Bits Bucket And Craigslist Finds For September 5, 2006
Please post off topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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need TX info - a relative wants to buy in Corpus Christi
I know austin and some other cities havbe attractyed temporary attention from Cali flippers ,but I show little growth for Nueces County
any opinions
tia
Don’t.
brilliant- I was loking for the expaneded
Byron King
Housing Chill Begins to Pinch Nation’s Banks
Example of blood on the saddle—true story from a lunchtime
conversation today (9/1)…….
A Pittsburgh real estate attorney (not me, by the way) is currently in
the process of losing his Brooks Brothers shirt because he bought into a
group of condos & houses in Florida. “I was expecting to flip them, just
a layup shot” as he told me.
Now all of his properties are undersecured, and cash-flow negative. One
of his lenders is asking for copies of recent balance sheets and cash
flow statements. They are sending out the appraisers to do new
appraisals. Whoops. This guy is now in the process of cashing out a
lifetime worth of whole life insurance policies to get the funds to stay
afloat. Here is his summary, verbatim……..
“It seemed like a no-brainer. Florida real estate looked bulletproof.
The Baby Boomers are going to retire, move to Florida and live in their
condos overlooking the beach. You could get a bankable appraisal on
buildings that had not even been constructed. Just buy, hold, sell and
pocket the difference. Now I am taking a haircut down to my scalp. I
am cashing out all of the whole life policies that I accumulated over my
entire career. This was the kids’ college money, if not my retrement
nest egg. What in the hell was I ever thinking? My wife is furious, my
kids don’t know about this but they are going to hate me, and my dad is
just shaking his head, like ‘I thought I raised you better than that.’
I am probably going to have to work until the day I die, and then my
family will not have any life insurance on me. Man, did I ever screw
myself.”
Note the last line. At this point, he is blaming himself. Just wait.
Eventually he, and others like him, will probably figure out that they
have been victimized. We will all figure out some way to blame other
people, and then sue the class-action crap out of them. Or bomb them
back to the stone age.
Best, BWK
Corpus is a big beach destination, so I wouldn’t be at all surprised if it attracts some of the last wave of the flippers. In fact, I’m rather surprised at your indication that it hasn’t bubbled up already. Not a huge economy there, but then that didn’t do much to stop bubbles in other areas, did it?
It has nice beaches for Texas. They have a great minor league ballpark. Winters are nice, summers are scorchers. Hurricanes can be a bitch ever 10-15 years. I like Corpus and always have. I wouldn’t mind retiring there. Having a career outside the military or petrochem industry or Whataburger corporate is a different matter.
It’s also heavily Tejano. Not Mexicans, but Texans of Mexican heritage who are bilingual. Uptight gringos may not like that.
Bill Gross at Pimco has his latest outlook up.
http://www.pimco.com/LeftNav/Late+Breaking+Commentary/IO/2006/IO+September+2006.htm
quote:
“To think that all the boomers have to do is sell their homes to pay for retirement and healthcare begs the legitimate question of “to whom and at what price?” If there are fewer X’ers and Y’ers to unload even their second homes to, rudimentary supply/demand curve analysis suggests prices must adjust downward to facilitate the transfer, incorporating the ability of immigrants and future first time buyers to afford what now seem to be unaffordable starter homes.”
The only other option which I’m sure that McCulley the crazy Keynesian will accept is inflate or die!
The only other option which I’m sure that McCulley the crazy Keynesian will accept is inflate or die!
Keynesian economics has nothing to do with supporting asset prices.
http://en.wikipedia.org/wiki/Keynesian
I was not trying to imply Keynesian economics had anything to do with supporting asset prices. BUT it is undeniable that the general effects of that economic school is inflationary primarily through wage inflation/low unemployment. It is a much better school of thought than Monetarism though as there is no such thing as MODEST INFLATION! It can only be modest in relation to other economies suffering through an even greater inflation. The real problem is that there is essentially no difference between the monetarism and keynesian economics in the modern world in that the fiscal stimuli is not readily differentiated from monetary stimuli. Money supply is a much greater player in the concept of aggregate demand in todays economy than in 1960’s. Once again the power of large numbers bites the ass of economists around the world.
Any Bastiat fans around?
I truly believe in the velocity theory of money, just as supermarkets can survive on a low profit but make it up on volume.
Rose and her husband promulgated this, and it seems like the economy will now get constipation.
Magnified!
The real problem is that there is essentially no difference between the monetarism and keynesian economics in the modern world in that the fiscal stimuli is not readily differentiated from monetary stimuli. Money supply is a much greater player in the concept of aggregate demand in todays economy than in 1960’s.
It’s an interesting concept (non-differentiation b/w fiscal and monetary policies), but I have to say, that monetary stimuly affects the money supply directly (by definition), while fiscal supply has the “crowding out” effect on the long-term credit, so it’s a crapshoot. There have been instances of blow-outs in long-term rates due to excessive fiscal stimuli, but I think it’s more about general trust in the currency, rather than particular public policy (Argentina, Russia, etc.) For instance, in Japan, Keynesian stimulus did squat to long-term rates, because of strong currency due to persistent positive trade balance.
(We could discuss over a bottle of whiskey about the benefits/costs of Keynesian policies. I view them as generally beneficial, in moderation, btw)
“We could discuss over a bottle of whiskey about the benefits/costs of Keynesian policies. I view them as generally beneficial, in moderation, btw”
When you have real resources sitting idle because of a credit contraction, printing money to put those asset back into production IS beneficial. For instance, during the great depression there were cities full of hungry people even as farmers were plowing their crops under because no one had the money to buy their crops. In that case, printing money and giving it to the masses to buy food is a proper stimulus. But it’s a kludgey solution to the problem of excessive credit creation. Far better not to have created the credit in the first place.
Far better not to have created the credit in the first place.
The problem is that credit creation is intristic to the economy due to the Time Value of money (this is the argument that even gold/silver is debt, as soon as it enters the economy from the mines).
As soon as you have expectations, you immediately get credit creation.
But I agree with you that money printing is not a silver bullet, especially when we have the excess of the “cure”. Keynesian stimuli is to discourage excessive saving, but I don’t think it would apply to the current state of the US economy (no savings). But it will apply, when the credit bubble pops, and everybody starts hoarding cash, causing deflation.
Moreover, active monetary policy (manipulation of interest rates, money supply) came from the school of Monetarism of Milton Friedman.
You are confusing monetary (Friedman) and fiscal (Keynes) economic stimuli.
http://en.wikipedia.org/wiki/Monetarism
Which comes first, the chicken or the egg?
I think it’s important to understand that the conclusion from the General Theory, is to implement a counter-cyclical fiscal policy, to prevent aggr.dem. from falling below certain (destructive) levels - excessive savings, and to fight runaway inflation from excessive spending.
In surface, it looks similar to Milton’s ideas of QTM, but Milton pre-supposed that there is always monetary constraint to spending - something Keynes obviously rejected (liquidity trap). It looks like Japan’s experience validated Keynes.
HPI numbers are out. These lag by a number of months, but the beginning of trouble is apparent. Nationwide, they show the “largest deceleration in three decades” according to the report. Here’s what I found in a few minutes using the raw data in the Excel file:
Boston - First qoq decline since 1994
San Diego - Smallest % increase since 1996
Ft. Collins - Loveland CO - Largest drop since 1987
Phoenix, LV, Idaho, etc. all show increases still, but they’re slowing fast. Download the following excel file to do your own analysis:
Second quarter HPI
And here’s the PDF report:
Second quarter report
“U.S. home prices continued to rise in the second quarter of this year but the rate of increase fell sharply. Home prices were 10.06 percent higher in the second quarter of 2006 than they were one year earlier. Appreciation for the most recent quarter was 1.17 percent, or an annualized rate of 4.68 percent. The quarterly rate reflects a sharp decline of more than one percentage point from the previous quarter and is the lowest rate of appreciation since the fourth quarter of 1999. The decline in the quarterly rate over the past year is the sharpest since the beginning of OFHEO’s House Price Index (HPI) in 1975.”
David
http://bubblemeter.blogspot.com
I don’t know whether anticipating a housing bubble deflation/crash had anything to do with Congress deferring further consideration of illegal immigration, but perhaps the ensuing reduction in construction employment may help clarify the true economic impacts of illegal immigration, whatever they may be.
posting it in the right thread
megalomanic in dubai.
this explains the shortsage of copper etc…..
http://immobilienblasen.blogspot.com/2006/09/dubai.html
posting it in the right thread
must read about ireland. it is like reading the us press in 2004 or 2005
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
the full article
http://immobilienblasen.blogspot.com/2006/09/irland-ireland-usa-reloaded-20042005.html
phew, when I woke up and saw not articles I thought maybe a day off sent ben into retirment!
Or maybe he was pausing to consider whether to accept the NAR’s generous buyout of his domain name here, as well as an even more lucrative agreement to refrain from posting on the Web for a year! :-O
I’ve often thought that perhaps the NAR would employ such a strategy.
There’s something one can do to prevent such from happening - don’t be afraid to make donations to Ben!
It doesn’t matter anymore. Have you seen how many housing bubble blogs there are out there? I haven’t counted, but it wouldn’t surprise me if there were over 100, perhaps several 100. Some offer commentary. Some of them are just guys collecting articles about the bubble. NAR would have a hard time killing all of these guys off. Before we peaked, it took someone with a brain to do the anaylsis and tell you the bad news. Nowadays, all you have to do is take a glance at the news.
Per Census Bureau, In the Second Quarter of 2006, there were 125.8 Million Homes in the US. Of these, 16.3 Million were Vacant.
That is a whopping 13% of all US Homes were sitting empty. 12.1% in North East, 12.1% in Mid West, 14.9% in South and 11.2% in the West
Also the number of New Homes for sale in the US was 568,000 in July 2006. But only 89,300 New Homes were sold in that month.
With an average home price of 293K, that is 166.7 Billion dollars worth of inventory, Home Builders were carrying.
Further more, construction started on 154,000 New Homes in the same month.
http://www.housingbubblebust.com
to me invetorynumber in $ seems to be huge. add the big landpositions and there is a lot of room for write downs. or iám missung something? maybe this could be a topic on its own.
I will bet that unoccupied, speculator-owned housing is the main reason many of Florida’s schools found themselves “under-enrolled” and “over-teachered” at the beginning of this school year. Guarantee you the school board sleuths used building permits or sales figures alone, times past averages of kids-per household, and came up with their projections. LOTS of empty housing in Florida, and it’s not because young families moved away.
Huh? Since when did school boards plan ahead? I thought they were a reactionary body … they only react once the schools are bursting at the seams.
We have been repeatedly reassured that the housing market was in better shape this time than the early 1990s, when a weak job market eroded the fundamental underpinnings. Is it really different this time?
———————————————————————————
ECONOMIC REPORT
Layoff announcements up 76% in August
By Rex Nutting, MarketWatch
Last Update: 9:40 AM ET Sep 5, 2006
WASHINGTON (MarketWatch) — Announcements of job reductions at major U.S. employers rose by 76% in August, only the second increase this year, according to a monthly survey conducted by Challenger Gray & Christmas released Tuesday.
Job-cut announcements rose to 65,278 in August from a six-year low of 37,178 in July, “in what may signal an early start to year-end downsizing,” Challenger said.
The figures are not seasonally adjusted. Layoff announcements typically fall in the summer months.
The report comes four days after the Labor Department reported that nonfarm payrolls grew by 128,000 in August, while the unemployment rate ticked lower to 4.7%. Government data show a softer pace of hiring, while first-time claims for jobless benefits have ticked slightly higher.
http://tinyurl.com/rd4hu
one last one for today.
merill lynch buys the subprime business from new century/first franklin
http://www.marketwatch.com/News/Story/Story.aspx?dist=newsfinder&siteid=mktw&guid=%7B0B6B4F50%2D5257%2D45E1%2D8344%2DF7911D3744A4%7D&keyword
key is this 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.”
Good pickup — the questions is what value does ML see at all in Natl City?
Interesting that this was announced right on the heels of the heels of the Wachovia merger (i.e. purchase) of Golden West).
at first i was shocked because i couldn´t understand ml.
thought that was a perfect deal for new.
but now it seems that they want the distributionchannel.
a few month back morgan stanley or gs also bought in subprime.
i really can´t understand anyone who wants now in subprime.
the risk are so high.
i am relieved that new will have massive problem and sone huge writedown for their remaining loans.
Morgan Stanley bought Saxon Capital. Another one I don’t understand.
RE the Golden West deal, there is some evidence of suspicious trading pre-announcement.
A real life bubble house at a housing bubble price. You’ve got to see the pictures of the house in this CL ad. It looks like the hatch from Lost…
http://washingtondc.craigslist.org/nva/rfs/200964128.html
Very cool but the seller is on drugs with that price. Only about 1 out of 1000 buyers would even look at it and only 1 out of 100 of them could afford it.
Fugly. To boldy go where no homebuilder has gone before, and with good reason.
Best of luck dumping that bucky ball for a mere $1m - $1.
John- do you know that area? south on Backlick about a mile (right before Edsall) from the Epcot house is what appears to be the mother of all McMansions. either that or it’s a new church. know anything about it?
I know the area, but haven’t been around there for a while. I haven’t seen the mother of all McMansions, but a friend who lives in the area was just telling me about a house being built around there that he thought must be 12,000 square feet with two front doors and five feet of property between it and the road and it’s neighbor. That is probably the one you are talking about. I’m sure it’s ‘beautiful’ and fits in with the other homes in the neighborhood, right?
Parts of Annadale (Washington, DC suburb) are nice but a million bucks in Annadale, no way. There are much, much nicer suburbs than Annadale - most of which is very, very middle class - this not intended to be derogatory.
Bet they don’t have to buy much Halloween candy. What’s that symbol on the front? Looks a little beam-me-up.
Yay for geodesic domes!
Though, at a dollar under a million, its a tad pricey.
That geo dome house looks interesting but I think they are very impractical to heat and cool, and for a million bucks hahaha no thanks.
I lived in one for a couple of years. It was different, but very inefficient as far as usable space.
I suppose if you have curved furniture it might be ok to have one of these.
I’ve posted graphs of the OFHEO HPI for all 300+ metro areas here:
http://www.housedata.info
great / wunderbar!
Thanks for staying on top of those! Impressive update speed.
Mind if I ask what software you use for the graphs?
I made them using MATLAB (www.mathworks.com).
Now that the housing ATM has been unplugged, they’re hitting up their 401Ks.
http://www.send2press.com/newswire/2006-07-0726-003.shtml
That’s just sad. At least the amount is limited to 50K.
Just a Hummer away from a really bad day.
Bursting bubble in Ireland, via Bloomberg:
http://www.bloomberg.com/apps/news?pid=20601109&sid=aYcvATm_m374&refer=home
Fun article : (www.msnbc.msn.com/id/14673701/)
‘Mortgage moms’ may star in midterm vote
With wages stagnant and debt growing, Democrats see an opportunity’
Life is cramped at the Condit household. Dale and Sharon Condit and their two young sons need more room but can’t seem to sell their current home — on the market now for three months….But these are parts of a lifestyle that Sharon Condit, a deputy clerk of court, describes as dogged by a sense of limits: “We have dreams of this future, but we can’t get it right now.”
This gap in expectations, a source of anxiety for the Condits, is a source of opportunity for former representative Ken Lucas, a Democrat
I read that this morning. I can’t figure out what the “mortgage moms” position is . . . need lower prices? Or need to keep prices as high as possible so they can keep living the high lifestyle?
The incumbents are usually history when the voter’s wallets dry up!
Any relation to Gary Condit?
OT: I just received an “amended” credit card agreement this weekend, and the details read like I’m borrowing from Organized Crime. I have a perfect credit history never even 30-days late once in 35-yrs, but Bank of America has merged with MNBA…the predators. Anyone have a credit card where the name of your first born isn’t required?
They all suck, but Citibank is tolerable.
I second the CitiBank vote. If you must have one, their rates and services have been top shelf.
At least they’ll be top of the bail-out list, should one come…and should your gag reflex allow you to participate in a bank which can be linked to most, if not all, the horrors of the Enron era: Enron, Parmalat, WorldCom. (Times of London)
Northern VA — if you’re on, I posted a reply to you in yesterday’s Predictions thread. Had gone to watch football before you posted. Tally ho, if you’re interested.
fed to the rescue. i´m really sick of all this talk from tightening from the fed.
http://www.raymondjames.com/inv_strat.htm
Something similar to that “queen bee” sequence could be happening currently. The “old queen” has been interest rates. The “new queen” may be “money” as the Federal Reserve added $36 billion to the nation’s money supply (M2) last week. This is not an unimportant point, for under the guise of “tight money,” fostered by higher interest rates, the Fed has recently been increasing the money supply. Unfortunately, Greenspan & Co. did away with the broader-based M3 money supply figures, so it is difficult to calculate the leverage the Fed is introducing into the economic system. Suffice it to say, if M2 increased by $36 billion M3 should have increased by a greater amount. Whether this liquidity injection is in response to the worrisome real estate environment is unknowable, but our real estate research team is clearly worried, as suggested in their recent note. To wit:
more on thishttp://immobilienblasen.blogspot.com/2006/08/fed-doublespeek-greenspan-put.html
fed to the rescue. i´m really sick of all this talk from tightening from the fed.
http://www.raymondjames.com/inv_strat.htm
Something similar to that “queen bee” sequence could be happening currently. The “old queen” has been interest rates. The “new queen” may be “money” as the Federal Reserve added $36 billion to the nation’s money supply (M2) last week. This is not an unimportant point, for under the guise of “tight money,” fostered by higher interest rates, the Fed has recently been increasing the money supply. Unfortunately, Greenspan & Co. did away with the broader-based M3 money supply figures, so it is difficult to calculate the leverage the Fed is introducing into the economic system. Suffice it to say, if M2 increased by $36 billion M3 should have increased by a greater amount. Whether this liquidity injection is in response to the worrisome real estate environment is unknowable, but our real estate research team is clearly worried, as suggested in their recent note. To wit:
MSN article about “creative” ways to get your first house. This on the same front page that says “the boom is over.” I could see printing this stuff a year ago, but what the heck are they doing it now for?!?
7 creative ways
It can be tough to save enough cash for a down payment, but in certain circumstances you can finance your way around it.
Case in point: Kerrie, 36, bought a small two-family home in Brooklyn for $560,000 last February. “I didn’t put any cash down,” she says. “I did an 80% mortgage and a 20% second loan. I used my $30,000 in savings for renovation.”
It’s a risky strategy, but it worked for Kerrie because a) the property was undervalued and b) she knew that a basic overhaul would bring it up to market value, which it has. In a year, Kerrie plans to refinance her adjustable-rate mortgages and get a 30-year fixed mortgage. Meanwhile, her upstairs renter offsets part of her costs.
Pros: You can buy a house without any upfront cash.
Cons: You need to have nerves of steel (in case property values drop) and be willing to live in contractor hell for a few months. And if your credit is less than stellar, this may not be an option at all.
How exactly do “nerves of steel” help when property values drop and your ARM resets? You better have “bars of silver” as well as “nerves of steel”.
more on this kind of “intervention”
http://immobilienblasen.blogspot.com/2006/08/fed-doublespeek-greenspan-put.html
My last for today, for the NY’ers out there. Looks like a condo developer in Manhattan finally blinked.
http://www.urbandigs.com/2006/08/high_end_blues_2.html
Last chance ad at Craigslist for Carmichael house:
http://sacramento.craigslist.org/rfs/202395365.html
Hmmm..owner “needs to sell”, but he is pulling it off the market? Who is this guy kidding? Last chance before he sends the keys back to the bank?
I think it’s a lady.
Makes you wonder if they even proof their own ads.
I am no marketing expert, but I would imagine the amusing, amateurish tactics such as these schizophrenic listings do nothing to bring in buyers and, if anything, scare them away. They scream desperation.
“The decline is definitely coming…”
This quote is from an audio piece on NPR’s All Things Considered last Friday.
In Real Estate, Mind over Market Momentum?
A conversation with William Wheaton, professor of economics and former director of the Center for Real Estate at MIT.
After listening to this program, the only reasonable thing a prospective homebuyer should do is to wait a year or two before considering a purchase.
It’s definitely worth a listen (it’s not too long) at:
http://www.npr.org/templates/story/story.php?storyId=5751591
Is Wheaton a friend of BeaConst?
Wheaton, one of the best-known RE finance professors in the country, talks like a bubblehead. He told his daughter (1st-time homebuyer) to wait out the bubble in order to pick up a home at bargain prices after the bubble unravels.
He made reference to people who bought multiple houses (”up to five”)– I wonder if he has hard data on this, as I have often conjectured here that the expression “investing in a second home” may severely understate the excessive speculation in which some partook.
He neglected to mention the effect of flattening prices on demand; when price appreciation stops, so does the rationale for investing in homes with negative cash flow on the assumption that future equity appreciation will make it all good.
Buying sugar. You know how I like to go knife catching
Check out on marketwatch.com home page:
———————————————————————————
REAL ESTATE | Full coverage
House call Video
Ken Rosen of the University of California says builders’ stocks may enjoy a brief bounce, but the overall picture is bleak.
Finally listened to Ken’s interview. He is the anti-Gary-Watts if there every was one. He claimed the OFHEO housing price increase is yesterday’s news — prices are already falling in many places including San Diego, Bakersfield and Phoenix. He also said more about builder’s stocks than “the picture is bleak”: He mentioned they are still up by 100% from where they were just a couple of years ago, and went out on a limb and said they would be lower (than current values) by next year.
The one bit of advice he offered which I think is wrongheaded was “buy now if you just need a home to live in.” If you believe that home prices will be substantially lower in a couple of years, and are comfortable renting for now, why would you do this? Maybe he was just pimping for some Realtor (TM) friends…
Oh brother. $1M for a 5000 sq ft lot. Location OK but not the best. Storybook home pictured not included:
http://www.mlslistings.com/common/properties/propertyDetail.asp?open=0&page=1&mls_number=655631&type=property&name=
Existing structure is a tear-down.
If the rules are similar to San Diego, then you wouldn’t want to do a tear-down. Leave two walls standing (actually just the framing in two walls) and presto: it’s a re-model! No neighborhood reviews etc! I’ve seen 700 sqft houses turning into 2 and 3 story McMansions here in Ocean Beach.
But are they painting murals of waves on the sides of the new mansions? That’s gotta make ‘em worth it.
Was out looking at open houses again this weekend (family was in town and they wanted to look “for fun” on the way back from a day trip”). Saw a place listed at $649K that was a polished turd. It was very obvious that someone had recently done a rookie remodeling job and was trying to flip it. The TWO realtors present were going on and on about the “totally remodeled” blah blah blah. As soon as I looked around and saw the weird layout and cheap laminate flooring I chuckled and asked my wife, “what do you think? cheap flip from two months back?” The realtors became silent - must have hit close to the truth. I checked zillow later…sure enough last sale was 6/28/06 for $515K. Laminate floors, granite countertops, a few plants, and 2 months later and voila! $135K profit! When I commented to the realtor about the tiny bedrooms, she said, “well, it’s a small house”. I responded, “but…it’s $649K..” the look on her face was fantastic.
The realtors have totally lost touch with reality. Their greed is trumping all else.
Why are realtors still messing with turkeys like this? They really must have nothing better to do with their time.