RE in Tucson is the best idea since sliced bread.
The speculators (not end users) brought Tucson up. They will charge it down down down down down as their payments reset and they can’t afford to rent for what they owe.
Now that I know you’re in Tucson, I am doubly convinced that you made BY FAR the right choice in not buying in 2004.
Clouseau.
here comes a shocker
National City sells First Franklin to Merrill for $1.3 billion
NEW YORK (MarketWatch) — National City Corp on Tuesday said it reached a deal to sell First Franklin, its subprime mortgage business, to Merrill Lynch & Co for $1.3 billion.
The deal includes Merrill’s purchase of affiliated businesses National City Home Loan Services and NationPoint. In a separate transaction, National City said it also expects to sell to Merrill $5.6 billion of First Franklin’s originated mortgage loans.
Merrill said it expects the acquisition to be accretive to its net earnings by the end of 2007.
National City said the transactions will result in a one-time pre-tax gain of approximately $1 billion, or $1.00 per share after tax, expected to be realized in the fourth quarter upon closing, subject to regulatory approval.
“The sale will generate a significant amount of capital to redeploy for the benefit of National City shareholders and will allow us to further focus on our core banking, mortgage, and consumer lending businesses,” said David Daberko, National City’s chief executive in a statement. “All of these businesses are on track to produce good third quarter and second half results,” he said.
Subprime mortgages, which are extended to homebuyers with less-than-perfect credit ratings, have become riskier as the housing market has begun falling faster than expected and as defaults have started rising
Speaking at a banking conference a few weeks ago, Daberko warned he had seen a marked increase in first-payment defaults on loans, while average balances in checking accounts were dropping and there were more and more overdrafts, with consumers “getting stretched big time now.”
National City said it will continue to hold approximately $10 billion of First Franklin originated loans, “substantially all of which have some form of credit risk protection either through lender-paid mortgage insurance or a credit risk transfer agreement.”
But it said management would continue to consider strategic options for the portfolio, including sale, securitization or ongoing retention.
“Overall credit trends in the third quarter, including recourse liabilities associated with sold loans, continue to be stable and in line with recent periods,” Daberko said in the statement.
Merrill, meanwhile, sells mortgages to the credit market, so-called securitization, in the form of mortgage-backed securities.
“These leading mortgage origination and servicing franchises will add scale to our platform and create meaningful synergies with our securitization and trading operations,” said Dow Kim, president of Merrill Lynch’s Global Markets and Investment Banking Group in a statement.
Michael Blum, head of Merrill’s Global Structured Finance & Investments group, said the acquisition of National City’s Home Loan Services will allow the firm to boost its risk management of mortgage products.
how on earth would someone buy subprime right now?
update:
Gerard Cassidy, an analyst with RBC Capital Markets, said National City investors may be disappointed that the company didn’t sell the entire $15.6 billion loan portfolio. He said Merrill apparently shied away from the full subprime portfolio due to concerns about credit risks. A Merrill spokesman declined to comment.
“Merrill obviously didn’t want to take that risk of the additional $10 billion,” Cassidy said. “The deal is less satisfying to investors than if they were able to unload everything. There’s still a chunk of exposure that they’re left to deal with in coming months.”
Yeah, this has me a little worried because I own a boatload of puts on mortgage lenders and if someone’s dumb enough to buy them, I get zilch. I thought the buying craze had ended.
The appetite for all these risky mortgages seems absurd. All I can think of is these investment banks have become dependent on the business of securitizing mortgages and can’t risk being cut out.
But they are really playing with fire. I just bought some puts on the entire financial sector…
i was busy today.
make sure you see the pictures and projects that are underway right now in dubai. no wonder there is a shortage in copper etc….
i have commented the highlights also in english.
one word: megalomenaic
http://immobilienblasen.blogspot.com/2006/09/dubai.html
I have a buddy (Russian) that stayed at the “Palms Development” on vacation. What he described was beyond my comprehension–man made islands, seven star hotels, minimum rooom rates $1,000, giant aquariums with sharks, etc, etc. I thought that he had been deep into the “vodichka” while on vacation. He pulled it up for me on the internet. Wow!
yeah.
it is really hard to believe. by the way their airline emirates bought 48 airbus a380 (the biggest plane on earth).
airbus has sold only 140 (48 included). you can see they think big.
the also will have a airport for 150 mio passengers a year.
as i said before megalomaniac.
Test for Ben!
I have graphs of all the HPI data (released today):
http://www.housedata.info
OFHEO data is out! “House Price Appreciation Slows, OFHEO House Price Index Shows Largest Deceleration”
http://www.ofheo.gov
David
http://bubblemeter.blogspot.com
Another test for Ben!
“Now that I know you’re in Tucson, I am doubly convinced that you made BY FAR the right choice in not buying in 2004.”
Wow, thanks again Clouseau. Your right, as falls Phoenix, so falls Tucson. BTW, where are you located?
Minneapolis, which has it’s own bubble issues (esp in condo segment), although not as severe as other areas.
I’m from CA though. I moved to Mpls in 1999 because I couldn’t afford to live the way I wanted in California (my income doubled moving to Mpls, and my cost of living halved). I held my San Diego condo until March 2005, and then sold as I felt it was irrational beyond belief. Before I come off as a braggart: at the time I felt that SD market was crazy, but I did not think that it was going to level off so fast. I just wanted out of an out of state condo, and my mother who lived in it was ready to leave SD. So it was in many ways luck, guided slightly by my own research.
I am one of the many homeowners who also feel that a bubble exists, and I expect my house to drop 33% from peak value. I don’t care, because my mortgage is 5.125% fixed 30 year, and the PITI is less than 10% of my take home pay. It is my HOME and was never meant to be an investment. (and my PITI is less than comparable rent would be on similar living arrangement).
Nonetheless, it will be hard when I watch my home value drop tens of thousands of dollars a year for an undetermined amount of time.
clouseau