Bits Bucket And Craigslist Finds For September 14, 2006
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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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stanly furniture
The Company now anticipates a sales decline of 8% to 10% compared to record shipments of $85.6 million in the third quarter of 2005
earnings per share are now expected to be $.27 to $.29, down from prior guidance of $.38 to $.41, compared to record earnings of $.44 in the third quarter of 2005 (minus 36%)
For total year 2006, sales are now expected to decline 4% to 7% compared to 2005 and diluted earnings per share are now expected to be $1.24 to $1.32 compared to $1.77 for 2005.
“We have not seen any significant change in order trends since Labor Day and we are projecting these business conditions to persist for the remainder of 2006
pier 1
PIER 1 Q2 SALES DOWN 12.5% AT $370.7M
Total sales declined 12.5% for the second fiscal quarter to $370,698,000, from $423,675,000 in the year-ago quarter, and comparable store sales declined 14.8%.
Year-to-date sales amounted to $746,790,000, down 8.3% from $813,989,000 in the year-ago period, and comparable store sales declined 10.9%.
http://www.immobilienblasen.blogspot.com/
jmf,
Thank you for your timely updates. It’s a pleasure to have all our international bloggers posting here. One of the most valuable aspects of this blog is being able to hear what’s going on in different parts of the world. I guess it’s not “different” here.
Vielen dank! (hope that’s not too bad)
perfekt!
compare this to the action in the stockmarket.
CFOs see 33 pct chance of US recession in 12 months-survey
NEW YORK, Sept 13 (Reuters) - Chief financial officers of U.S. corporations are increasingly pessimistic about their business and the overall economy, and put the chance of a recession within the next year at 33 percent, a quarterly survey reported on Wednesday
The level of pessimism about the U.S. economy is the highest in five years, the survey by Duke University and CFO Magazine found. Fewer finance chiefs expect to increase capital spending, their forecasts for earnings growth are lower, and expectations for hiring are down, the survey found.
The survey, which polled 571 CFOs at both public and private U.S. companies, found the average probability of a recession was one-third.
The 10-year old survey has been a strong leading indicator of corporate results and behavior, said survey director John Graham.
“I would expect earnings, capital spending and hiring to go down,” Graham said, adding his forecast covered the next 12 months.
The proportion of executives saying they are more optimistic about the economy — 19.8 percent — is down from 24 percent in the previous survey and down from 42 percent six months ago.
A third expect to cut back on hiring if consumer demand weakens, and nearly as many — 29 percent — will reduce capital spending.
http://calculatedrisk.blogspot.com/2006/09/cfos-turn-pessimistic.html
Many corporations have a lot of cash from recent profits. Many on Wall Street have been predicting that slowing consumer spending would be replaced by increased corporate investment. This survey shows that the “increased corporate investment scenario” is rather doubtful.
i think you´re spot on.
they play the “increase corporate investments” now for 5 years.
it never materializes. i think this phrase is try to spin things to the positive.
it is true that there is a lot of cash on the balance sheet.
the debt has also grown to levels never seen.
they buy back stocks with borrowed money to leverge things and to “optimize the financial strukture”
the pensionsfunds are still massivly underfundet etc.
csco has used all their profits in the paste 2 years to buy back billions in stocks to avoid the dilution from options and aquisitions. (just one prominent and extreme example)
Buying back stock is investing.
I’m not saying that corps will save us, but the money just doesn’t disappear when they put it in the back/pay off debt/buy back stock. But what is hoped for (by the pollyannas) is that corps will BORROW and spend. It is the velocity of money that needs to be replaced… not the existence of it.
There is a parallel between these firms who are flush with cash from recent profits, and would-be homebuyers who could afford to buy a home but are sitting on the sidelines. In both cases, the would-be investor is exercising the option to wait for a more favorable time to invest.
So true GS. So true.
It’s a bad bet, and makes no sense. Why would a CFO throw his money into investment in the face of a declining marketplace? If the current equipment/technology/personnel/RE is sufficient to accommodate the demand, what CFO would spend for new during an economic downturn?
In addition, to make up for lost consumer spending, doesn’t business have to spend proportionately twice as much?
Besides, there is a moral hazard for top managers to drain cash out of the corporate coffers through difficult-to-detect ways. Think of Robert Toll cashing out $500m+ in stock last summer at the peak and the backdating of corporate stock option grants as two leading examples.
And then there is the interesting non-random-walkish-tendency of stock prices to bob up and down endlessly within trading ranges. Given the masses of successfully-brainwashed individual investors who employ first-order buy-and-hold strategies to capture the supposed-equity premium over all other asset classes, there should be a few good years left for the big boys on Wall Street to clean house on second-order (volatility-based) strategies before the masses learn (again!) that stocks are a “bad” investment, especially over the long-run.
I’ts all a pump and dump.
“compare this to the action in the stockmarket.”
The action of the stock market is about to change drastically. The rally is over.
i hope so
i´m short
Don’t count on it…. Shorting the market right now is more risky than its worth…
Yeah, right, better to follow the sheep and buy the dips…
Uuhhh, Stucco, there is the third option of not going long or short, but having your money play in some other (safer?) playground. I’m still long, but not putting an new money in.
What do you suggest? $US denominated cash instruments?
I’m avoiding putting new $ to work in stocks too and have trimmed my exposure to equities in the near-term (I think we may the market correct in the next 6-8 weeks, but I’m not confident enough in that supposition to short the market). You might consider long to intermediate term bond funds considering we are likely looking that the Fed will be holding and eventually lowering rates over the next year.
“You might consider long to intermediate term bond funds considering we are likely looking that the Fed will be holding and eventually lowering rates over the next year.”
Aren’t you ignoring the fears that many who post here have expressed about the risk of a dollar “dislocation” due to a sudden unravelling of record Asian surpluses and record US trade deficits? (Of course, those of us who live in CA near the San Andreas fault are accustomed to living with the risk of sudden disclocations.)
http://news.independent.co.uk/business/analysis_and_features/article1523194.ece
you are assuming that central bankers think the way we do. they are probably less interested in profit and loss than stability.
Ich kann es nicht verstehen…
was / what?
“compare this to the action in the stockmarket.
CFOs see 33 pct chance of US recession in 12 months-survey”
Cognitive disconnect between stock market and fundamentals… market inefficiency rendered impotent by collective denial?
i agree 100%!
Good editorial on misleading optimism within the markets
http://financialsense.com/fsu/editorials/wakefield/2006/0913.html
To reiterate a point I made two days ago, a confused sheep is easily sheared.
And then you have those who just don’t want to believe.
Another link on topic:
http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/TechCrashSummerAllOverAgain.aspx
Ignore Fleck. His logic is altogether too sensible to explain the bizarre recent disconnect between Wall Street and Main Street. (Just kidding!)
Ben, A guy from American Express was on CNBC this morning. He said AmX is starting a program for card holders to put a downpayment for a home on their AmX card. He was asked if this was limited to certain types of AmX cards (gold, etc.) and the answer was that it will apply to all cards. He was asked if there was a limit, and the answer was that AmX is used to dealing with large purchases (such as $200K plus) and had the ability to do something like a 20% downpayment on an over $1M property. The AmX guy said they are also looking into a program where renters in NY can put their rent on AmX.
AmX charges the business accepting the card a fee, and the card holder has the option to pay off the entire sum or carry it on the card. The AmX guy said card holders like this program because it allows them to build up points. I wonder if other credit card companies will also start allowing downpayments/payments/rent to be charged.
is amx secured in the loan?
otherwise going to take a hit
They did not go into that much detail. It was about a 3 minute interview. The AmX guy also said putting your mortgage deposit on AmX eliminates the need to get a certified check, thus a time saver.
I saw that piece, too. No big deal, really, when you consider that Amex requires payment in full at the end of the monthly billing cycle. Developers in this market are obviously willing to pay Amex’s 6% merchant transaction fee - it’s 6% off the downpayment, not the whole sales price. Buyer gets loads of frequent flier miles, as long as he pays the card bill at the end of the month.
The only news here is yet another seller concession. Surprise, surprise, said Gomer.
DC Too, I may be mistaken, but I thought the AmX guy said you can pay off the bill in full or “carry it on the card.” The only AmX card I have is a corporate card, so I don’t know how a personal AmX works.
He said that? Yikes - I mustabeen struggling with my shoelaces!
Traditional Amex cards - the green and gold ones - require payment in full at the end of every month. If they are now allowing revolving credit that is news to me and a whole other (unhappy) story.
The AmEx blue card and some of their partner cards have been revolving credit, but the “traditional” cards remain convenience cards or what ever their term is for them.
Just another piece in the puzzle to keep credit creation positive.
Here’s a scenario:
1) Put your downpayment, say $200K on a $1mm home on an AMEX card.
2) Open up (as many as needed to roll the balance) new credit cards at the 0% teazer rate for 6 months.
3) Roll the AMEX balance onto those cards.
4) Wash, rinse, repeat, every 6 months with new 0% teazer credit cards.
5) Pay off your downstroke without paying a dime in interest.
5) Your own personal carry trade brought to you by your friendly neighborhood Bankster.
Now if only AMEX will allow you to put the full purchase on the card. 0% interest on the full real estate purchase. A principal only mortgage. Imagine the valutions on real estate with that type of financing. Think Cap rates are low now wait until this takes hold. The ways in which the PTB will prop this credit bubble up have ceased to amaze me.
An Islamic loan for the non believers.
“Here’s a scenario:”
Let’s be honest here, though…if Joe Sixpack (or even his kolledj edjukated brother) tries to do this, he’ll drop the ball somewhere within the first year…too much timing and effort required to make it work right. However, there may be a market for a company or service to do this for you. They could call it “House Of Cards, Inc.”
Arroyogrande I couldn’t agree more with your comments. This is for high rollers only. However, this program will trickle down and many are gonna get burned. I know some will say that it will never happen, but never underestimate the banksters. This program will trickle down when the high rollers are exhausted and new real suckers need to be found. The sad thing is that no one questions this type of business ethic. It reminds of two nights ago when I was watching Daddy Day Care and Eddie Murphy has given up the day care and gone back to work and he is in a meeting. The leader of the meeting asks Murphy what is important or what matters and it finally dawns on him, his family. For me, I don’t think the majority of America really thinks that way anymore. Many people and companies are just out for themselves with no thought to the future. How many ways can we stick it to the sheeple? How many new debt vehicles can we come up with? How about saving? Unfortunately, no one wants to put in the time to save. Also, with housing so expensive, some people do feel that they are priced out forever. For me, if that is the case, so be it, I will rent till I die. Fine for me. Me and the wifey and kids have lived on both sides and renter can be a lot less stressful.
I agree that it is alot of management but I actually know of two couples doing this exact thing regarding home renovations.
Use of credit at this juncture in my opinion is only limited by the creatitivity of the mind. If J6P is suffering under rate increases on his option arm / suicide loan you better believe he/she is going to explore every avenue/push every envelope to avoid foreclosure. I could see banks facing a foreclosure say to the borrower:
1) Refinance the balance possible under a new LTV based off of a revised appraisal.
2) Put the difference (neg equity) onto the AMEX card as an “equity” downpayment and voila, a previously non-performing mortgage is now “magically” performing.
3) We’ll provide a “service” for a fee to keep this “equity” rolling on the 0% interest cards until such time as payments could be made.
I mean seriously at this juncture why don’t the banks just say Debt for everyone. Keep consuming. Keep spending. Don’t worry about your personal net worth. Who cares about debt for tomorrow we’ll make it even easier to borrow even more money. I wish I were kidding.
I’ve done the teaser rate roll-over thing to buy treasuries, but unless you have a 1 year fee free period in the 20K plus range with zero transaction fees, I’ve found it to barely be worth the effort, especially when you add risks due to the inefficiencies of funds transfer and the possible pickle you put yourself in god forbid for some reason you need credit.
This idea is a freaking nightmare.
The ONLY reason rents have stayed in line with income is because people have had to pay rent with real money.
If this is going to be the way to “save” the housing market (eg. allow people to charge rent, thereby bringing rentals up to the outrageous levels of buying), then we are all screwed.
Perhaps while the Senate is looking at toxic loans next week, they’ll also take a lookat this newest rotten idea?
And for anyone who thinks that this will be used for only the most “credit worthy” cardholders, there’s no way.
That’s who the toxic mortgages used to be resrved for, before they started giving them to anyone, including dead people and those just out of bankruptcy. And they suddenly went from being a “smart idea” to “toxic”.
I see an advantage to this, though limited in application. Buyer has cashed out from his previous house. Target house is $500K and he has $400K to pay in cash. Rather than pay the fees associated with a small first mortgage, he puts the $100K on his Amex and closes the deal. Then he runs down to his bank, takes out a HELOC for the $100K and pays back the card debt. Then he converts the HELOC to a fixed-rate, which manyu banks allow. Assuming he believes he can pay down that no-prepayment-penalty HELOC in a few years, since he is paying 1% to to 1.5% over the rate of a regular first mortgage, it makes good sense to me. I could see doing this myself — great for some boomers and for others wise enough to have cashed out by now.
countrywide data from august
the only sector that is growing this year is
- Home equity loan fundings for August were $4.1 billion, essentially
flat from August 2005. Year-to-date home equity fundings were
$31 billion, 14 percent higher than last year.
rest from the data
http://immobilienblasen.blogspot.com/
more borrowing on a depreciating asset- getting ready to mail in the keys ?
You have no idea.
One of the workers at our production facility just refinanced his house. The payments will be much lower.
He got a 1.5% ARM.
This is a manufacturing plant, and he is a Vietnamise immigrant, along with many others here at the plant.
I don’t think he knows he will owe more in 2 years, and at a higher payment, then he is getting now.
He only knows that through the miracle of easy-finance he is saving alot of money.
It would seem to me that if the gov’t is really serious re avoiding a housing collapse, they’d start a principle only mortgage program. Or maybe a P.O + 1% option, or something like that. And, of course, financing the interest differences thru tax free, non-repayable gov’t grants.
It’d get the housing business back on its feet, mortgage companies could continue on with their work, construction folks would be free of worrying about the next project, home owners would benefit tremendously, starter homes (600 sq ft or so) would see a price escalation to $1mil or $2mil but the payments would be low.
Everybody wins.
Diogenes — that is sad, assuming he got here legally. Asians generally are very savvy about money, but if his Engrish is weak or he doesn’t have enough friends who understand this stuff, to explain the risks to him, then he could be toast. Reminds me of the story of the cop who was conned out of a 5.5% fixed into a toxic ARM.
Investing OT issue:
So I’m looking at my 401k (which is invested mainly in stocks, because as I’ve stated I’m a diversifier and I haven’t found timing to work too well)
These last few weeks, many have discussed the impending doom of the equities market that was theoretically going to start after Labor Day. In fact, market timing was brought up, and a poster (I forget who) discussed how ON AVERAGE one is much better liquidating all stocks in November, then rebuying in March (or the converse, he wasn’t sure).
I’ve also read extensively about the “sure bet” of getting out of stocks for September for the “september doldrums” and jumping back in around October 31st. The ostensible reason being that Mutual funds etc have fiscal year end on Oct 31, so they sell a lot of stuff to take gains and also sell their crap to get offsetting losses for tax purposes.
But here we are in September, and my portfolio is surging like crazy these last 10 days.
to me, it shows the problem with timing. In retrospect is seems obvious… but again, I truly believe in the “random walk” theory… you may know where the market going eventually, but the short term vacillations are much harder. And you can win or lose a lot if your timing is even off by a day (or maybe even hours)
So today driving to work, I had a thought: COULD STOCKS BE THE NEXT BUBBLE (again)?
Here is MY theory. (GETSTUCCO LISTEN TO THIS):
Housing is starting to tank. Investors know this. Everybody is flush with cash (thank you Fed). They need to put their cash somewhere.
So people are taking their money FROM housing, and putting it into the equities market. (the reverse of 2001-2003). thus, stocks are surging. “A rising tide lifts all boats”. thus, perhaps the general rise in the stock market (much of which is Index funds) is causing cash to go nonspecifically into the Homebuilders too.
A few investors are also putting their money into commodities and precious metals, but I doubt most laypeople are doing this. Thus: into stocks the majority of money goes.
this could explain a stock surge now. it also helps explain the permanently low plateau of the HBs (ignoring the PPT).
Obviously, the quadrillion dollar question is: How long will stocks stay in favor this time?
thoughts?
I think it’s very possible that they are. Especially tech stocks. This week has been about running the shorts off but after we get a selloff, I’m going to take a crack at longer term long positions in telecom, etc.
I’ve had some of my play money in QQQ(Q), and it’s been pretty flat since Jan 2004…do you see a new, broad tech rally, or more of a specific segment rallying? (As you can guess, I’m more of an index fund/ETF kinda guy)
I don’t see that a lot of money is moving out of real estate. Hard assets, such as homes and land are selling much slower than in the past. Real Estate REITS are still very strong–not much selling there.
Yikes, this sounds plausible. I did this earlier this year then got nervous and moved most of it to cash. But my Schwab advisor recommended that I stay in the stocks.
So does that mean it would be better to go back into stocks now and then pull out right before the market crashes
Don’t get me started on Schwab. One of my favorite shorts. But you might wait for a dump in October to get back in. Much better prices than now.
I think the market is going to crash now over the next couple of months. Hopefully a slow crash and not one of the 30 percent in one day types. The bear market that started in 2000 was never completed, as shown by the quick return of bullishness, which is even rampant on this blog. When the bear market is over, everyone will be afraid of stocks.
I wasn’t afraid of them in Oct of 2002. Neither was Russ Winter. He made up a hell of a buy list and everyone who followed along made out like gangbusters. That said, I’m all short myself except for a few select “situations” that I know personally.
I mean, of course, the public at large will be afraid of stocks, not the few people who are able to make decisions that go against the flow.
“The bear market that started in 2000 was never completed”
Take a look at the Dow, we seem to still be in a secular bear market…from high above it looks like the 1965 to 1980 time period. We very well may see a decline (IMHO), but it doesn’t have to be tomorrow (or even “the next couple of months”).
agreed. I don’t see any reason for a pending major decline … especially when stocks aren’t overvalued like they were in 2000. I expect a nice run-up next year.
I know the Elliot boys are pushing the pending doom and gloom, Elliot has some credence but I’ve found the timing of it to be very hard to pin down. (If I recall Robert Prechter was calling for a crash in the mid 90’s- it took 5 years for it to happen).
Everyone who is bullish on stocks right now seems to be forgetting the impending housing-bust to equities-bust bleedover. I suggest you re-read the IMF report on historical contagion…
And don’t forget how consumer spending will be impacted by the housing bust, and the impact that will have on the economy at large.
Jon
What your thoughts on Corus Bank? 90% of their portfolio is in new condo construction, including many projects that are questionable at best here in Atlanta. Apparently they have a “four person review committee to expidite loans.” There was an article in the WSJ about the Sept 1. Also, they just recently removed their sign from a project here. Not sure if that is a “sign,” but seems fishy.
I started buying puts on CORS when the price was near $30 after reading about it in Herb Greenberg column (its now around 21). It was my biggest position during late spring and summer and my profits were about 100K. It’s a little tricky because of high short interest. I track that loan originations on their web site and the loan volume has gone way down since spring. I think that CORS is very shaky. They like to “brag” that they have had no bad loans since the 90’s, but that does not mean much going forward. My positions are not as big now and Sept positions are all sold. I have some Dec 25 and 30 puts and Mar 07 25 and 22.5 puts, all bought at the money. They seem to be sticking with what made them really hot in 2004-2005–lending to condo developers. That now seems like a disastrous strategy.
There’s not going to be another stock bubble for a long, long time. Keeping in mind when we say “bubble” we mean full-on, widespread, societal mania. That’s not to say stocks won’t go up, but profits and profit growth are at all time highs - not a particularly enticing time to pile on, unless your first name is Jim and your last name is Kramer.
It’s been six years and a half years since the peak - S&P 500 is still way off, Dow has not made it back either. It took 25 years for new index highs after 1929. We are also in a bull market for commodities - stocks have never done well in that environment.
There are people that can think and people that can read - I am in the latter category, at least, and can’t help but notice that ALL ASSET CLASSES are up right now - even stocks, relatively speaking. Something, somewhere, is going to have to give in a big way. Houses are on all our short list for what gives back. I would be defensive about stocks, too.
Find a safe 5% hiding place and be patient - there will be blood, or cannons, whatever, in the not too distant future.
Right, DC, this is a total liquidity bubble that has inflated almost everything, and it is not going to be easy to tell which assets are not going to deflate, although there will probably be some. In a wild explosion is is best to stay out of it.
DC_Too,
I believe you mean “Cramer”…
Whatever
If you’re truly bearish on stocks due to the housing bust, why hide your cash at 5%? S&P index put options for Dec 08 are looking pretty cheap to me–you can benefit from any downside for not a lot of money, and be insulated from having to pick the “right” shorts. If things look different in six months, you won’t have lost a lot of option value unless the market has gone up significantly. Personally, I don’t anticipate that happening.
Jon
Unless this time is different, Inspector Clouseau, then your theory will prove to be a good justification for those who want to catch falling knives in the stock market over the next few years. Look at what happened to stock prices in the 1930s for an example — there were a few years when stocks went through the ceiling, but the trend was not your friend again until after 1945.
So maybe market timers or technical traders with good luck can make money by getting in and out of stocks in a secular bear market, but I am neither that lucky nor technically astute, and long-term buy-and-hold investors would be advised to let history be their guide.
A better theory is that like the other twentieth-century stock market peaks reached in 1901, 1929 and 1966 when the P/E ratio on the S&P 500 hit a level over 25, the one which was reached in 2000 will take a minimum of 16 years before a bottom is reached. The overall decline in previous each case ultimately bottomed out at a P/E level below 5. I am not talking about the conventional P/E ratio Wall Street uses to sell stocks, but rather one which is adjusted to provide a more robust (less volatile) E measure. Look in Shiller’s Irrational Exuberance (or get the data off Shiller’s web site) for the evidence to back my theory. (And I have to point out that you forgot to bring data to support yours…)
Inspector,
You may have missed out on the informative piece from the IMF which I have already posted about 15 times over the past year (google on “when bubbles burst imf” and it is at the top of the list that comes up). It suggests that housing busts typically drag down the stock market with them. But I know you believe this time is different, or else you would not be trying to convince us to buy stocks…
GetStucco said: “But I know you believe this time is different, or else you would not be trying to convince us to buy stocks…”
ROFL. You couldn’t have misunderstood my point any more than you did!
I’m not trying to convince anybody to do anything.
I’m simply trying to remind everybody that even the best data and the most sound fundamentals can be worthless in the short term. The long term can be determined… but the TIMING is not so easy. And if you’re going to time, it is important to time correctly.
Big example for you: by all rationale, our RE bubble should NEVER have made it until 2006. Never. Yet it did. I thought it would collapse in 2004… and watched for 2 agonizing years (and many % gains) before the top seems to occur. NHZ commonly discusses how the Dutch bubble has kept going for over a decade.
I personally believe NOT in buying stocks, but diversification.
Thus, I personally feel that Housing will take a major downturn, it will take stocks with it, and we will hit a major recession/depression. I am still unsure as to whether or not there will be deflation, inflation, hyperinflation, or a combo of the three. to me, there is too much PSYCHOLOGY involved with economics, which is why I think it is a horrible “science”. The quadrillion $$ question for me isn’t “will housing crash” or “will there be a stock slaughter”, but “when”.
for this reason:
I am (gross estimate);
40% stocks (including indexes, international) All stocks are in my 401k, which has no other “good” options. The money market funds in there are like 1% or something. Not worth it.
40% cash (emigrant/Ing/HSBC).
25% Gold/Silver (and mining stocks)
5% Other (mainly bonds)
I maxxed my 401k contributions a few months ago for 2006 (which went into index funds), and all my extra savable/investible income since then has been placed into ING/Emigrant/HSBC savings accounts, and used to strengthen my silver position.
I have CONSIDERED buying puts on the Homebuilders and the Financials, but then I’ve watched in astonishment as they DO NOT respond as they should by my own market research (something to which YOU also have noted). Thus, it makes me wary of timing the market with shorts or puts (or even longs or calls) because I do not understand what’s going on, and one should never invest when one doesn’t understand.
thus, I come back to the main point of my post here: what are some possible reasons for what we are seeing in the markets (stock, bond, PMs, RE, etc)?
I can look for the boogey man all day (and believe me, I truly believe that severe gov’t manipulation is part of the problem), but in the end THAT DOESN”T HELP ME, because regardless of what I do, said manipulation will be there. Thus, I must invest/save/plan to the best of my abilities… and that includes not falling into Ben HousingBubble party lines that assured me that stocks would fall in September (they have not YET), and then assure me that they will fall in October (they very well might) and that they will tank very soon (they well might). but maybe they won’t tank until after the Nov Election. perhaps they will have a dead cat bounce and then tank in 2 years. who knows WHEN?????
So I diversify. what else can I do????
Damned if I do, Damned if I don’t.
That is the price I pay for the Fed, for loose money policies, for gov’t intervention, for Hedge Funds run amok, for irresponsible RE “investors”, and for sheople.
“I personally believe NOT in buying stocks, but diversification.”
I concur, but I believe diversification is easier said than done in the current conundrumish investing climate. For example, do you believe your portfolio is adequately insured against a dollar crisis? The gold would seem to provide the insurance there, but I noticed that the price of gold has crashed pretty hard since early May, so if you timed your purchases before then, you may have taken a pretty big hit there. I guess the answer would be to dollar-cost-average into a broader category of assets than the basket which is considered to provide the standard version of diversification (some allocation of stocks / bonds / cash) and hope for the best?
I’m with the house inspector on this. And timing gold is not the issue. The important thing is to buy regularly. I bought a few ounces at $692 per ounce earlier this year. I bought Monday at $590 per ounce. The mistake will be not buying. And the same with T-bills and notes and money market funds. I only have 5 to 6% of my net worth in precious metals and prefer to build up to 10%.
Another good measure of the end of the bear market is when PE, meaning real earnings, not imaginary future earnings, and yield of the indexes are within a couple of points, or PE my even go under yield. We haven’t even seen the light at the end of the tunnel even in 2002.
“take a minimum of 16 years before a bottom is reached.”
It might be a good research topic to find out to what extent economic bubbles (stocks/bonds, commodities, housing) are started by ‘the next generation’ coming along and saying “this time it’s different”. The unexperienced generation starts it (”those old fools, they didn’t see the value here!”), and then all of the other generations, seeing money being made hand over fist, pile on and say “maybe this time it *is* different!”.
Might be interesting seeing as these cycles tend to be 12-20 years…
Actually, you are missing two important items. We are about to have a mid-term election. Timing, timing, timing. The guys in charge (if you can call it that) of the White House are in the pockets of the oil guys. Not to mention the big drug companies, insurance companies, etc. Bush appointed Paulson, one of the top Wall Street financial gangsters and book cookers, to be treasuary secretary. How nice and comfortable you will feel when you enter that polling booth in November, knowing that gas prices are dropping and your 401k is going up leaps and bounds. As we know, it’s only the Repulicans who have the business sense to run the economy, keep us out of debt, see our assets (property) grow toward the sky and keep us safe from terrorists…………who are really not bothering to “come over here” because they are killing enough of us “over there”.
Regardless of political parties, I think that what all of these candidates for power want in terms of our housing, stock, oil and money markets most right now is no wind, no rain until after the elections. The media will kow-tow as much as possible — the excellent Business Week toxic-loan cover last being just a teaser of things to come. After the elections, the MSM might try to protect Christmas retail sales. If they do, post-Christmas should see some pretty godawful paper and TV news show commentary.
HIC - I posted but my answer wasn’t clear. BUY in November sell in May.
Or where I live buy when it snows, sell when it goes.
The return is 25 X greater than just buy and hold or than any other market timing.
The Six-Month Stock Market Timing Strategy
http://tinyurl.com/n2t3e
I prefer to buy in October when it appears the world is coming to an end, Robert Prechter is on CNBC, etc. If you wait until November, you’ve often given back 20-25% on individual names.
I like to buy when the sap in the Sassparilla tree is running high.
Does the sap have more alcohol then? LOL
Wow — you guys (and gals) are all great! Some really interesting thoughts here. Clouseau, I’ve been having the same thought for a couple years. I also don’t think it’s an accident that the stock market started reinflating the day we invaded Iraq. I am assuming that the market turned around on the assumption that all this military-industrial spending would have a multiplier effect in the overall economy. And indeed, that seems to have been the case.
So the mirror image of this false boom is a reduction (or an expectation of reduction) in the “war effort.” Say, for instance, a Democratic-majority House in November. Appropriations bills have to come out of the House (i.e., they cannot originate in the Senate), and I suspect they’ll look much different with Dems in power (disclaimer: I am a super-duper Democrat). So, assuming a change in power, expect the market to start tanking within a couple days/weeks after Nov. 7.
You do realize that you are giving a very real reason not to vote Democrat.
“…but again, I truly believe in the “random walk” theory…”
By the way, if you truly believed (and understood) the “random walk” theory, then you would also understand why many of us suspect that asset prices are routinely manipulated by entities with massive market power. The daily price movements on assets in diverse sectors exhibit too high a degree of correlation, and the closing price is typically too close to the opening price on individual stocks as well as for broad market indexes relative to interday volatility to be explained by anything remotely similar to the random walk model — this is the essence of the conundrum, in fact.
Good morning- the Boise area has finally reached the next level of bubble deflation- deep builder incentives from the areas’s biggest builder: “Buy Now & We’ll Make Your House Payment for 6 Months”
http://www.coreybartonhomes.com/promo/6monthpromo.asp
On a separate note, we’re up to 15 homes on the market in our sub in Meridian, ID- four of the places have been re-listed with new realtors. The market here is crashing hard: inventory up 71% in just four months and homes in August down 19.27% vs. August 2005.
What is the median home price in Boise? I always though Boise was affordable. IS there just a ton of over building / speculation or has there been a real price run up???
according to http://www.housingtracker.net/askingprices/metro/Idaho/BoiseCity-Nampa/ the median for Boise is at $264,900, so Boise is no longer affordable like it used to to be.
What is the median home price in Boise? I always though Boise was affordable. IS there just a ton of over building / speculation or has there been a real price run up???
homes in August down 19.27% vs. August 2005.
__________________________________
Median prices??
That was FAST! It seems like only a couple of months ago we were reading about Idaho’s entry into bubblehood. The last ones to enter are blowing up fast. Seattle seems to have gotten the message recently. Watch out Jackson Hole, Wy, reality is coming your way too.
sorry- home sales down by that amount. median prices sligthly down- seller are still trying for last years prices.
Brandon — while the overall numbers you show are significant, beware the 6-months-free touts — they almost certainly are based on an assumption of a 30-year mortgage and thus represent less than a 2% price cut. I sure wouldn’t buy in that neighborhood, because there could be a lot of “they left in the middle of the night” houses out there around the seventh or eight month after closing.
(Obviously, the quadrillion dollar question is: How long will stocks stay in favor this time?)
It depends on how much problems in the housing market spill over into the rest of the economy, and how much money continues to pour in from abroad.
I find stocks to be overpriced, but they may be the least overpriced asset right now. I wouldn’t rather have bonds or RE. Cash is another matter.
The current PE is 17, a 6% return vs. 5% on cash. The forecast is for profits rising from an already high base — paying workers less, having them buy more is the only way this is possible –with the current price 15X next year’s earnings. That’s a 7% return.
Which might be OK, but I don’t believe profits will rise from the current highs. Either business will have to start paying people, or they will have to start buying. How long can this debt-driven consumption continue? They’ll have to change the bankruptcy code again to allow lenders to garnish your kid’s future income to pay for spending today make it work (already doing it at the government level).
BTW, the NY Times reports rising foreclosures on ARMs for PRIME borrowers in the second quarter (ie. before anything really bad happened).
http://www.nytimes.com/2006/09/14/business/14home.html?adxnnl=1&adxnnlx=1158237961-DcCr3ZDCz3FZA66reehCTA
Question:
Why does the Stock Market (not to mention the financial media) appear to have totally ignored the record US Monthly Trade Deficit figure (for July) released this week?
About 10:00 EST (midnight my time) on the day of the announcement, I flipped back and forth between CNBC and Bloomberg, and there was literally no mention of this number at all from any of the commentators.
Instead there was endless discussion of what was happening at HP and Ford.
Eventually (after about an hour, but maybe I missed a previous one) it came up on one of those bottom-of-the-screen line items on Bloomberg.
because it was
“not better than expected”
The answer is complacency. It’s gotten to be old news. To be fair, about a third of it comes from $70 crude oil imports.
There’s another example of complacency that is useful. Guy jumps across an alley from one rooftop to another, six stories up. He makes it. He does it again. And again. Every time he jumps, the risk goes down proportionally, right? Wrong. Dead wrong. The fifth jump is just as dangerous as the first, but the guy keeps making it, he becomes complacent. Look out below.
that sums it up.
the best advice i can give is to spot watching cnbc&co.
i´ve done it in december 2005 and it feels very good.
It is a mistake to think that the stock market is driven by news events. The stock market is driven by social mood. Social mood also drives events, so there is a correlation, but not the kind of correlation that most people think. News events only have an effect for a few days or weeks at most, and most of the items listed in the media as driving the stock market are irrelevant; there is always something they can find to “explain” which ever way it goes.
Agreed. The major problem with economic as a science is that it is affected too heavily by psychology.
hence: random walk.
But it isn’t random either, it follows learnable patterns. When you look at stock charts, do they look random to you? And especially indexes, which have the most input by the most people, show non-random patterns.
When you look at stock charts, do they look random to you?
Yes. Ever take the random-generated chart test? I couldn’t tell them apart.
jp and Kim, I look at stock charts primarily to see if there is a pattern inducing others to make decisions. The inefficiency of the market is the unwillingness of market participants to look beyond the American shores. To summarize the IMF this morning “Buy what China buys, sell what China is selling.”
L.A. County Home Prices Post Their Lowest Gain in Six Years
(L.A. Times):
http://tinyurl.com/euals
“There’s a huge amount of pent-up demand out there, and it’s growing bigger as more buyers are sitting on the sidelines.”
“As soon as buyers realize that sellers may not be lowering their prices, we’ll see a radical absorption of inventory.”
And this is the $64B question…at what price(s) do a significant number of buyers (re)enter the market? 10% discount? 20% discount? When rents equal carrying costs? When carrying costs are below rents? When houses are affordable with 20% down and fully amortizing loans?
This is where mood and psychology really start kicking in. And keep in mind, each evolving month influences the psychology of the following months. Will there be a long, pronounced downturn until we return to fundamentals? Will we go down in fits and starts as the sentiment see-saws? Will there be a dead cat bounce when we hit a more “acceptable” price point? Will things slowly deflate?
This is where it gets interesting, kids…get prepared for an education of a lifetime as this puppy plays out. You can’t pay for a real time lesson like this.
“There’s a huge amount of pent-up demand out there, and it’s growing bigger as more buyers are sitting on the sidelines…As soon as buyers realize that sellers may not be lowering their prices, we’ll see a radical absorption of inventory.”
I call BS on this statement. Whatever pent up demand does exist, it is not nearly enough to absorb the oversupply of homes, much less at these grotesquely inflated prices. This is no more than wishful thinking/praying on the part of the industry. With affordability gone, we could only see a “radical” absorption of inventory if there were an even more “radical” decline in prices. At some point, the market has to offer a certain level of affordability for the end user for whom it was created.
I agree with you and I also agree with “a huge amount of pent-up demand out there” (at substantially lower prices), which is why IMHO it will take many years to flush the current inventory.
What I’m hearing are nearly irrational comments made by the RE faithful. Gone are the talking points and scripted answers. Gone are the statistics to back up their claims. Gone is the united front of confidence in housing.
As more and more bubble boosters walk away, there are fewer and fewer people are left to pump up the bubble. They have to work harder and blow out more hot air. Often these comments end up sounding silly, stupid, or self-serving.
Another trend: MSM will need to look lower and lower on the RE food chain to find a booster. The old familiar names will not want to be quoted. The further down the food chain, the less polished the response will be.
“Another trend: MSM will need to look lower and lower on the RE food chain to find a booster. The old familiar names will not want to be quoted. The further down the food chain, the less polished the response will be.”
Good points.
Any talk of “pent-up demand” which ignores the big drop in prices needed to absorb a mountain of excess inventory is pure BS.
“You can’t pay for a real time lesson like this. ”
Oh yes you can… many will pay through their noses to learn first hand for themselves. =)
“This is where it gets interesting, kids…get prepared for an education of a lifetime as this puppy plays out. You can’t pay for a real time lesson like this.”
I can relate to this statement because of what I observed when I made a trip to Texas last year. My Nieces and nephews in and around the Mansfield area are in their 20’s, just kids. And you should see thier houses, and the new cars and trucks on their driveways. They are not even working professionals, they just have regular jobs. I could not believe what I was seeing. I really felt sorry for these kids because they are going to get a lesson the hard way. It was heartbreaking for me to see this since they are, after all, my nieces and nephews. To be so young, and to be ruining your life like this. A lifetime of indentured servitude to their banking slave masters.
If only they had asked me for advice first!
I get no joy writing about this.
Excerpts from the front page article in the Washington Times Friday Home Guide:
—–
Interest-only mortgages remain the most popular loan product in the Washington area. ….
“The most appealing loans now are fixed-rate loans for 30 years, with interest-only payments for the first 10 years,” says Barbara Roubo, branch manager of Accubank Mortgage in Fairfax, a division of National City Mortgage.
“The principal on the loan is paid during the last 20 years of the loan, so the payments definitely go up after 10 years, but at least borrowers know ahead of time what their payments will be,” she says. “You don’t get what I call the double whammy of adjustable interest-only loans….”
“People like not having to worry about a rate change for 10 years,” Mr. Gill says. “But they need to be aware that there’s quite a comeuppance at the end of 10 years, with an increase in the payment of one and a half or two times. A lot of people will probably want to get out of it at that time by refinancing or selling the home.”
“But it’s not that big of a bump, especially if you assume that your income will rise over the years,” Drew says. “If your income just keeps up with the cost of living, then as a proportion of the budget the payment should be acceptable….”The advantage of a fixed-rate interest-only loan is that the payments stay exactly the same for the first 10 years and then they stay exactly the same for the last 20 years,” Mr. Drew says. “The payments won’t change, and people have 10 years to figure out how they will adjust their budget to accommodate the increased monthly payment.”…..These loans usually do not have a prepayment penalty, so borrowers can refinance at any time without owing additional fees. ….
http://www.washingtontimes.com/fhg/20060907-094825-7217r.htm
—–
It’s a fluff piece from the cheerleaders, written for the rich folks who read the Washington Times, but what do you all think of the Fixed 10 year I/O?
“It’s a fluff piece from the cheerleaders, written for the rich folks who read the Washington Times, but what do you all think of the Fixed 10 year I/O?”
I think it’s a good way to ensure that we have another housing crash in 2016, just as we’re trying to recover from the great crash of 2006.
Rich folks who read the WashTimes? We buy it at the office because it’s the “cheap” paper, got a bargain on the year-long sub. (Terrible comics and classifieds, but the security guys like paper a lot - maybe the crosswords for night shift!) Or maybe their reader are “rich” because they’ve saved a dime a day for a decade, eh?
Anyway, some of their real estate articles are indeed a bit “ra-ra”, but their weekly (Friday) “Charting the Markets” in the real estate pullout sometimes has some very nice and blunt figures.
The article mentions “move-up” buyers, which I take to mean those who are trading up from a small McMansion to a bigger McMansion. Move-ups can probably handle these loans as a cash-management tool. What worries me is that a loan like this will keep prices high, forcing the not-so-rich people to use fixed I/O’s just like ARM and neg-am, which is what kept this bubble going in the first place.
And yes, I think of move-ups as “rich,” as they truly have priced me out forever, at least in this region. It’s a timing issue. At the time prices were reasonable, I was just starting out. My salary has gone up, but not nearly enough for this bubble. I’m not some slacker with a room full of plasma TV’s.
If you think we’re going to inflate our way out of our troubles, or see a run on the dollar, it’s a nice way to pay off the loan with highly inflated dollars. But I wouldn’t get into it if you couldn’t swing the payment with a normal inflation scenario. It strikes me a a pretty big bet, but then mortagages always strike me that way: Bitter Renter since 1982.
I agree, DSmith.
If you want to do a little gambling with your house and home, this could be the way to do it. You are betting that 1 of 3 things will happen:
1. Housing will appreciate and you can relocate before the I/O period ends.
2. The dollar will loose value and inflation will let you pay with cheaper dollars.
3. You will have substantially more income (and similar living costs) in 10 years.
For 1 and 2, there are less risky ways to invest that don’t involve having your family living at Aunt Martha’s or in a refrigerator box.
For #3, you are borrowing to gamble. Bad idea. if your income is going up in 10 years, get a house you can afford today and move in 10 years, when your income lets you afford it.
Do the homework. If the numbers work out WITHOUT assumptions, it might make sense. But I’ll bet that for every person this works for, 199 I/O loan holders should not be getting it
I/O, it’s a bad idea for the average joe.
Option Arm, this loan is gonna do you harm.
CEO Makes Call on Pay-Option Loans: It’s Risky
http://tinyurl.com/kx8sf
(It’s a fluff piece from the cheerleaders, written for the rich folks who read the Washington Times, but what do you all think of the Fixed 10 year I/O?)
To me, the only excuse for such a loan is a young couple buying a house while starting to have babies, and expecting either having one spouse out of the workforce or dual part time work for a decade or so. The idea would be that when the monthly payment increased, both spouses would be in the workforce. That is a much lower risk than an assumption of rising income net of rising expenses other than housing.
We just bit the bullet and lived cheap, which is not a bad idea either. Especially if one assumes that the additional income from a returning spouse ought to go to retirement savings, higher education savings, charity, or all three.
Or if you know (to a reasonable level of certainty) that you’re going to collect a fair bit of money some time in the next decade . . .
This loan would work for me right now, actually, IF the interest rate was good and IF I could find a property at the right price.
Larry — good points. This would have worked for me when I was young. The only tricky part is gauging future appreciation. If it is going to be flat, much less negative, I’m not sure I would want to be locked into rent for ten years just so I can start buying the house in the eleventh.
impressive chart/graph from the vegas market
http://housingdoom.com/2006/09/14/las-vegas-appreciation/#more-193
Jan 04 - March 05 LV had a bubble in the strawman sense favored by the MSM — 20%+ appreciation rate straight through, with consistently lower appreciation rates before and after the blowout. Now, as the accompanying text suggests, the real (inflation-adjusted) appreciation rate has turned negative. Anybody wanna buy a LV investment property now?
And here’s one for the 5 markets OFHEO tracks in Arizona, adjusted for inflation. Nope, no bubble here!
No bubble anymore — just a slow-motion hard landing in the near-term future.
good piece from economic rabancing/rodger rafter
on foreclosures
http://rebalancing.blogspot.com/2006/09/here-come-foreclosures-foreclosures.html
Question for the crowd: are the landlord types buying multi-familiy properties at this point? I’m looking into a couple of buildings in the Northeast that give a 10% cap rate at 25% down. Would these properties make sense to pursue these opportunities at this point, or are people so pessimistic about the economy that they are just holding onto their cash?
DC/VA,
I’m looking around Boston for 3-8 unit places. Ignoring depreciation, taxes, closing costs etc, the cap rate seems to range from 2%-5%
Further, these sellers don’t seem to be into your “cap rates”. They are looking at these places as sources of capital appreciation and appreciation only.
I talk cap rates and they talk appreciation. We talk past each other. It’s useless.
Did they (current sellers) ever even understand cap rates or are they the “new age investor” relying entirely upon a strategy of “market timing.”
? instead of .
For those following the NJ Property Tax mess or fans of the Bud “Real Men of Genius” commercials:
Real Men of Genius
This YouTube spoof is causing a huge uproar in NJ. For those not familiar, property taxes in Jersey are soaring at record levels because of reckless spending. In this case, a small Jersey town (Parsippany), hired a school superintendent for close to $200,000 a year (not including benefits).
grim
hired a school superintendent for close to $200,000 a year (not including benefits).
Same situation occurring here in MA. $
%200k for a supt. to administer to a the Yuppie town of Manchester with a school pop of like 1300 kids.
Pubic education employeees are taking the brain dead taxpayer sheep to the slaughterhouse.
That is great. Frankly, I think it is wonderful that we now have the ability, at the “Everyman” scale, to skewer politicians and get it seen virtually everywhere, if the work is good/funny enough. All of a sudden, it seems, we have a countrywide “Speaker’s Corner.”
mish vs roach
http://globaleconomicanalysis.blogspot.com/2006/09/agree-or-disagree.html
My comment on the blog regarding that NJ ripoff. Ee gadd.
I want that job and pay. I will completely ignore the job, as I have 0 desire to be in NJ. But I will provide them banking information to collect the $16,000 a month. It will greatly help my children, and we will be so thankful to the generous folks there in NJ for another boondoggle.
House Inspector Clouseau says that the stock market follows a random walk which does not reflect fundamentals but only psychology. However, that is not what Malkiel’s book says (”A Random Walk on Wall Street”). Rather, the book says the market is efficient over the long run.
So I am curious about the flat patch in homebuilder share prices — generally the major Wall Street-listed builders have been in a trading range since the end of the May 2006 swoon, but the news has been consistently worse than anticipated. At what point does bad news get priced in?
For instance, Toll Bros’ stock price is in plunge mode this morning, but still well above its 52-week low. If this time is not “different” than the other selloffs since early June, then we can expect the irrational market to drive the price back up again to the top of the trading range within the next two weeks…
http://tinyurl.com/kx8en
“then we can expect the irrational market to drive the price back up again to the top of the trading range within the next two weeks…”
Maybe sooner. Ah, like by the close.
This is based on no useful knowledge other than of past RE busts where the bigger builders swallowed the smaller ones. Could Toll’s levitation be due to expectations that they will not be one of the ones to go bust and that they will emerge with a larger relative market share when it is over?
“This” being my postulation, not a reflection on Popper’s.
here something beautiful from barry ritholtz.
he unmasks the guys on wall street.
• The Inflation ex inflation crowd is now saying dropping Oil prices lower inflation; On the way up, no inflation due to energy, but on the way down, whoopee! No more inflation!
• Rising Oil prices will not crimp consumers or retail, but dropping Oil prices are a huge plus for both;
• Increased energy consumption is a sign of global economic growth, but decreased prices will stimulate economic growth;
• Commodities were never in a major secular bull market — which is now officially over.
the complete story with more
http://bigpicture.typepad.com/comments/2006/09/inconsistent_on.html
Now this is funny! Contrary to Roach, IMHO the bull market in commodities is just starting.
Barry’s blog kicks some serious ass.
Trigger Watch:
http://www.xanga.com/home.aspx?user=russwinter&nextdate=9%2f14%2f2006+23%3a59%3a59.999
Palm Beach Post article, Sep 14, 2006:
“County foreclosures quadruple U.S. rate”
http://tinyurl.com/oyyqj
wow
up 50% month on month!
McMansion “Flats”, here we come.
http://washingtondc.craigslist.org/nva/roo/206679644.html
You have to wonder what the local zoning office or HOA thinks about that.
That is the question! If the zoning and HOA allow this, prices will drop a lot faster than currently.
Wow, it’s happening!
When I was in my early 20’s, shared housing was the norm among all of my peers. It was a small step above the college dormitory, of course. McMansions are huge, but they’re not yet configured very well for shared housing. The basement is large, but it’s *cold* and somewhat dark and there are usually spiders/crickets galore. Dual hvac zoning usually means the main level and the basement share one system, and the upper another. So I imagine working out the bill could be complicated.
We have two empty McMansions in our development (Northern VA). One’s a resale that’s been there for over a year. The other is the model and it’s been empty for nearly two years. I think it’s such a shame to let a house sit empty.
“I think it’s such a shame to let a house sit empty.”
A shame and a waste. The real value of empty homes tends to fall more quickly than that of owner-occupied housing, as an owner-occupant has bird’s-eye view of mainenance needs, and a self-interest in making sure that the home is properly maintained. This is where I believe the push to turn all Americans into homeowners will backfire very badly — at this point in time, we have maybe 4.7 million extra houses on the market above fundamental demand, with likely more on the way between ongoing construction and the latent inventory currently owned by flippers with unsustainably negative cash flow. Once all is said and done, I am guessing we will find that we have maybe 5 million extra homes above the level of fundamental demand, and this surplus share of the housing capital stock will depreciate in value much more rapidly than owner-occupied housing.
You’re right about value falling faster on an empty house. A friend of mine wiht an empty, near-new house in another state is not yet aware of this, but might soon find out if his latest roof repair job doesn’t hold!
Maintenance on an empty place has to be a constant worry because things like that small roof leak you notice one afternoon when you live in the house suddenly become the collapsed ceiling and wet insulation you discover when you make your bi-weekly swing over there to keep the grass mowed. And let’s hope these houses have the climate-control systems running; even if it costs a bit every month, it’s cheaper than replacing musty carpet and mildewy wallboard.
As for the big push to make everyone a homeowner, I cringe whenever I hear President Bush (and other pollies) tout that as a goal. There is nothing like owning a house to keep you tied down and job-immobile. Disclaimer: I have a house tying me down, but a good job that so far is nice and stable. But I’m an old farx. I tell everyone I know under 30 who has any ambition to not even consider buying because they lose the flexibility to jump on that next lucrative job offer. And if you’re not moving around jobs at that age, you’re either with the government or your career/income is already semi-stagnant… er, is that the same thing?
As for a macroeconomic view, renters are good for economic labor market flexibility, but there’s also the consideration that a lot of people simply are not cut out to be homeowners (unable/unwilling to bother with maintenance, can’t afford it, etc.), and there is really no good reason to push them into it, certainly not when rents are a bargain now compared to owning. That only leads to misery, bankruptcies, and financial disruption like we will be seeing in the coming year or two, situations that were in many cases needless and completely avoidable if the buyers had only sat tight and rented.
“That only leads to misery, bankruptcies, and financial disruption like we will be seeing in the coming year or two, situations that were in many cases needless and completely avoidable if the buyers had only sat tight and rented.”
That is besides the point, which is primarily that the REIC is a big source of campaign contributions, and the bubble has left many REIC constituents richer than Croesus. Hence the push by politicos to turn us all into homeowners…
“This is not a Bush bash; I think RE might have gone much the same way under any administration…”
As well it did under Clinton. Remember the $500K home equity capital gains tax exclusion (part of the Taxpayer Relief Act of 1997) that got the bubble rolling?
http://www.bankrate.com/brm/news/real-estate/REguide/tax-breaks1.asp
What does turning McMansions into multi-family “flats” do for the value of neighboring McMillionaire-owned faux chateau comps?
Warrenton is so far out, the locals might have overlooked preventing this in their zoning description, since it would have so unlikely until recently. I think Warrenton is closer to W. Va. than it is to Washiington. This place could well be in an unincorporated area and the developers might not have thought to preclude dorm-like rentals in the deed restrictions/covenants. This ought to stir the neighbors’ martinis.
Welcome to “affordable middle class housing” in the exurbs.
Now admit it — wouldn’t a 1,750 square foot townhouse have been better than being one of three families sharing a McMansion? I guess the only good news is everyone gets a space in the three car garage.
There are going to be some nasty fights over this.
It’s a 2-car garage. With that many people, you’re likely going to have 5-6 cars. We have a neighbor who only has junk in their McMansion garage and park the cars on the street. It really doesn’t do much for the neighborhood and makes it difficult to pass.
A 2-car garage is sufficient for one minivan/SUV and the riding lawn mower (helpful for over 1/2 acre) and not much else.
And all sorts of interesting flaunting of zoning anyway.
We rented a house in Suburban Chicago some years back, and one of the “features” the landlord was trying to tout was that we could sublet the basement, which he had pretty nicely finished and remodeled, actually - but it still had a narrow, steep staircase, just the one, with no direct access out of the home if that staircase was blocked. Very much against code…
Another rental we saw in Chicago had a distressed owner occupant who decided he would stay in one “wing” of the house and rent the rest to a family. Nice stove/kitchenette setup in the hall to that bedroom, the carpet literally cut out around it. Oh, and all his crap would be staying in all the rooms. Guess he thought he was selling curb appeal and the neighborhood and “wouldn’t be any trouble”, and that somehow this would work for some family able to make *his* note. Amazing chutzpah, or amazing level of denial, I couldn’t tell.
HOAs had better be prepared to okay and in fact encourage in-permit remodels that make sense - with actual separate, lockable living spaces and adequate off-street parking where possible. Nature abhors a vacuum - if municipalities/HOAs refuse to be realistic and proactive on this, they will be fighting a zillion illegal chop jobs and occupancy limit violations, domestic multi-family “incidents” and who knows what else.
The city I live in (East Bay, CA), actually has an ordinance against having more than a single family in a SFH. You have to apply to rent out a “granny unit,” and it has to be fully self sufficient, including separate outdoor entry/exit, blocked off from the rest of the house, of a certain square footage (I believe 1200 is the min.), and have off-street (actually not even visible from the street) parking for at least 1 car. In theory, there are no rental units in this city shared by more than a single family.
Unmarried couples could actually be violating the ordinance…
Did anyone else notice Angelo Mozilo’s latest comments in the LATimes?
“Mozilo reached out to borrowers as part of a “little experiment” to understand the reasoning behind making only minimum payments on so-called pay-option loans, a practice that boosts the total amount due, the 67-year-old CEO told investors Wednesday in New York.”
‘”What we’re finding out is that they’re pretty smart,” Mozilo said. “It’s like voters: Individually they’re sort of idiots, but collectively they seem to make the right decisions.”‘
Right decisions for whom?
“The customers Mozilo spoke with were convinced their home values would continue to rise, more than making up for the added costs, he said.”
You would just think that the news of the housing downturn ,that will come out more and more in the next three months, would affect the stock market downward .People will have their money stuck and tied up housing . Since there wasn’t alot of savings in the last 5 years ,not much extra for investing in stock market . So I think stocks will go down very soon . But don’t listen to me I’m just a housing wizard .
What if helicopter Ben has decided not to use helicopters, but to buy stocks instead? He’s got the Plunge Protection Team that can do that. If he dropped money on Joe sixpack, the money would end up being used on cheap Chinese imports. Maybe this explains the homebuilder stock performance lately. That pig needs a lot of lipstick. The grateful stock selllers will buy treasury bonds for the money. Everybody wins (except the taxpayers).
Anybody take that sugar trade I mentioned about a week ago? It’s working very well.
HI Tx,
Appreciate your posts. Got burnt bad over 5 years..starting from base ; so on a learning curve.
Thanks for the tips always.
You can thank Brazil for that one.
Sorry folks, I am going to be slightly smug here. At present gas prices are headed lower, and could be quite a bit lower in the next 60 days. When I suggested this in posts back in July, people here pretty much considered it heresy, and cited things like peak oil. The counter to that was the fact that the world was running out of capacity to store all the excess oil, and that the commodity bubble that was driving the high prices had just about run itself out.
Now that prices are down, how far down do folks think they are going go?
Heard a CA oil industry analyst on NPR this morning. He and his chums have been predicting a mysterious pre-election crash in oil and gasoline prices since the beginning of the year, at least. He said it was not really a conspiracy theory — the CA energy industry is a cartel (has market power) and would rather the voters had other things on their mind when they enter the election booth than what a great year it has been for oil company profits…
Exactly. I have told everyone who will listen and especially those who won’t that gas would come down until November. With Exxon making the largest profit in the history of mankind in the last year, they want to look like they’re sacrificing for the country…until we all get snookered into voting for the Oil Party again…
Oil prices will go right back up if it’s a cold winter as oil is still used for heating.
L.A. County Home Prices Post Their Lowest Gain in Six Years
The 4.7% year-over-year rise is below the area’s historical average growth. San Diego’s median drops again.
By Annette Haddad, Times Staff Writer
September 14, 2006
Southern California’s housing market continued to cool last month as Los Angeles County’s home prices rose at their lowest rate in six years while San Diego County’s price declines worsened, data released Wednesday showed.
The data were the latest indication that buyers are in no hurry to pay the high prices that attracted bidding wars in the last two years.
I have 10k to play with but am not really a savy investor. I am intrigued by all the talks of puts on the home builders. Can anyone explain how this works and perhaps illustrate a scenario?
Please don’t do that. Not here.
Excellent call txchick57.
Chris - go to the library! Do your own research - Puts and Calls are excellent tools but you need to develop the math relationships (Black-Scholes) to fully appreciate the idea of using them as investments. Without understanding the math, it is no better than a crapshoot.
Here’s something worth considering. Good information (Succo/M-Ville)
In my conversations with bulls, they have been squawking about short interest: last month a record 18% of sales on the NYSE were short sales. This is bullish they say! All those shorts mean people are too negative and they will be forced to cover.
On the surface that may be what it looks like. But as always, I encourage people to look at the “why” behind the “what.” There are two factors that are affecting short interest dramatically and both have to do with derivatives.
My fund is a very large short seller of stock and we represent a decent percentage of total short interest out there. But the reason we are short stock is because people sell calls. I have described these funds that buy stock and sell calls and deem it “income” for their investors. In reality, these funds can be very dangerous and risky if the market begins to decline. I can almost guarantee you that if the market drops enough, the risk will force these managers to sell stock to protect that “income.”
So as these trades occur, funds buying stock and selling calls (which is a net bullish strategy), I take the other side on a ratio to create a volatility trade. I will never be forced to cover my short stock as it rises and in fact will short more. So instead of the comment “a rising market will force short sellers to cover” being accurate, in fact, as the market rises I will actually sell more shares short to hedge my exposure to the long call option.
Secondly, and perhaps more importantly from a sentiment point of view, the percentage of insider sales relative to buys has been growing dramatically. Insiders like principals in companies, are net sellers of stocks in a pretty big way. Part of this is due to normal diversification activity, but part may also be due to “them knowing something.”
The way this actually occurs though is through a derivative transaction called a variable forward, which has some tax and profile advantages for insiders. Instead of actually selling stock, they enter into a contract with a broker-dealer to sell it forward with some risk (this profile allows some deferment of taxes). In hedging the transaction, the dealer enters the market and shorts stock.
So it is inside selling that is causing a great deal of short interest to grow.
Both of these factors account for most of the short interest you see being quoted out there. Both of these factors argue against large short interest being a bullish factor and actually argue for it being a bearish one.
test
I could swear that early today I posted about the speculated biggie Ford labor cuts to be decided at this afternoon’s meeting. I believe the source was a “My Way” Business News clip. Maybe that was an embargoed clip, because thereafter I didn’t see anything about this until after the market closed today. Anyway, Ford is going to cut 40-45% of blue collar 30% of white collar costs. Not sure how that translates into bodies, as they have the ability to cust costs from the workforce who remain behind, lessening slightly the number of workers who must turn in their passes.
Question: What is the projected significance of this for the housing bust? I’d have thought so, because there is such an upstream flow of parts that would be affected; I’m interested in other bloggers’ takes on it.