The Housing Bubble

Here’s some good charts to ponder.

http://macromavens.com/reports/July.06.RE.ChartWrap.pdf

BUBBLE ALERT - BUBBLE ALERT - BUBBLE ALERT

The next bubble has been identified.

Many here have been wondering what, after housing, beanie babies, pet rocks, and the .com bubble, will be THE NEWEST NEXT BUBBLE.

Wonder no more.

If you’re sitting on some real estate you can’t sell and it has a yard….. perfect! You can start your new business right there.

Go out and borrow some more money before it’s too late.

Only $100K should get you started.

You will be rich soon…. guaranteed.

http://www.howtoprofitfromalpacas.com/Alpaca.htm

http://www.ilovealpacas.com/investment.shtml

BUBBLE ALERT - BUBBLE ALERT - BUBBLE ALERT -

The next bubble has been identified.

Many here have been wondering what, after housing, beanie babies, pet rocks, and the .com bubble, will be THE NEWEST NEXT BUBBLE.

Wonder no more.

If you’re sitting on some real estate you can’t sell and it has a yard….. perfect! You can start your new business right there.

Go out and borrow some more money before it’s too late.

Only $100K should get you started.

You will be rich soon…. guaranteed.

http://www.howtoprofitfromalpacas.com/Alpaca.htm
http://www.ilovealpacas.com/investment.shtml

BUBBLE ALERT - BUBBLE ALERT - BUBBLE ALERT-

The next bubble has been identified.

Many here have been wondering what, after housing, beanie babies, pet rocks, and the .com bubble, will be THE NEWEST NEXT BUBBLE.

Wonder no more.

If you’re sitting on some real estate you can’t sell and it has a yard….. perfect! You can start your new business right there.

Go out and borrow some more money before it’s too late.

Only $100K should get you started.

You will be rich soon…. guaranteed.

http://www.howtoprofitfromalpacas.com/Alpaca.htm

http://www.ilovealpacas.com/investment.shtml

http://cgi.ebay.com/Charming-Victorian-Historical-2-Story-House-Corona-CA_W0QQitemZ300024894527QQihZ020QQcategoryZ12605QQssPageNameZWDVWQQrdZ1QQcmdZViewItem

When I emailed these sellers and offered that their threat to raise the price if it didn’t sell on ebay did not make sense because if they didn’t sell at 400k it wasn’t going to sell at 420k this is the response I got back.

“ebay isn’t the place to sell a house, and we’re not really expecting any bids because we are not giving it away, and do have a reserve that, in fact, is over 420K. what the hell do you care, anyway, newbie?”

Northern Virginia-ites, Kristin Downey’s new article in the Washington Post should be a good read:

Keeping Tabs on the Joneses
As Prices Slump, Neighbors Strive to Find Out What’s Selling

http://www.washingtonpost.com/wp-dyn/content/article/2006/09/29/AR2006092901386.html

More sleazy examples;
http://www.xanga.com/home.aspx?user=russwinter&nextdate=9%2f30%2f2006+23%3a59%3a59.999

OT, yesterday I went off on a rant and included in that piece was the assertion that the U.S. citizenry were being manipulated and managed by our “free” press. I expect that statement was met with some skepticism. Please click on this link for a timely article today with an outstanding visual on how this is being orchestrated.
http://www.bullnotbull.com/archive/stocks-5.html

Pricey digs go unsold: Hub’s new shortage: The Really Rich
By Scott Van Voorhis
http://business.bostonherald.com/businessNews/view.bg?articleid=159957

Dodgers owner Frank McCourt has dropped the price of his Brookline mansion - again - this time to $15.7 million. He put it on the market for a whopping $22 million nearly three years ago, and previously dropped it to about $18 million.

A grim fairy tale:
One day little piggy decided that he wanted a new car so he went to the wolf and said, “Wolfy, I want a brand new car, but I don’t have the money to pay for it.” The wolf said, “Little pig, you deserve a new car because you are a smart pig and luckily the straw house you built can now exactly pay for that car with its equity. I can refinance your loan with a lower interest rate and your house payments will be even lower, its like getting a free car of your choice.” Little piggy was very happy and went out and picked out a car he would never have been able to pay for otherwise. He was only mildly disturbed by the fact that when he pulled up to the stop lights all the other little piggy’s had new cars also. This worked so well that little piggy bought a lot of other things as well. Little piggy was very pleased with his new found success and all the things he had acquired and he decided that a bigger straw house that befits a pig of his stature was in order. So he went back to the wolf and said, “Wolf, all the other little pigs I know have new straw houses and I want one too. Wolf said, “My you are a smart little pig, because sight unseen I have figured your straw house is worth enough to give you the financial standing to buy the new house you want.” Little pig was very happy and went out and put a contract on a home he would never have been able to buy otherwise. He was only mildly disturbed by the fact that all the other little pigs were doing the same thing and he was outbid on the house he really wanted. So he put his old house up for sale, and it did not sell. He was not just a little mildly disturbed that all the other pigs were doing the same thing, in fact he was outraged.
Finally along comes chicken little, at last a real potential buyer. Chicken little said she liked piggy’s house, but that at his price there was no way she could afford piggy’s house and a car to drive.
PIggy was exasperated that chicken little could be so stupid about financial matters, so he took the time to explain to her that if she just bought a house she could be successful like him and get a lot of free stuff. Chicken little was skeptical, because she had been hit in the head once before by someone else’s nut and knocked unconscous.
So she said, “No deal piggy”. Piggy waited and waited and got more and more frantic. The wolf had called and was huffing and puffing about how time was running out and he needed to sell his little straw house soon. So he called chicken little on the phone and said, “O.K. chicken little, I will give you my new car if you buy the house”.
Chicken little thought about it and decided that did not like the kind of car that piggy and all the other pigs were driving, and if she was going to pay all that money she wanted to pick out her own car. So she told piggy that she wanted him to lower the price on his house. Piggy did not want to do this, because then he would have to pay for his car with his income and he could not afford to do that. The wolf called and said he would huff and puff and blow down both of his straw houses down he did not find a buyer soon. Piggy is now worried that now he may end up without a house at all. He is also trying to figure out how he will be able to make the payments on his car and afford rent also.
Meanwhile chicken little has been hanging out in the chicken coop co-op, the wolf has been knocking, but no one is answering the door.

I was at a party last night and had an interesting conversation with an MBS salesman with a major investment bank.

I asked him about who buys the riskier mortgage paper, especially where the underlying collateral is questionable (option IOs, stated income, etc.). He said the buyers are CDOs (Collateralized Debt Obligations). A CDO is giant investment pool that buys loans (in this case MBS which are themselves sort of like CDOs!) and then issues tranches of securities with varying claims on those loans. Senior Tranches are generally safer since they have a senior claim on the underlying collateral and junior tranches absorb losses first. The riskiest paper (the most jr. tranche) is the equity tranche. I asked about who buys these tranches and he said they typically end up in Asia or Europe.

But he said that lately more hedge funds have been circling around MBS looking for short ideas (he said they have been getting a lot of inquiries from funds that his desk has not done business with before). He said one increasingly popular trade is to buy an equity tranche, which typically yields about 10% (1000 bps) more than treasuries and use that cash flow to finance a short on the senior tranche. One can buy credit protection on the senior tranches for 250 bps over treasuries, so the equity investment yielding 1000 over can finance 4 units (1000/4) of short interest on the sr. tranche. “But what if the equity tranche gets wiped out due to credit problems/defaults in the underlying collateral?”, I asked. He said that that on newer MBS, the mortgage servicer (the big bank that underwrote the deal, collects interest payments and then pays interest on the MBS) will typically service unpaid interest for a while so credit problems don’t show up for a few years at least in terms of the MBS. If after a few years, the equity tranche gets wiped out, the senior tranches will likley widen out a lot and the shorts will make money. So the bet is that your gains on buying credit protection offset the losses on the long. He finished by saying that there are some big bets like this being placed now in MBS, and that the next few years will be very interesting because the market is beginning to price in defaults on risky mortgages…

Capitalism is a beautiful thing…it doesn’t let stupidity go unpunished for very long!

This is funny as hell!

http://www.youtube.com/watch?v=TxylHPnoloI

I have an off topic:
Ok, last year here in Orange Cty b/c of an unusual mix of selling, the december 2005 median dropped 39K. Now even though the median is now only 3% appreciation. It will at least theoretically jump back up to 8-10% if the media goes by that number when it dropped…then…drop back down in march 2007.
How do you think the media et al. will spin that?

I just received a refinance letter from “Home Loan Center”. They promised a $300K loan for a 1% rate and $965/mo payment. I called and asked the ‘details’. Of course, a neg am ARM. I told the guy that he and his company are criminals for selling these. I hope I gave him a guilty conscience. Next week, I will pretend I am Jethro Bodine and as intelligent as he is. Anyone else want to call these sleazebags to ”inquire’ about loans - 800-337-4179.

Thanks to some recommendations from the blog, I moved my 401K out of the stocks and into MM, since it had gained 20K in the last few months and I think due for a correction. Thanks Ben. (sending my donation today). I think we have the ’smartest’ board of any RE and finance folks out there. Ben has done an incredible job here.

WOW, I have not even unleashed my Billings housing video on them, and the realtors are preemtively running scared. How many ways can you say “it’s different here” and “it’s different this time”? Check ‘em out.

Rate of Increases Slow, No Price Decline

No one defines “correction” in the article, but I think their idea is going from 15% appreciation to 5% appreciation.

Some excerpts:

———

Talk started around Billings, a couple of weeks ago, when some seventy or eighty listings, [sic] dropped their asking price, [sic] through Multiple List Services. It had been a lonog time sincde anything like that had happened in the Billings housing market. Following close upon the heels of national press about “declining” housing prices, and the predictions of some economists that 2007 will bring a five percent drop in housing prices, eyebrows were raised.

But local Realtors are quick to point out that Billings is not the rest of the nation. The declines have to do with a slowing in the rate of increases in housing prices, not an actual decline in prices.

Appreciation rates in the Billings market have been between 12 and 15 percent, three years in a row, said Dean Luptak, Coldwell Banker The Brokers. It shouldn’t be too surprising to see a five or six point correction. “Our normal appreciation is three to five percent,” said Luptak, “and that is a healthy thing.”

The price reductions seen by Multiple List were from sellers and agents that were still building-in the higher appreciation rate that they had become used to. “They were trying to do a good job for their client,” said Luptak. “But the market was no longer accepting it. The math tells you that housing needs to have a price correction for the market.”

Such market swings get exaggerated by the media, complained Luptak, “They come out with ‘the sky is falling.’”

Luptak is not alone in the observation; even nationally there are those questioning the media’s interpretation of the market fluctuations. Said one critic, “It means that the supply is adjusting to demand — an indicator that new-home prices may hold steady. Overall national home prices have, as of June 30, NOT declined. . . the answer nationally has been ’slower increases’ and NOT lower prices.

But, it is true that across the state there has been a “softening” in those things that have been pushing up housing prices. The “cooling off” has also been seen in almost every region of the country, according to data from the office of Federal Housing Enterprise Oversight. But that worries Luptak not at all.

“Billings is absolutely bullish,” he said, “We have some serious demand coming to this town.” “Overall our houses are still appreciating, just not at the same rate they have been.” Billings is unlike other areas in the nation, said Luptak, in that it has had the “lowest priced housing west of the Mississippi,” according to the Coldwell Banker’s price comparison. “Billings housing was running the least expensive for a community of this size, until recently,” said Luptak, “When Casper and Minot slipped under us.”

. . .

“It’s cyclical,” said Nelson, “and we have had a wonderful market locally. There is some uncertainty in the business cycle. There has been a lot of speculation in a lot of the markets, including one or two markets in Montana, we have seen a tremendous amount of speculation. But, that’s common. Real estate is a good place to put your money.”

. . .

“Our experience is that Billings doesn’t necessarily mirror national trends, and it’s often on the tail end and doesn’t seem to react as strongly. I don’t think we had the price increases that they do in some of the boom areas, and maybe even in some areas in Montana. Billings has moved along at a much more steady pace.”

In their 41 years of business, Sanderson said his firm has experienced a very steady increase in business year after year, they only experienced “a big swing” in the late 80s. Things have changed since then, he said. “Our clients are much more sophisticated and savvy folks.”

. . .

Moderately priced, first time home-buyer homes, in the $100,000 to $140,000 comprised 24 percent of the market. This year so far it comprises 21 percent of the market. Two percent of all homes, on Multiple List, in 2005 were over $400,000. That has doubled to four percent this year — “that is a huge shift,” said Sumner.

The market segment of $180,000 to $250,000, usually nice housing for couples who both work, comprised 22 percent of the market last year and is 26 percent of the market this year. “An indication that prices are moving up — people have more money in Yellowstone County.”

. . .

“Our market is more balanced. There is more inventory,” said Sumner. It’s just reached a point where, “You can’t have any fluff in the price, there’s too much competition.”

Sumner, too, is high on the Billings market. “When you buy in Billings it is like getting a corporate bond. You will get a steady decent rate of return of six to ten percent. It’s real value and it will hold.”

-

Anybody watch Forbes on Fox this morning? 5/5 guests on the show said that housing prices will continue to fall. No big surprise for us but boy have we come a long way. The more big media focus on the correction, the better.

“The delusion of optimism gives way to the delusion of pessimism.” - Quentin Hardy

Does anyone remember the old rule on deferring capital gain on your home sale? You had to buy another house within two years that cost at least as much as the house you sold, or you paid capital gains on the difference. This meant ever-escalating prices for everyone.

Sometime in the mid-90s the Feds changed the rule, and allowed you to keep up to $500K in gain on each house, as long as you lived in it for 2 out of the last 5 years. When that change was announced, I thought, “Well, there goes housing appreciation. Everyone can now buy lower.” Boy was I wrong. House prices continued to go up.

However, each house we bought since then was purchased at a lower price than what we sold the prior house for. Each time, the gain went into savings and investment. The house we bought most recently was priced lower than any house we’ve owned since 1983, and we own it outright. Why didn’t more people take advantage of that new tax law?

The Latest from Leslie Applesauce-Young:

http://www.sanluisobispo.com/mld/sanluisobispo/15646406.htm
Biz Buzz: Slowdown in home sales may last years

“Prices aren’t falling off a cliff, but they definitely are taking a breather,’’

“I don’t see a slowdown lasting two or three months,’’ she said. “It may be a couple of years. Instead of taking orders, our industry is going to have to sell houses.’’

“Wealthy baby boomers inheriting their parents’ wealth also will continue to drive the housing market. They’re interested in real estate for their children, parents or for retirement purposes, Appleton-Young said.”

“Long-term, we can be bullish on housing in California,’’ she said.

———-

Again with the wealthy baby boomers…are there statistics showing that a lot of wealthy baby boomers are out there to support prices, or is this one of those “eveyone knows that” kind of facts, kind of like “housing prices always go up”?

I think everyone here is forgetting the “boom” effect that falling gas prices are going to have on the economy. As people spend less on gas, they have more $ to cover their I/O mortgage payment.

Just look at my case: I was paying about $2.75 a gallon several months ago, then prices went up to about $3.17. I figure we were paying up to $60 a month more for a while. So doesn’t it make sense that now that prices are back to around $2.75, we’re “saving” $60 a month that could now be used for housing expenses?

Gee, I wish gas had gone up to $100/gallon for just a day or two. Then we’d be saving even more each month right now…

This will give you a scope of the friends I have.

Last night I got 2 unexpected calls from a couple of friends, one a actuarian/manager for Lloyds of London and the other a property wrangler in SoCal.

First call with my buddy in London is about the usual chit chat and catching up, then we turn to finanacials. We went round and round on ideas in the America, European and world theatres and are placing our usual sidline bets. After a while he starts talking about the credit bubble (housing and debt bubble rolled into one) and starts voicing concerns on the impact to worldwide markets and his business directly. We continue to roll this one about for a while, when the conversation turns to the lack of strength in some banks. Basically if you don’t have you money in a strong bank you are screwed as my friend sees a major financial melt down ahead. After we swapped opinions, we agreed that there was no really safe harbor. It pays to have cash saving but where and how will they be diminished? Can’t say. One item he did offer, if the stock market goes down, the banks will follow; so if you see the circuit breakers pop on Wall St go to your bank and pull out your money. If you cant get all your money get as much as you can and a transfer the rest to a safe banks, apparently if the banks go on a holiday all active transactions must be served before depositors get any funds. Apparently this is part of the velocity of money these days and has to do with internal and govt banking transactions, but it could save the little guy too maybe. Problem being you must already have an account with a strong bank. I trust my friend’s guidance alot, I have know him for a lot of years (enen though we are jus tin our 30s) and he did graduate for the Chicago and London Schools of Economics.

On the flip-side I have a friend (yes he knows the one in England too) that is a property wrangler/scout for the movies and films, he has done work for the big studios and the small ones. This friend I used to rehab old houses in Los Feliz, Glendale, Melrose and other locals before we moved on to carrers, we weren’t flippers just guys that found money in restoring old homes. In a way he is like a real estate agent that rents listings. He is up late at night looking at properties sometimes and calls to annoy as I am 3 hours behind in Hawaii. So I get the call, he is going on how business in humming right along and projects and things. Then he goes off on a tangent on how he had to change his personal, business numbers and email, then hire a person to go back to all his clients and associates to give them the new info. It seems my friend has done some work for the adult film industry in the more put together productions, (not the ones were you see mismatched sheets on a couch or a matress in an otherwise empty home) but the ones where they need view looking at the beach from a top Malibu and things like that. Well some how the news got out to the general public and real estate agents that my friend rents homes to film pornos and paid big bucks for like a week or weekend of filming. Some how Joe and Jane 6pack and their real estate agents and other real estate agents start ringing my friends phone off the hook, sending faxes and MLS listings and emails with pictures. All of these people are desperated to have their homes rented by a porn company and cashing on adult entertainment. We were laughing really hard at some of the properties people were trying to pitch him. Even an old neighbor of ours (we owned/refurbished a house together before I was married, he still lives there) in SilverLake offered up his property. I asked if the homes had granite counter tops, stainless steel appliances, and the other HD fair. He said yep and they would even entertain purchase offers after filming and bonus of all bonuses the houses were currently empty. We had a big laugh as we pondered how the SoCal housing bubble was going to be saved by porn and the future of housing in LA metro.

Now these are just insights from my friends, one a straight laced actuarian and the other a “hip and happening hollywood player” both see trouble on the horizon.

I saw this on
http://bubbletracking.blogspot.com

Wow, these flippers are crying.

…..

We go to Ramona today. Small rural desert town in eastern San Diego county transformed into commuter city with a commute from hell. 7 Ramona homes went on the NOD roll on 9/13 and 9/14. 7 NOD’s in a city in a couple of days is a lot. But imagine the impact on a small rural blue collar inland township.

2xx7 Dye Rd, Ramona, CA 92065 is a 13 year old 3 bed/3 bath 2,181 sqft home on 6 acres in rural Ramona. In June of ‘05, this home was purchased for $825,000. Yes, $825,000 in Ramona! Who would have thought. A year later and of course the mortgage was too much to bear and this property was listed on 6/10/06 for $750,000. By 7/28/06, the asking price was reduced to $700,000. Despite the 15% drop, despite the $125,000 haircut, the listing continues to linger on the market.

This next one is a 2,604 sqft home sitting on a 18,000 sqft, no 6 acres this time. The purchase price was $495,000 in Feb ‘04. Looks like this one fits the ‘my 2 year fixed rate has reset and now I can’t afford my house’ scenario. It also looks like this guy had the ‘real estate only goes up, I’m entertaining offers so I can get my 25% appreciation in 2 years’ mentality. The home was listed in April, yes April of this year for $669,800. And this guy stuck to the $175,000 profit goal for 4 months! He hasn’t given up yet, but he did lower his expectation to just a $100,000 profit as he lowered his asking price to $598,800 on August 30th. The NOD went out September 13th, when is he going to realize to avoid foreclosure he needs to take a $100,000 haircut, not get a $100,000 profit?

Vegas inventory jumped by 250 in two days! New month, new listings? Now over 24,400 per ziprealty.

I just wanted to let everyone know that if they ever expect to buy in the Hamptons they had better get in sooner than later! See article below from Hamptons Cottages and Gardens Magazine.

Fall Trends
If the summer real estate market draws a particular buying crowd—couples happy to casually poke around open houses on their way to the beach—the fall season typically draws the serious buyers, the ones willing to drive out from the city. So what can buyers expect in these chillier months? A leveling-off of prices, more wiggle room for negotiation, fewer bidding wars, rising inventory and plenty of multimillion-dollar spec houses, say brokers. And perhaps, some long-awaited stabilization.

“We’ve gone into a more normal market phase,” says Paul Brennan, regional manager in Prudential Douglas Elliman’s Bridgehampton office. “There’s a lull after two years.”

That doesn’t mean that sellers won’t try to ride the last hurrah of a wild market: Brennan, whose big deals this year included a $31 million sale in Bridgehampton, predicts inventory will grow into the fall months. As for the standoff between seller and buyers—who have spent the last few months cooling their heels—the fall season will be all about “who blinks first,” he says.

If many overpriced homes are still sitting on the market, there are some fabulous pads worth their sky-high figures, notes Judi Desiderio, president of Town & Country Real Estate in East Hampton. She has the exclusive listing for a $12 million oceanfront home on Marine Boulevard in Amagansett. “There are still some excellent homes on the market,” agrees Gary DePersia of Allan Schneider/Corcoran’s East End office. DePersia has an $8.5 million listing in East Hampton that just went into a contract after only two weeks on the market.

According to Desiderio, who recently released a report on sales in the Hamptons for the first six months of 2006, the luxury market ($10 million and up) has largely been unaffected by market changes (although there is some worry about a glut of expensive spec houses, she believes). But the stock of $3 million-and-under homes “is one of the softest markets right now because those buyers are waiting to see if prices drop,” she says. “But those prices aren’t dropping.”

DePersia, whose listings include 14 homes priced at $5 million and under, notes, “Buyers are all waiting for us to hang a for-sale sign, but there isn’t going to be any sale sign.” He adds that fall buyers should get in quicker, rather than later. “The best properties will be snatched up by November,” he says.

http://www.hcandg.com/sep06/deeds.html

“so uhh… what banks are “strong” in SoCal? Suggestions? ”

Treasury Bills or Treasury MMF. I’m out of the market
and expect to buy at 50 cents on the dollar in two years.

db

But what do I know, I’m a chemist.

“the Toughest Critics are the Smallest”

From the Sun. NYT RE section, an article about children suffering from “real estate envy” — some choice quotes:

“Children in New York are ‘as in tune with real estate as sneakers…in a lot of New York City families, it really is a topic of conversation as much as what happens on the front page.”

and from these cretins with more money than sense:

“Julie Friedman, a senior associate broker at Bellmarc, described clients who are the paents of three private-school children. They occupy ‘the very inner circle of the social life on the Upper West Side and live in a beautiful prewar condo that’s probably worth about $3 million,’
Ms. Friedman said. But the couple, professionals whose apartment lacks a separate dining room, stopped arranging play dates several years ago after holding a birthday party for the children in their apartment.
‘The kids must have been 7,’ Ms. Friedman said. ‘One of the children said, ‘Why are you eating in the living room?’
So from that day on, rather than put their children in a position where perhaps they were being judged, there were no play dates at their home.”

And from a public-school 12-year old:

“If you have a big house, people will just assume you have more money than someone with a smaller house.”

Future Clients of America for the REIC.

A little weekend schadenfreude from the LA Times.

Meghan Daum: Housing Party Collapses

I saw this on a website ad:
http://www.trumputoday.com/campaigns/tubanr/index.php

Trump should take his own advice and invest in a better haircut.

I have an unrelated question to ask. Does anyone else see the script on this thread jumbled together? It’s really hard to read, and was wondering if it can be fixed or not.