Bits Bucket And Craigslist Finds For October 5, 2006
Please post off-topic ideas, links and Craigslsit finds here!
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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The California Department of Real Estate reports the total number of Real Estate licensees reached 511,459 in the state at the end of August 2006. This is an increase of 53,000 agents / brokers over the last 12 months. The number of Salesperson licensees has reached 372,199, a 13% increase over one year ago. The number of Broker licensees is 139,260; 8% higher than last year.
this is not a good combination. diving sales and more real estate agents….
graph and more from
http://calculatedrisk.blogspot.com/2006/10/california-real-estate-agent-boom.html
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many will starve and licenses will eventually lapse.
i´ve this in the comments section from the “cr” himself
, there were 680,000 homes and condos sold in California last year. So that is about 1.4 homes per agent in 2005.
For 2006 it looks like the ratio will be about one home per agent.
We’re reached parity!
LOL. Now that is funny.
None will starve but many will revert to their old jobs.
I’m guessing a high percentage of those newly-minted RE agents have no intention of actually selling houses. Rather, they got their licenses so they don’t have to fork over 6% to a realtor when they buy their own house. I’ve considered getting an RE license for the same reason.
i agree.
Yup
That’s a great idea - a few years ago, people started to get travel agent licenses for the same reason - they effectively got a 25% discount of airfare.
Way smarter to FSBO with MLS Listing. If you sell on your own, then you have to pay tax on the commission as well as broker’s fee. I would agree that it is smart to have a liscence if you are buying a house because you would then capture the 3% (half) of the seller’s commission.
Meant don’t have to pay % to broker or tax if been in two years
IMHO, This is another measure of how crazy the housing bubble got. In people’s caclulations, they’ve figured it’s more economical to pay for a real estate class, study and take an exam than to pay realtor fees. Realtor fee Arbitrage. The new DIY!
This is the markets free hand at its best.
The guy that bought my house in CA in Oct 2005 had done this. He worked as an engineer, full time job, had never sold a house, but he had a real estate license! Instead of paying him a commission he asked that the price of the house be reduced by the buyer’s agent fee of 3%. I checked with my accountant to make sure this wouldn’t be a problem for me (he said it was fine) but I suppose the buyer asked for the reduction so that he wouldn’t have to pay tax on a commission. Just guessing.
All valid points. How will the ability to negotiate better prices affect the number of persons seeking RE licenses?
A salespersons license does not allow you market the property without a broker involved. If you want to avoid paying a portion of the commission you will still need a broker.
There was a broker too. I don’t know how they split the 3% but it was taken off the price.
same here.
I hope the whole listing thing moves to the internet in the not to distant future and that the use of a realtor becomes optional both in buying and selling.
The MLS and public records are internet based now. Using a Realtor is optional now. What’s your point.
20% will be out by 1/7
DEPT of RE
how soviet - they get riase and to keep their jobs
You can’t really look at the commission that way. A “typical” commission split at 6% might work this way:
1.5% Sellers Agent
1.5% Sellers Broker
1.5% Buyers Agent
1.5% Buyers Broker
The savings of getting your agent license is minimal. Getting a brokers license will save you a bit more, but you can’t typically get a brokers license without establishing a brokerage and having a place of business (differs depending on state). Many states also require that you hold your sales agent license in a full-time mode for a period of time before you can hold a brokers license.
jb
thanks for the info
Median home here; $695k. 1.5%, $10,400 savings. Realtor friend with a brokers liciense willing to process the paperwork, $8,000 savings. Cost to provisional agent training status, $600. Do the math before spouting; “The savings of getting your agent license is minimal.” My ‘hood; double the savings above. If $36,000 is minimal, I’m in the wrong business.
Lets remember the “L” word when discussing “do it yourselfer’s”….Liability is the risk that easily gets overlooked…I have seen transactions where suits exceeded 100K on a a relatively modest home purchase eventually overturning the sale…Particularly in California, with the disclosure requirements, the exposure is significant….
Shhhh, nobody wants to hear that it’s just scare tactics that agent use to keep you from getting a piece of the pie.
What is the broker’s work in selling of buying property? What advantage do they give to their agents?
P. T.;….The broker assumes “ALL” liabilty for the conduct of the agent….The agents conduct/competence also reflects on the firm….
Is assuming liability all the broker does? I ask, because a 50% insurance premium on the agent’s income seems a bit large. Or why does an agent need the firm?
In California the broker is no longer on the hook for all liability some not all they changed the laws a few years back. Each broker is different and they don’t all get 50% of the take not and have agents working for them at least here that is what they are doing in other states could be different. Successful and large brokers here provide on-site legal counsel for legal guidance to defeat ambulance chasers. E & O Insurance, Training, professional working enviroment in some cases marketing draws, other resources that are not available to the public and are costly, bulk rate pricing on advertising etc etc.. If in this day and age your working for a 50% split and the office is not providing all of the above and more your an idiot.
In California, you can get a real estate sales license after three classes and a test, but you have to work for a broker. You need 8 classes to become a broker plus two years experience. The experience clause as a broker is waived if you are a college graduate.
The RE industry sees that there is now too much competition and are trying to enact two new laws making it harder to get into real estate. One law removes the college degree waiver in lieu of experinece for a broker. I don’t remember the other one, but Arnold has not signed either one yet.
I hope he doesn’t since I’ve contemplated getting a brokers license and work independently.
Just a little info on Brokers: in California, any attorney can become a Broker by taking the test and paying the fee. I know many attorneys that take the test, pay the fee and do the work on their own house to avoid paying the agent.
Wow, that is cool. The broker’s exam and license fee are only $215. Thank you very much for the info!
Most Attorneys can’t pass the test. Funny stuff. I have yet to talk to one who hasn’t taken the test at least twice. I’ve never understood that anyway why would an attorney need a real estate license. Passing the bar already gives you the keys to the kingdom what do you need a license for. Especially the ones that work for other brokers. How big of a loser are you that after receiving all that education, passing the bar and you wind up selling houses for a living or needing an edge to deal with Sellers and agents. Somethings wrong with that picture. I have a new qualifying question for the next attorney I need to hire for whatever reason. I’m going to ask do you have a real estate license, if they answer in the affirmative, I’m yelling loser and walking out the door.
A smart 5th grader can pass the CA RE exam after a couple nights of study so anyone who passed bar and fails the RE exam must have tried to take it without any prep. at all…
Wrong! I challenge you to go to any review/cram session for any of the real estate schools in Southern California and you will find at least one attorney who has been there at least twice. It happened when I took my exam years ago and I just recently spoke to a few examees who said there were four in there class.
maybe this in combination with the lending guidelines has some teeth
new fitch default model / mbs
http://housingdoom.com/2006/10/05/fitch-default-model/
add this to this point
Oct. 4 (Bloomberg) — Accounting rulemakers are considering whether to alter new regulations that require investors to disclose changes in the value of their asset-backed bonds in quarterly financial reports starting next year.
The Financial Accounting Standards Board plans to discuss the rule and recommendations from its staff at a previously scheduled meeting on Oct. 25 in Norwalk, Connecticut, said Gerard Carney, a spokesman for the group. The new rule, which became effective Sept. 15, applies to financial reports compiled after that date, Carney said.
Borrowers complain that the rule will hurt profits and cut trading in the $8.3 trillion asset-backed market. Such bonds now yield 72 basis points more on average than similar-maturity Treasuries, according to data compiled by Merrill Lynch & Co.
“We recognize the importance of clarifying this in a timely manner,” Carney said today in an interview. “The staff is aware of the complaints and is researching it, trying to figure out whether additional time is needed before implementation.”
Investors may demand 5 to 10 basis points of extra interest in compensation for the risk that price swings will hurt earnings, according to research by RBS Greenwich Capital Markets. A basis point is 0.01 percentage point.
The yield premium, or spread, that the bonds pay over Treasuries has narrowed from this year’s high of 80 basis points on July 5, based on a Merrill index of almost 11,000 bonds with a market value of $1.09 trillion. Floating-rate asset-backed securities yield 76 basis points over Treasuries, down from 86 on July 5. …………..
http://immobilienblasen.blogspot.com/
They’ll be quoting that spread in percentage points in a couple of years . . .
I find the spreads on almost any bond relative to treasuries as completely ludicrous. If I were able and allowed, I’d be tempted to create a portfolio long treasuries and short the lowest tranches of MBS presuming I can balance duration/etc and match the cash flows.
Technically it might be a better bet to long the highest tranche and short the lowest tranche to be on a true opening of the spread and remove any risk the US does something incredibly stupid.
The FASB could still be discussing whether to alter disclosure requirements by 2010 without acting…
“…that require investors to disclose changes in the value of their asset-backed bonds in quarterly financial reports starting next year.”
“Borrowers complain that the rule will hurt profits and cut trading in the $8.3 trillion asset-backed market. Such bonds now yield 72 basis points more on average than similar-maturity Treasuries, according to data compiled by Merrill Lynch & Co.”
I’m probably too naive in asking this question: How is it that more disclosure (more truth) can cause pain to one of the parties involved without such party having been slimy, to some extent, to not want that?
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Good article -
Sep 9, 2006
America’s unreal estate problem
By Max Fraad Wolff
http://www.atimes.com/atimes/Global_Economy/HI09Dj01.html
Wow, what a piece of clarity! Thanks, Gekko!!!
In light of the sad event in PA, I’ve changed my handle.
“amisharesuffering” was a light-hearted means to give perspective to
alternate ways of living and valuing the true meaning of placing a “roof of shelter” over a family. I’m disgusted in the whole “mechanism” of “home ownership” being used as a vector to quick wealth. Look at what it has wrought…Like txchik57…I’m in to early, again.
new handle: hwy50ina49dodge…was an introspective road trip I took though Nevada on the way to a dear friends funeral.
Timothy
for some reason I always read that as (and was confused by) “am I share suffering” . . . which I assumed to be some kind of stock pun.
d’oh.
Outstanding
- Given the exaggerated macro-benefit that robust housing appreciation, refinancing and associated activity have had,
- we are looking for a virtuous cycle to turn vicious, with national and international implications.
- Low- and middle-income Americans will have to cut back on all forms of discretionary spending.
Look out low income areas of So Cal….there must be at least 70% of the home purchases with unqualified buyers.
Gekko I appreciate it when you and others in this blog link to some very interesting links that I otherwise may not have found on my own. I do lots of financial navigating on the net, but I do not catch every interesting article worth reading.
Given the choice of linking to it and quickly linking back out of it (if the link is wasting my time), is far better than a “no link policy” (whether it be by Ben Jones or pressure from other bloggers) and possibly missing out on information that I find to be very interesting and helpful to me.
Here is a very telling quote from this article:
“One million US households have either received sub-prime loans or are at risk of foreclosure from the mortgage burden. The average sub-prime ARM term to adjustment is two years, and the base rate is the London Inter-bank Offer Rate (LIBOR), with added charges often equaling 5%. The most recent LIBOR was 5.40%. ”
What this is telling me is that while the average ARM is 2 years, there have been 1, 2, and 3 year ARMs and these things are going to be resetting throughout several years, not just the “2007″ that everybody seems to be talking about. How will this steady stream of ARM resetting in 2007, 2008, 2009, etc… play out in terms of bubble bust velocity and duration? I don’t know, but I prefer knowing what will factually be happening with these ARMs in these next few years as opposed to managing my dividend paying stock investment assets out of a vacuum.
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I was surprised the average ARM was 2 years. I would have guessed it was 3.
Singapore Housing Frenzy
Developers are falling over each other to buy older condominiums “en bloc” from their individual owners only to tear them down and build anew
sounds familiar……..
http://immobilienblasen.blogspot.com/2006/10/singapore-housing-frenzy-may-give.html
When I was in Hong-Kong for a couple of days earlier this year stopping over on the way to UK/Europe I saw the same thing going on.
It actually makes sense if the older condo’s or apartments are so far below current standards that they’re hard to rent out.
Also makes sense in cities where zoning changes are hard to do, because the old block already has multiple-occupancy approval.
Unfortunately, you often see perfectly acceptable low-end condo’s and rentals vanish, and yet another “luxury” block aimed at the high end market go up in its place.
“It actually makes sense if the older condo’s or apartments are so far below current standards that they’re hard to rent out.”
But the reason the apartments are so far below current standards is that there is rent control in HK and a long tradition of rent-militancy there. Nothing is hard to rent out in HK. Hong Kong has arguably the most valuable real estate in the world on the southern tip of Kowloon and in the central areas of HK island. I don’t know about the reasons in Singapore, but I know this is happening in HK and all over big cities in China and India - Mumbai (Bombay) is another good example. Simply the logical eventual consequence of over-regulation and rent control. You can whine and cajole, but eventually if you aren’t pulling your economic weight it’s sayonara.
“Unfortunately, you often see perfectly acceptable low-end condo’s and rentals vanish, and yet another “luxury” block aimed at the high end market go up in its place. ”
Very fortunate, IMO. Misallocation of resources is bad for society. People living cheaply in central HK but not producing should be living on the fringes of the island and riding the subway if necessary - their extra couple hours of time certainly has less value than that of those willing to pay rents 2 X Manhattan rates.
I hear what you’re saying, but IMHO it’s also misallocation of resources if nothing is built smaller than 1350 sqft 2/2 (on the condo side) or 2600 sqft 4/2.5 (on the SFH side).
Where do you then expect single people to live? Whether buying or renting they have the choice of stretching into far more than they need, or having to accept a POS.
Looking around downtown Honolulu, one sees high rise condos under construction in droves — it is a boom town. This seems to be in stark contrast to a recent article posted here that said HI was in a real estate slowdown.
Looking around downtown Honolulu, one sees high rise condos under construction in droves — it is a boom town…
Watch the Padre/Cardinal game today if you want to see Condo construction.
hopefull go to florida and look around.
“The 46-year-old Shanghai-born economist questioned why Singapore was chosen to host the conference and said delegates “were competing with each other to praise Singapore as the success story of globalization.”
“Actually, Singapore’s success came mostly from being the money laundering center for corrupt Indonesian businessmen and government officials,” Xie, who was based in Hong Kong before leaving Morgan Stanley on Sept. 29, wrote in the e-mail. “Indonesia has no money. So Singapore isn’t doing well.”
Singapore’s $118 billion economy is recovering from three recessions since the 1997 Asian financial crisis, and is expecting growth of as much as 7.5 percent this year. The city- state is grappling with growing competition from China and India, two of the world’s most populous nations, where labor costs are less than a quarter of those in Singapore. …
“To sustain its economy, Singapore is building casinos to attract corruption money from China,” Xie said.
Singapore is ending a four-decade ban on casinos. The government plans to triple tourism revenue to $19 billion and double visitors to 17 million by 2015. …
At a dinner party hosted by Singapore Prime Minister Lee Hsien Loong, “people fawned him like a prince,” Xie wrote. “These Western people didn’t know what they were talking about,” he wrote, describing the praise for Singapore as “nauseating pleasantries.”
Xie, who said in September that the U.S. economy may fall into a recession in 2008, worked at the corporate finance division at Macquarie Bank in Singapore before joining Morgan Stanley in 1997. He earlier spent five years as an economist with the World Bank, overseeing the bank’s programs in Indonesia and other countries in the Asia-Pacific region.”
Bloomberg
http://tinyurl.com/kk3h3
Lots of truth in this. Singapore functions as a port city with a huge hinterland. It serves to funnel money (banking/insurance), people (air network), goods (port and shipping industry), technology (universities and high tech companies), health care (hospitals), and ideas across a wide swath of Asia. It serves as a bridge between the two most populous countries. Of course, the hinterland is not oblivious to the fact that Singapore is basically an intermediary - one that has done very well for itself. These countries (India, China, etc) are taking steps to cut off this middleman. When that happens, Singapore won’t be as much of a model city state as it once was.
Same thing with Dubai on the other side of the subcontinent. Not much reliance on China, but Dubai is trying to do a Singapore on the Arab world, India and Africa.
“Same thing with Dubai on the other side of the subcontinent. Not much reliance on China, but Dubai is trying to do a Singapore on the Arab world, India and Africa.”
I have spent much time in Dubai — I think they will be very successful with that, provided they remain cost-competitive. Their government probably just about guarantees that. Dubai is becoming sort of the new Beirut.
and a very good post as always from mish about more anecdotes
there are around 20. and some from brokers etc. worth the long read
Here’s an interesting quote from the Detroit area: “I recently sold a house in Rochester Hills,” Waquad says. “It was purchased a year ago by the seller for $615,000 — a newer house. He changed all the appliances, the carpets and painted. He never lived in it. He must have spent at least $20,000 to $30,000 fixing it. We got it for a buyer for $440,000.”
http://globaleconomicanalysis.blogspot.com/2006/10/still-more-anecdotes.html
I didn’t even know you could spend 400K in Detroit. Now SoCal isn’t looking so bad.
I lived/worked in the Lake Orion area, near Auburn Hills and Rochestor Hills area back in the late 90’s. It’s a nice area about 30 minutes north of Detroit. That’s near where the Chrysler building is. The area is completely dependant on the auto industry and it’s tier 2/3 suppliers. Rochestor Hills, and the surrounding areas are where your white collar workers/managers/execs reside.
Anecdotedly, when I lived there I rented a brand new 3/3 house from some auto exec who was relocating overseas temporarily. The house was nice to look at, but of shoddy construction. This was back in ‘97 and I couldn’t believe at the time someone would pay almost $250k+ for something built that poorly.
I imagine the entire area is in shock with all the problems in the auto industry…
Very interesting set of anecdotes from Mish. So, I wonder why the jump in mortgage apps during the past week and the rumors on Wall Street, at least, that home sales are recoverying due to low mortgage rates, improved consumer confidence etc.
Aren’t mortgage rates lower now that the ten-year T-bond yields have dropped? And don’t lower mortgage rates and falling home prices mean that it just got cheaper to buy a home? I would guess that would result in more sales from buyers who were planning to buy the Lereah price dip before the market takes off again next year.
Good luck with that theory. Remember that wishful thinking can get you in a lot of trouble. Plan for the worst while you hope for the best. I believe they call it being “shrewd”. Let’s make it the word of the day.
Unless you don’t actually believe the numbers. Something reeks in this market and I fear 2007 will uncover some behind the scenes manipulation.
“…So, I wonder why the jump in mortgage apps during the past week…”
Depends on your definition of “jump.” You talkin’ 25%?
Check out Detroit real estate listings. You’ll find a number of bank owned properties listed at below 20k (probably condemmed).
The variance in Detroit real estate is astounding.
Buy a 50k dollar home and send your kids to private school, travel, buy jewlery…
During my stint in MI, I also worked for a time in downtown Detroit… it was a warzone. Hookers/pimps/drugged-out crazies were an everyday occurance in the walk from the parking lot to the office. You didn’t dare hang around after dark.
To get a feel for downtown Detroit, watch 8 Mile & Robocop (seriously). Of course, the area of Grosse Point is quite nice and that is right outside of Detroit (see Grosse Point Blank)… Lots of old auto money mansions.
You’d probably need to spend a lot of money on security, I can’t imagine those 50k homes are in very nice areas.
spend 100k to bulletproof your car
I’m on Inman:
http://www.inman.com/inmannews.aspx?ID=57426
So far I’ve received five e-mails from industry people (realtors and real estate web sites) interested in posting my “video tours” or “learning more about the local real estate scene.” I’ve replied to all of the messages. So far, one person wrote back. He hasn’t actually seen the videos.
well deserved
Congratulations Lou. Way to go!
” He hasn’t actually seen the videos.”
Yes, and that’s where the rubber will meet the road. Don’t drink the kookaid unless it pays REALLY well ;0
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make sure you get paid in CASH. No checks from realtors!
Thanks! Sorry, it looks like you need to register now to read the article. I don’t know if that’s cookie-based or not.
What’s the summary?
Economy is booming, buy stocks, buy houses, raise…rates?
http://news.moneycentral.msn.com/provider/providerarticle.asp?feed=AP&Date=20061005&ID=4149138
Things don’t go straight up or straight down. I know a lot of people who survived the first crash in April ‘00 only to lose it all buying that first sucker rally which ended in August of ‘00.
(sheepishly raises hand) Yep, I caught the falling market knife in ‘00. Thankfully I only caught a small blade, and it was really valuable tuition–made me aware enough of the fact that busts follow booms that I didn’t buy a new house after selling mine in early ‘03.
Of course, the next two years were painful to watch as it kept going straight up, but…
Jon
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I’m 66% in Large Cap US Stocks right now. I believe money has/is shifting from RE to US Large Caps just like the reverse in 2001. CAPTAL CHASES RETURN!
1995-2000 Stocks
2001-2005 RE
2006-2010 Stocks
I believe we will see a new all-time high on the S&P 500 within 6 months. We only have about 12% to go.
very rational market reaction so fra.
ecb hikes rates, hints more to come.
bernanke yesterday said rates are not going to rise
boj also hints thta tehy will rise further (no surprise)
$ unchanged
oil down the last days, yields on the 10 down
oil up because of opec, yields neary unchanged
oil down, stocks up
oil uop stocks up (must be because of the oil stocks……..)
thi is how i would describe my feeling about this market
bulle vs bear
http://immobilienblasen.blogspot.com/2006/10/bulle-vs-bear-dow-11850-ath.html
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i’m not a stock market timer - nobody is that smart to be consistently right IMO. i simply set my stock allocation % (100 - Age) and continually dollar cost average into it via low cost S&P 500 Index funds through Vanguard.
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For what it’s worth - Abby Joseph Cohen was just on CNBC. She’d predicting an 8% gain on the S&P 500 over the next 12 months. She still likes tech and health care.
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p.s. feels like 1995!!!
i think that is her standart phrase.
the can use every tape from her the last 5 years.
Abby Cohen on CNBC has been one of the most reliable sell signals in history.
Abby Cohen is always bullish and Jim Rogers is always bearish. Stock Market expects a soft landing no recession even though the yeild curve is inverted and has been all summer. Vanguard is one of the best mutual fund companies out there. Too bad I’m still pretty bearish on stocks right now.
Beat me to it, txchick. I was just thinking the very same thing as soon as I saw Gekko’s posting!
Here’s a bit more. I hate to see people falling for this clearly manipulated BS move.
Bubble Burster
10/5/2006 10:16 AM EDT
Hate to be the one to crash the party but I think everyone has lost their minds or at least their memories. We cannot keep inflating different asset classes in hopes of forgetting past mistakes. To save us from the internet bubble interest rates became the mechanism of salvation elevating real estate prices high enough that we could easily sweep Commerce One and Ariba under the rug. Now when housing is teetering, lower oil is going to bring us a better stock market and help us forget the 125% 40 year ARM that owns our overpriced home. This is a dangerous game and it is simply a deferring of debt. Needless to say I am getting short again. Big tech is not going to lead anything in spite of what we are hearing over and over again. This obsession is one of the main hurdles to a better Nasdaq. We are in desperate need of new leadership from a group of tech stocks where the best growth is still in front of them.
If…Abby Joseph Cohen was the mother and David Learah was the father…would the baby be named: Rah! Rah! Sis boom Bhah!
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For every Abby Joe there is a Fleck. That’s why I said “For what it’s worth…”. The short term stock market future is unknown and unknowable. These “experts” (both bull and bear alike) are simply “noise” and should be ignored.
“p.s. feels like 1995!!!”
More like 1999…2000 is coming next year.
I still have a large portion of our (long term) money in the Wilshire 5000. But I’ll most likely take my winnings off the table (if I still have any!) sometime in the next 6-12 months.
Gekko, I used to believe the same thing: long-term dollar-cost averaging into a slowly-shifting-with-age asset allocation.
Late this summer, I changed to nearly 100% cash (plus some shorts). I’ve never done it before.
But I see an ugly storm on the horizon. The RE bust will bleed into the stock market big-time; go re-read the IMF report.
I truly don’t believe in short-term market timing, but I don’t see reasonable compensation for taking the stock market risk right now. I think we’re in for a 40% correction at some point in the next two years, and the best way to long-term profits is by not being on the receiving end of the beating.
Jon
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This bull market can’t be stopped. It’s all based on EARNINGS.
WE ARE HEADING HIGHER!!!
When does the BOJ meet to review their interest rate policy? I would like to see a quarter point increase by the BOJ to cut down the carry trade. That would have some impact on the financial markets (emerging markets).
very restrictive………….
The Bank of Japan will raise its benchmark to 0.5 percent from 0.25 percent by March 31, according to 12 of 16 economists surveyed by Bloomberg News
i fear the carrytrade will go one for some time.
You can’t consider the 0.5 percent restrictive or loose without factoring in the rate of deflation (inflation?). I am guessing the inflation rate is much closer to 0 or positive than when 0.5 would have represented tight money, though. So I guess everyone who reads and posts here better hurry up and buy a home before they get wiped out by 1970s-style inflation
With absolutely no economic data on the agenda, Yen’s rise was the result of mostly neutral commentary from Bank of Japan Deputy Governor Toshiro Muto. While Mr. Muto did say that the central bank would gradually raise rates in order to curb inflation, he also mentioned that there is no set timing for a rate increase and that policy isn’t decided by consumer prices alone or the success of US shopping during the Christmas season. Furthermore, Mr. Muto noted that the positive results of the Tankan survey back the BOJ’s projected economic view.
and
The end of deflation in Japan and EUR/JPY fluctuations appear to still be concerns for government officials, but central bankers maintain the same intentions…
Koji Omi, Newly Appointed Japanese Finance Minister
“Judging from the current state of the economy, we can declare Japan’s deflation is over. I think it’s a bit unnatural not to do so now.” – October 3, 2006
“Currency rates should reflect economic fundamentals. I’m hearing that people are saying the yen is somewhat weak against the euro, but I don’t think we are at the stage to make special comments or act at the moment.” – September 27, 2006
Shinzo Abe, Newly Appointed Japanese Prime Minister
“The government and the Bank of Japan will work together to achieve sustained economic expansion under price stability. I expect the Bank of Japan to support the economy through monetary policy.” – October 2, 2006
“Japan’s economy is now out of a long tunnel of stagnation and is on the verge of pulling out of deflation.” – October 2, 2006
Hiroshi Watanabe, Former Japanese Vice Japanese Finance Minister
“The consumer price index has been making relatively positive moves this year, but it has been revised downward due to a change in the data calculation method, which has led to somewhat worrying moves in prices. We need to guide (economic) policy by carefully watching whether price growth will remain positive, and I think the Bank of Japan will also guide (monetary) policy with this point in mind.” – September 27, 2006
Yasuhisa Shiozaki, Newly Appointed Chief Cabinet Secretary
“Basically, the Tankan showed that a good corporate performance is continuing, and that is in line with the government view that the economy is recovering. But I feel that figures among small and mid-sized firms should have been better.” He also noted that he expects the Bank of Japan to follow an “appropriate” monetary policy by taking into account not only domestic but also overseas economic trends. – October 2, 2006
Tadao Noda, Bank of Japan Board Member
Said that there is no change in the Bank of Japan’s intention to “adjust interest rate levels gradually.” – September 29, 2006
Dailyfx US Fed: Cautiously Optimistic
I believe money has/is shifting from RE to US Large Caps just like the reverse in 2001. CAPTAL CHASES RETURN!
But when debt finally collapses instead of expanding, prices of EVERYTHING can tank at once. The notion that falling prices in a market means “money is moving out” is fallacious. Just as much money moves in as out — for every seller there’s a buyer. Look at the 1930’s for an example where there was no “next bubble” to latch onto.
The only investment strategy that makes any sense is long term investing based on fundamentals. Buy low price to value ratios. If you can’t estimate intrinsic value, diversify like mad or let someone else do it for you.
The US has been comfortably been living with large deficits / debts at least since the 1980s now. It does not seem to matter much for the strength of our economy, because everyone wants to live (and work) here…
You’re quite comical Hopeful. I believe your name says it all, though. Remember, misguided hope can lead to disaster. Denial can lead to this type of hope. The US is old and tired, and about to add it’s name to the long list of former Empires.
“…about to add it’s name to the long list of former Empires.”
That’s the part I hate. I never voted for Empire and I never met anyone in this country who did (as in, wanted it). We now have troops in 100+ countries. Heck, that is more than 1/3 of all the countries in the entire world. How many voters would vote for that, had they the opportunity?
Yes, October’s always a good time for the markets.
Is this for real? I’ve heard of realtwhores, but loanbrokerwhores? That’s funny. Hat tip to TOD.
That’s funny. But it looks like a plant from a RE bear.
Anyone happen to have any info on Vega, the Hedge Fund, encountering similar problems to Amaranth except in regards to some bond positions?
They claim to not be closing. Their pain has been my gain in bonds though. Better to be lucky than smart.
http://www.itulip.com/forums/showthread.php?t=481
Tnx Txchick.
Sounds like that fund got too much vega
The hedge fund industry is the gold rush of the 1990s. The first gold rush brought us the state of California — the world’s sixth (or so) largest economy if considered apart from the rest of the US. So maybe the explosion in the number of hedge funds is a sign we have reached a new era of prosperity, rather than cause for gloominess?
http://tinyurl.com/j5ak9
apparnatly when you’re doing your last REFI Walmart isn’t good enough-shoppers going upscale=last hurrah
Affordable Housing Bond Ruse
“The 300-apartment complex was on a list of developments that were eligible to benefit from $220 million in bonds issued by a public agency in 1999 to promote affordable housing in Florida. None of the money went to Oakwood Terrace. Not a penny of the $220 million bond issue — which was underwritten by JPMorgan Chase & Co., the third-largest bank in the U.S., and insured by a unit of American International Group Inc., the world’s largest insurance company — was ever spent on low- income residences.
During the past decade, local governments across the U.S. have issued more than 70 of these phantom bonds — at least $7 billion of them. That’s enough money to pay the salaries of 150,000 teachers in the U.S. for one year, based on an average pay of $46,597. Proceeds from the tax-exempt bond sales are supposed to be used to improve homes for the poor or upgrade health care for the elderly or supply computers to inner-city schools.
Taxpayers never get most of those benefits; the winners are the banks, insurance companies and financial advisers that get paid millions of dollars for crafting these transactions and then profit by using bond proceeds for their own investment gains.”
http://tinyurl.com/g55u7
Anger… rising… must … control… rage…
This is so despicable it makes me ashamed of my career by association.
Who in their right mind is buying WCI today?
News that a homebuilder’s fundamental picture is deteriorating has been a very reliable buy signal for the past several months. So I guess if you want to gamble, then buy some call options somewhere near at-the-money on the opening bell selloff, then close the positions at the end of the day when the price magically returns to the opening price. (I am guessing you would be inadvertently mimicking many of our friendly hedge fund managers…)
Guest Blogger Stephen Colbert on Housing
wunderbar!!!!
a must read!
Colbert is a threat to decent Americans!
[Who make their livings scamming others ...]
Such a shame that it’s not really Colbert. A disclaimer’s been added. Parody only.
Seeing that RE agents seem to be targeting the “youthful demographic” now (at least in this area), it would be a great subject for him to broach on his show.
Save the Children.
Anyone have thoughts on the commercial real estate boom taking place right now.
My sense is that this is just money leaving the residential sector and going to what people think is hot today. Are there fundamentals for this?
i can give you this
. This year, about 47 million square feet of new office space is expected to be completed, up 30% from last year, according to Reis. Next year, office completions are projected to increase 37% to 65 million square feet, which signals strong demand for wallboard suppliers
in this economy this looks like a little bit of overbuilding or greenspan would say frothy……
look at the annecdotes from mish and you see that business from some main tenants (restaurants, financial/mortage….) has slowed down quite a bit.
when you drive by in your city, look for commercial buildings for rent/sale. There are tons of them. empty for a long time.
Lots of investors put money into REITS and they put them into these buildings already. IMHO commercial building is already over built and with coming recession, it is going to be even worse.
you shpul read this on reits and how mad the valuations are.
http://www.moneyandmarkets.com/press.asp?rls_id=433&cat_id=6
In my little slice of the universe the tech bubble has left hundreds of thousands of squarefeet vacant. You can’t drive anywhere without seeing signs for space available.
Yet reading about some of the sales it doesn’t add up.
Housing Bubble Lit
I’ve noticed the theme of unaffordable housing and even toxic loans in several of the books I’ve read in the past year:
“People of the Abyss” by Jack London. A nonfiction account of the deplorable economic conditions in 19th century East London. Families struggling to live in windowless rooms, squeezed by falling wages and overcrowding.
“Grapes of Wrath” by John Steinbeck. Classic tale of farmers pushed off their land during the ecological crisis known as the dostbowl during the 1930’s. What stood out to me this time was that the Oakies got really screwed by loans they couldn’t possibly repay. There are some great quotes about the bankers being proud to be slaves to the bank they work for. Also, later in the book, (paraphrasing) “There is no one so dangerous to society as a man without debt.”
“The Tortilla Curtain” by T. Coraghessen Boyle. Real Estate is a good sub-plot here. I was surprised by how much of it is about housing and RE. One of the main characters sells high end real estate in CA, some mention of the last downturn. Even included a paragraph on exotic financing. Homelessness is a major theme of the book.
Does anyone have any books to recommend on the subject of housing or real estate?
http://www.amazon.com/Real-Estate-Boom-Will-Bust/dp/0385514352
Got that? Real Estate Boom Will Bust
It would be more productive for you to try and sell that dribble to folks that are a bit more uninformed. DL doesn’t have a lot of credibility here. Anyone buying that book from this blog is doing so just to have a memento of this mania. When RE pricing hits 97′ levels then you will see the folks on this blog get interested in buying again. For now we are content to sit on the sidelines and watch the RE dolts go BK trying to flip each other houses. I do like your unbridled optimism though.
“The Gilded Age” by Mark Twain. Change the references and the book could’ve been written yesterday.
Jane Smiley’s Good Faith is a good read and an interesting take on the 80’s real estate boom. Here is a summary/excerpt from Amazon:
Joe Stratford is an amiable, divorced real estate agent in an unspoiled small town called Rollins Hills. He takes it in stride when a married female friend pursues a love affair with him; he is more suspicious when a high-rolling newcomer named Marcus Burns begins to influence the business affairs of the men closest to Joe. Nevertheless, the promise of easy riches draws Joe into one of Burns’s real estate development schemes, and then, ominously, into gold trading. The steps by which a nice guy can be lured into betraying his principles are delineated so sharply in Good Faith that you wonder how Joe cannot see them. Although he never quite manages to understand what has happened to him, he’s granted a moment of grace at the close of the novel, a second chance that has nothing to do with money, ambition, or the tarnished American Dream. Since we live with the legacy of the self-serving 1980s, Smiley’s novel seems as timely as if it were set in the present.
“The Jungle” by Upton Sinclair has a subtheme of trying to pay off the debt for a small house.
Thank you all so much. I’m really trying to embrace a return to reading things in book form. I love to read a lot of things online, including the occaisonal novel from Project Gutenberg, but books are supposed to provide a better example for the kids. This became very apparant to me when my son indicated that all I use the computer for is paying bills. He also thinks this is an activity I enjoy.
We also are trying to go somehat TV-free around here, as we have not yet signed up for cable service.
Cheers!
Well, I’m happy to report that we finally have a month over month drop in median here in Snohomish County in Western Washington. We have a 3% drop in median price from August to September, using the numbers released from the NWMLS. Seattle had a drop, too.
I also heard recognition of the downturn from a Joe on the street when I was in Kirkland last week. He was talking with an FB friend who didn’t seem to realize he’d encounter problems trying to sell his condo.
Building permits down by half in Minneapolis.
http://www.startribune.com/535/story/722293.html
Commercial…with virtually no new office development in the 1990s, followed by 9/11 and the conversion of older buildings to condos, he have an office space shortage in New York.
Prices are spiking, and companies are going to start to leave (or, more damagingly, new ones will not come into being here).
Plenty of condos will be available, however. Perhaps people will buy two, and work at home.
Short heaven. Some obvious short candidates:
CFC–Insiders have sold almost 60% of their holdings in the last six months, mostly at prices below today’s
WCI–Catastrophic news yesterday, stock not down nearly enough, earnings may go negative very soon
Joe–out of homebuilding, now just a land company with a high p/e ratio and a depreciating asset (No. Fla. land!)
Len–crazy bad news lately, but stock still well above 52 week low
PLOSSER: FED COULD LOSE INFLATION-FIGHTING CREDIBILITY
PLOSSER EXPECTS ECONOMY TO SNAP BACK IN 2007
PLOSSER: ECONOMY DOING WELL OUTSIDE HOUSING, AUTOS
PLOSSER SAYS HOUSING SLOWDOWN IS NOT UNWELCOME
PLOSSER SAYS ECONOMY ON ‘FIRM FOOTING’12:30 PM ET
PLOSSER SAYS REAL FED FUNDS RATE REMAINS RELATIVELY LOW PLOSSER SEES NO NEED FOR RATE CUTS DESPITE SLOWDOWN
MORE RATE HIKES MAY BE NEEDED
The newest Fed bank president said that it is premature for economists to talk about rate cuts and said that more rate hikes might be needed in coming months to combat inflation. Charles Plosser, an academic who took over the reigns at the Philadelphia Federal Reserve Bank earlier this year, said he is much more concerned that inflation could spiral out of control than he is about a sharp slowdown in economic growth. Plosser said the economy is on “firm footing” and the slowdown underway in the housing sector is not unwelcome. “Recent developments in the real economy may be suggesting that lower interest rates are called for, but I do not believe that is the case,” Plosser said. He said the Fed was in danger of losing its inflation-fighting credibility. “So, if unacceptably high rates of inflation persist or public confidence in long-run price stability seems to diminish, then additional monetary policy may be necessary,” Plosser said
This supports my theory that those who have been sitting on the sidelines waiting to get in ought to buy the first 10% dip in prices which everyone knows is already happening. If you wait much longer than that, and Plosser’s concerns are disregarded by his colleagues, you could find that 2007 looks much like 1977 for those renters whose monthly housing costs were going up by double digit percentages each year. Remember the government is carrying a huge debt burden, and has every incentive to use inflation (which most people don’t recognize as a tax) to try to relieve the load.
Rents aren’t going anywhere as long have vacant 2nd homes on which they are paying mortgages. The only way for rents to head up is if homes are boarded up, tied up in litigation or otherwise rendered unusable.
Does anyone know how timeshare sales & resales are doing?
But… It’s Different Here … the SF Chronicle says, citing Moodys.
Sigh. The MLS inventory of 2755 for San Francisco and surrounding cities is the highest its been since August 2005. That’s still pretty tight, but San Francisco, like the rest of California, is saturated with exotic loans. It’s all a waiting game. That said, there still seems to be a lingerinig pool of greater fools that apparently rely on the SF Chronicle for their news.
Q&A
>From: Joan
>Subject: Housing
>Date: Thu, 5 Oct 2006 10:03:22 -0700
>
>Dear Jas, I really enjoy reading your publications and comments that I find on the various blogs. I do have a couple of questions for you.
>
Thanks for the compliments, Joan. I do have my detractors, though.
>Even if the Fed were to lower interest rates would this help people that contracted for ARMS/Option ARMS? I have been reading as many articles on these loans as to how they work and it is somewhat apparent that these folks are stuck and perhaps the best they can hope for is a 50-year interest only indentured servitude loan. Am I correct to understand that some of these loans are controlled by hedge funds?
>
Japan is a perfect example that low rates don’t help much when home prices enter a long-term bear market, which is what to be expected based on fundamentals. Majority of “home-owners” under the dead-hand (literal meaning of mortgage) wouldn’t be able to refinance at lower rates because either they would owe more than the market value of their homes, or they wouldn’t be able to qualify under the more stringent requirements that are sure to come into play during the depression, which would bring the US Treasury rates to 0-2% range. Also, 20% of the “home-owners” would be out of jobs. The conditions that would lead to very low rates would be very miserable. The Fed would prove to be the emperor…
>My last question pertains to the actual percentage of people in trouble compared to the total population of homeowners. I don’t seem to find too many statistics on this one. I see a figure of 10% to 20%. But 10% - 20% of what?
>
I don’t know what the actual percentage number is, but it would be people who have mortgage(s) on their homes.
>Lastly, I just cannot believe how anyone in their right mind could sign papers for these loans.
We Americans are trained to sign on the dotted lines. We are trained to trust “professionals.”
>I am college educated and just trying to understand these loans has been enough to give me eye strain.
You have my sympathies. I am fortunate not to have to read and sign these loans or any loans for that matter. In a system fully controlled by Crooks we must navigate our own affairs cautiously. We can’t do much about dupes that our system produces; I mean those with college and professional degrees.
> I guess communal living is coming back after all.
Yes. One “happy” family for many.
>
>Cheers!
Cheers.
Jas
Didn’t someone write a book about the great depression of 1990? I guess the timing was off by a bit on that one. My impression is that the US economic leaders have studied the mistakes of the 1930s to make sure that it will not happen again.
Hey Bennie B. - how’s it going?
itulip.com has an interesting article on this topic, with a couple of photos of cars. The gist of the article was that there were plenty of wealthy people around during the depression. This is interesting to me because, until recently, I was led to believe that everyone was holding hands and singing “Kumbaya” (sp.?) while they waited in the soup line. My 80 year old MIL told me that even though her family was extremely thrify during that time, her father didn’t lose his job and they were able to continue with a fairly normal existence. My grandparents, on the other hand, had to double up with another family in order to afford their tenament apartment in the Bronx.
Today you get very different opinions on the state of the economy depending upon whom you ask. Ask a computer programmer and they’ll tell you about the effects of offshoring. Ask someone in hedge funds and they are probably just starting to become concerned about the future. Ask someone in civil service and they might not even know what you are talking about.
“Ask someone in civil service and they might not even know what you are talking about”
The sister of one of my good friends is a town librarian. Her salary just got cut in half! Maybe the civil jobs aren’t so safe. Good thing she was already living with Mom.
Hopeful: “Didn’t someone write a book about the great depression of 1990? I guess the timing was off by a bit on that one. My impression is that the US economic leaders have studied the mistakes of the 1930s to make sure that it will not happen again.”
Hopeful,
In trying to predict the turning points of the economic Longwave Cycle mistakes are bound to happen. INTERVENTION is an integral part of the Capitalistic Process that we have had for quite some time.
Our economic leaders have NOT learned “to make sure that it will not happen again.” They are only postponing the disaster and are making the outcome worse — The Greater Derpession.
Most important thing to understand is the role of bankers in the boom-bust cycle. Our current bankers have outdone all in the past. Exhibit A: Reckless Mortgage Lending.
Jas Jain
PS: BTW, I use the term Hopebuilders for homebuilders and Hopes for homes.
Howard Davidowitz, chairman of Davidowitz & Associates, was just on MSNBC. He is predicting an all out housing CRISIS. His word, not mine. The MSBNC host kept trying to tell him that was a little radical, but Howard stuck to his guns. He said GDP growth in the last quarter of 2006 will be 1% and 2007 will be recession.
In the past 3 days I’ve heard 2 economists use the “D” word, Depression, on CNBC.
That’s a first.
I have a good friend who bought a house two years ago on SD. At the time I thought it was strange that she had to bid to get a house, I had never heard of such a thing. I was still of the mind that RE was not an investment which is why our 2000 purchase was a tiny starter home bought directly from our landlord for under $160K in Chicago near suburbs. (1200 sf for a family of 5 !! - my husband hated it but I loved it; I’m always outside anyway)
Inevitably after owning it for about a year she moved back to Chicago after having successfully found a renter who promised to “Stay Forever” (famous last words!). This was back in April 2005 or so.
Fast forward to last month. Me, now having 5 months of Housing Bubble education, casually asked her how that rental thing was going. “Funny that you asked” said she. Turns out the renter is getting married and wants to move into his place and vacate hers. Oops. She assures me over lunch though that it’s ok she’s got a lease with the gal till April 2007 but she has put it on the market “just in case”.
Course at this point any reference to SD market is verboten, I am lambasted for speaking of it and friend tells me “my RE agent said it’s just the market is going to NORMAL, it’s NOT bad!!” Naturally I nod my head in agreement and ask what does she think of the Caesar salad.
Today the news is even worse. The renter has called and her fiancee has called. They are not going to pay any more rent. Even though I was still smarting from the last outing I ventured my advice anyway “1. Call a lawyer 2. Call your Agent, have him price that place at $10-$15 under the nearest comps and DUMP IT, dump it now.”
I hope she’ll be ok.
Mina
Mina-
Do you really think 10-15K will do it?
Friends in Seattle had to lower by 45K last spring to sell and that’s when the Seattle area market was supposedly still HOT!!!HOT!!!
Furthermore, their home’s original list was on the low end (340K) so that 45K was a pretty big percentage of the total price AND put them into the previously unheard of “below 300K” category.
But at least they got rid of the house. It’ll be someone else’s headache now.
10-15K off sounds toothpick tiny, barely somethinfg a buyer would notice. In a falling market, you want to make your place JUMP out of the crowd.
thanks for the advice. should she come back to me to ask me for more info I’ll pass this along.
Mina
So what about these nonfarm payrolls for September tomorrow — and the impact on interest rates? Interesting (pun definitely intended) to see a pair of Fed guys sounding fairly hawkish in speeches within the past 48 hours. And while Gentle Ben did talk about a housing slowdown on Wednesday, he sure did sound sanguine about the rest of the economy. Wonder if it means we get a big hiring number tomorrow and a bond market surprise? Or are these Fed guys going to be surprised by WEAK job growth? Not sure. But you can read my thoughts about rates, the Fed comments and such here if you want …
http://interestrateroundup.blogspot.com/
I think that the Jobs report will be weak — below 100K, including the possibility of a minus sign in the front.
Jas Jain
At 27% yearly appreciation, a 200,000 condo will be worth $1 Billion dollars in just 35 years!
There’s a handy calculator here
http://www.angryfrozenhead.com/articles/October2006/billion.html
…that you can use to see how long it will take YOU to join the Billionaires club.
Does anyone have some good mortgage calculators?, sites, links, etc?