Bits Bucket And Craigslist Finds For October 14, 2006
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
Location:Northern Arizona, United States
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I’ve seen a lot of posts that suggest that a fair price for a home is something like 150 times the equivalent rent payment or whatever (in any case something far less than today’s price.) It seems these posts are by guys who’ve been in the business for a long long long time. My question is this: is there a way to tweak this measurement based on interest rates? i.e. if the short answer is 150 times rent, than wouldn’t I pay 120 times rent if my crystal ball tells me interest rates are going up in the foreseeable future (and maybe 180 times rent if the opposite were true) Is this 150 figure a quick and dirty way of factoring future rent payments avoided after 30 years? Is there a quick and dirty way to factor this based on 15 year mortgages? And lastly, is this figure at all relevant to investment properties?
I believe this fluctuates to some degree…however, does the property cash flow at 20% down 30 year fixed would be another good way to look at it.
I also believe that renovated 1890s-1930s properties in great neighborhoods in town (e.g., less than 3 miles from down/mid/uptown…e.g., Pemberton Heights in Austin, St Charles Ave in New Orleans or the old 1920s-30s good areas in Atlanta) command a premium over these “rule of thumb” rental valuations due to location, desirability and scarcity.
The thing about “Rules of Thumb” is that everyone’s thumb is different. 120x is fine for average rentals and average tax consequences. What can change that? In California the low property taxes and high income taxes matter as does the low mantainence and insurance costs. Then there’s usefullife, condition, and all the factors that go into valuing a primary residence. If you can expect to charge more in the future it might make sense to “overpay” now rather than pay a higher but fairer price later. Then there’s wierd intangibles. I had a mountain rental for decades and whenever I’d go skiing the trip mileage was deductible.
It never occured to me to think about interest rates except plug them into the formula. They kinda wash unless you bump into AMT. High rates implies high inflation so rents can go higher as well. Still just take the deal and figure the cash flow. Every deal is different but the thumb rule still makes it fast and easy. You aren’t going to make money at 150x without appreciation.
Add to that the “Quality” of the income Vs. the “Quantity” in the decision process….
Do you all know where ‘rule of thumb’ came from? A man was allowed to hit his wife with a stick as long as it was it wider than his thumb. Every time I hear ppl use that, I wonder if they realize…..
as long as it was NOT wider…
That’s what’s known as a “folk etymology” which is about like a folk tale or an urban legend. It ain’t so.
“Rule of thumb” dates back at least to the 17th century and probably is connected to the use of body parts as imprecise standards of measure. The wife-beating connection to the phrase “rule of thumb” didn’t appear until 1976.
If you think interest rates are going to rise you want to be a debtor, not a creditor, so other things being equal, yes, you would be willing to pay more for a property when rates are low. When you rent property you get a stream of payments, like a bondholder (creditor); the lower the interest rate/expected inflation rate, the higher the value of payments.
Back in the days of 10% interest rates, 100X rent was considered the maximum you would want to pay. The lower the market interest rate/expected inflation rate, the less return demanded.
This analysis, however, dowsn’t take into account the other relationship, that is, the debtor relationship the property owner has with his lending institution.
In the “olden days,” it was common to own rental properties free and clear, or with small liens, and owners generally did not consider appreciation of the property as a significant factor - if you maintained the property it might be expected to hold its value. Hard to imagine, isn’t it? - but I predict that will be the new paradigm down the road: if you maintain your property it has a chance of holding its value, otherwise its value will tend to decline.
If you think interest rates are going to rise you want to be a debtor, not a creditor, so other things being equal, yes, you would be willing to pay more for a property when rates are low
Au contraire, if rates are low you have more upside risk on rates, which means more downside risk on the price. A house is an income-producing asset just like a bond, so its value will change in the same direction as a bond’s will. And remember if you buy when rates are high and they then go down, you can refinance for a lower rate.
FB’s looking only at current monthly payments will be willing to pay more when rates are low, of course. Which is one of the reasons for the present bubble.
Obviously if you’re going to be paying cash (or a lot higher down payment than most people) you’ll want to buy when rates are high, because you’re in a better affordability position than those who borrow.
Whether interest rates are high or low, one should never want to be a debtor.
I posted yesterday about how the real estate bull shit machine are trying to use rent vs. buy seminars to get people into homes they cannot afford. The renter still needs a toxic morgage in order to purchase a home, how is that fair. The real estate will scratch and claw, just like a $20 crack whore will for a trick in order to get their next fix in this case a commission.
Apropos to the talk about El Nino last night, have any of you ever seen this? Great show. I wore out my VHS tape of it and just bought it on DVD
http://www.pbs.org/wnet/nature/conditionblack/
I’m a bad man:
http://www.mininova.org/tor/357924
Cool. Thanks.
Check out, if you have not seen it:
http://en.wikipedia.org/wiki/Riding_Giants
Does this mean interest rates will rise??
http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20061010:MTFH42947_2006-10-10_18-28-44_N10357648&type=comktNews&rpc=44
For this junk, yes. For other debt, not necessarily.
Well doesn’t that decrease the buying pool even more? The greater fools who would pay all this money just to own a house, because someone could get them into one, no matter what the cost was, is now evaporating. This will put further downward pressure on prices and cause massive foreclosures when people cannot refi to pull out much needed cash.
Wait till the ARM/I/O resets.
OUCH!
“The greater fools who would pay all this money just to own a house, because someone could get them into one, no matter what the cost was, is now evaporating. ”
I wonder what the next trend will be, now that this “evaporation” has begun?
Condensation? There are dark clouds on the horizon.
Good one!
Just a small question.
Who is going to buy all of these foreclosed houses?
The FB’s are not going to be doing it. Even with slashed prices,many investors will not want to be landlords. So, who is going to buy them.
More importantly, How. With loans tightly controlled,who is going to have the 20% down payment that is spoken of so reverently.
Last, will there be enough readers of this blog(who are not Knife-Catchers) to buy all the available houses?
Professional landlords, who actually know what they’re doing, or people who really want to get into rental properties as a business buy them. I had a friend who bought probably 30-40 low rent condos in the last bust in NE Dallas for about 10-12K apiece in 1990. She rented them out to section 8 people and has lived off the income since. She could probably sell them now for at least 4x what she paid for them as well.
Uh oh… be careful… this might summon a response from va_investor. She makes me want to hurl.
She wouldn’t dirty her hands on the type of condos I was talking about.
txchick,
has your friend had to spend a lot on maintenance for her section 8 rentals? I guess I assume that these are tenants who don’t mind trashing a place, or stealing appliances and ripping out plumbing and wires?
No, because she would then report them to the section 8 program. They’re certainly not people you’d socialize with but she hasn’t had any more trouble than people would who rent out to upper class college kids.
My former landlady bought a foreclosed house at auction on the courthouse steps. She wasn’t allowed to do a pre-sale inspection, and, oh did she find a litany of things wrong when she got title to the place! Last I spoke with her, which was almost a year ago, she was still tending to the problems that the former owner left behind.
Supply and demand curves always intersect at a positive price as long as a good has positive utility (excludes a few houses in Buffalo and the like). If the price goes low enough, someone will buy them.
Illegal Aliens.
They will be “legalized” and the Fed will start a “new homeowner program” to help the new citizens. They just need financing.
good question.
dot com mogul in Canada discusses rent vs buy
http://www.johnchow.com/index.php/buying-vs-renting/
[August 2006 entry, but showed up in digg.com this morning]
Koyaanisqatsi: Life Out of Balance:
http://www.xanga.com/home.aspx?user=russwinter&nextdate=10%2f14%2f2006+23%3a59%3a59.999
Your presentation makes me think there is no way rates will go down in the next 15 years. Flat maybe for a few months, but they gotta go up to curb the continuing excess. People think since home sales are drying up, the credit orgy is ending. From the examples you posted, I don’t think so!
Awesome movie.
The economy is slowing down and not crashing: maybe Bernanke is doing a good job?
Not a chance. He’s stuck. Can’t raise and can’t cut. I had previously suggested a stock crash by October’s end. It probably won’t happen pre-election, but will almost DEFINITELY happen before end of January. Historical crashes in election years typically begin in November or January. One trigger may be the advance 3Q GDP released on Oct. 27…
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http://commentisfree.guardian.co.uk/ann_pettifor/2006/10/economists_have_a_blind_spot_f.html
Economists have a blind spot for finance
That is one handicap I don’t suffer from and thank God I am not an economist.
“The economics profession, as a whole, has a blind spot for finance. Economists conduct their analyses without reference to the creation of credit and debt. They regard money as “neutral” and ignore, on the whole, the role of credit. As Schumpeter once wrote, economists treat the “phenomena of economic life …in terms of goods and services, of decisions about them, and of relations between them. Money enters the picture only in the modest role of a technical device that has been adopted in order to facilitate transactions.””
I have said again and again: It is the Debt, Stupid! $s enter the global system as Debt!! There comes a point when enough of the Debt cannot be serviced and that is when all the global dominos would fall. It could happen tomorrow, or in few months, but it wouldn’t take years for Americans not to be able to service enough of the Debt. Debt service is already the highest it has ever been and getting higher by the day. For how long?
Jas Jain
Jas,
This is the part of that article/above link I found interesting:
Elizabeth Warren of Harvard University has shown that the American middle classes are on the precipice. “Fully 75% of family income is earmarked for recurrent monthly expenses … Short of moving out of the house, withdrawing their children from preschool, or cancelling the insurance policy altogether, they are stuck … Today’s family has no margin for error … Their basic situation is far riskier than that of their parents a generation earlier.”
Those that have “maxed out” on “refis” and other mortgage debts soon will have to sell their homes - to pay off and manage their falling disposable income and excessive debts. However, far from easing the crisis, the downward pressure will apply, first, to those most indebted and then to those considered wise and careful borrowers. Their assets will fall in value along with those of the over-borrowed - automatically raising debt-to-income ratios for sensible borrowers.
So the crisis will come about because the lending bubble will burst first, and the asset bubble will follow almost immediately, if not simultaneously. It was ever thus. (Think of 1929; of Japan in 1990; of the dotcom crash).
There will be defaults (there already are) and then banking crises (it is widely rumoured that Freddie Mac and Fannie Mae, the big government-backed mortgage lenders, are candidates). These will be followed by business failures, and more rises in unemployment, leading to lower economic growth, a fall in US demand for imports and a further decline of the dollar.
A deep and sustained US debt-deflationary recession, will impact most grievously on the global economy. We know, because the last time there was a fall in US demand for imports in 2001, stock markets spiralled downward, commodity prices fell, and government finances across the world came under strain.
Because of the forced integration of the global economy; because of the deregulation of the international financial system; because of the crazy unregulated risks taken by hedge fund managers (most recently Amaranth and Vega) on salaries of $150m (£81m), the coming crisis will be systemic. Or to put it in the words of Tim Geithner, a governor of the US Federal Reserve, the crisis will be “borderless”.
There will be no place to hide. For the majority, that is. What of those optimistic economists, bankers and financial rentiers? They will gather together their wealth, scuttle off into obscurity, and let it be known that blame for the crisis should rest with “reckless” US and other consumers. In other words with the innocents who, encouraged by politicians, economists, central bankers and financiers, have propped up the global economy for two decades. Their borrowing and spending has enriched the very rich and lifted millions of Chinese workers out of poverty. Soon, blame will be heaped upon these American heroes - they will be accused of borrowing too much and living beyond their means.
Thus will the perpetrators of these economic crimes escape and blame, once again, fall upon the victims.
“Their assets will fall in value along with those of the over-borrowed - automatically raising debt-to-income ratios for sensible borrowers.”
That’s a horribly bad analysis. Falling asset values have nothing to do with debt-to-income ratios. They meant LTV which is a meaningless number if the “sensible borrower” borrowed for the right reasons. There’s a reason Harvard didn’t want me and I’m grateful.
Yes, most analysts make a mistake or two.
“There’s a reason Harvard didn’t want me and I’m grateful. ”
You saved money and your economic thinking is not as corrupted.
Jas Jain
They meant LTV which is a meaningless number if the “sensible borrower” borrowed for the right reasons.
What are these “sensible borrowers” of which you speak?
She wrote an interesting book in about 1989 called, “As We Forgive Our Debtors” which really shot down all the stereotypes of people who file for bankruptcy as being profligate spenders on nonessentials and luxury intems. Back then that was probably true but now, I would bet that there is a lot more of it.
The numbers I was seeing last year when the bankruptcy bill was under consideration were that the majority of bankruptcies are still due to catastrophic events like major illness, job loss, etc more than people running around spending their butts off on toys.
Actually, that is probably not a very fair comparison.
How do you know they weren’t spending their butts off?
If a job loss put them into bankruptcy, then they were OBVIOUSLY over-extended and did not put aside money for emergencies, such as a job loss.
Most people are living way too close to the edge, because they want the “lifestyle” and don’t worry about saving, because as Robert Kiosoki has said “Savers are Losers”.
I agree with the article except for this part, “So the crisis will come about because the lending bubble will burst first, and the asset bubble will follow almost immediately, if not simultaneously.”
The asset bubble will burst first and that sets off a credit crunching chain reaction. After the housing market asset bubble burst, the lender’s collateral (homes) and balance sheet asset (loans) starts losing market value. This downward pressure on asset value stymies the lenders ability to make future loans.
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I disagree and I agree with the author. Take the Housing Bubble, has it really burst yet? As long as the reckless leding continues it would not burst. Whatever puts an end to the reckless lending, be it regulators or be it losses, will burst the bubble. By burst, I mean prices down 20-30% in most areas. The reason that that has not happened is that the “lending bubble” is yet to burst.
Jas Jain
“Has it [the housing bubble] really burst yet?” No, not under your 20-30 percent price definition, However, the housing market measured in terms of total annual sales ( annual number of sales * price ) is contracting. It is no longer expanding.
If you assume 2005’s and 2006’s national median price are the same, then 2006’s annual sales will be smaller than 2005’s b/c the annual number of sales in 2006 is 20-30 percent less. In other words,
the size of 2005’s housing market (hm) = annual number of sales * 2005’s median price
and, the size of 2006’s hm = 70-80 % of the size of 2005’s.
Therefore, total value of sales in 2006 is less than 2005’s and the market is contracting.
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“However, the housing market measured in terms of total annual sales ( annual number of sales * price ) is contracting.”
You forget that the bubble was in Prices and not in volume. The volume was driven by Rise in Prices. Bubble is when “rise in price leads to rise in price and volume.”
Therefore, the bubble is not burst until there is a substantial correction in price.
Jas Jain
“[A] Bubble is when “rise in price leads to rise in price and volume.”
Price is flat and in some markets declining; therefore condition (1) is no longer true, a rise in price no longer leads to a rise in price. As noted above, volume is down; therefore, condition (2) is no longer true either, a rise in price no longer leads to a rise in volume.
Consequently, the contrapositive to conditions (1) and (2) is “the bubble bursts b/c price increases no longer lead to price and volume increases.”
I agree with you wholeheartedly, however. Price declines are needed to provide the exclamation point to the contrapositive. However, 2 out of 3 conditions ain’t bad. As some markets contract, price usually lags volume; therefore, perhaps condition 3 is just over the horizon.
The lending bubble has quietly put on the brakes. What is needed now is a jolt to the PSYCHOLOGY of the marketplace. A stock market crash following bad economic data would go a long way toward that end.
“The lending bubble has quietly put on the brakes. ”
How so and by whom? Homebuyers can still get 100% financing and negative amortization loans. Only the “investors” have left the buying side and are on the sell side.
Am I a missing something?
Jas Jain
agree with Jas. One should also look outside the US, because the credit economy is global. Credit in the EU housing markets is still surging and speculators are playing their game just like they used to, except that the buying keeps shifting even more to foreign markets (mostly ‘vacation homes’ in countries near the EU border, because in ‘old’ Europe the upside potential is limited after years of stellar growth). This keeps the EU housing bubble spreading and growing.
I read some stories today about the yearly tradefair for ’second homes’ in my country. This fair has been hugely popular for years and they are expecting another banner year. More and more buyers admit that they buy ‘vacation homes’ mostly because they expect big financial profits, and tbuyers are even more upbeat about the potential gains than a few years ago.
here is something on “the lending bubble has quietly put on the brakes:”
… The best part about this is you bring no money to the table as the bank is willing to spot you that cool million with a zero down, 100% financing. Yes, zero dollar out of pocket and here comes fine estate living in costal Carlsbad.
There must be a catch! Well, there is. At $1,000,000 flat, 100% financing at 6% is a cool $6,000/month. But the lender is Fremont Investment & Loan, a well known sub-prime lender. And the financing involved would be at jumbo loan rate. In all likelihood, stated income loans were also used. A 9% interest rate is not unheard of given the above circumstances. What’s $1 million at 9% mortgage rate? Try $8,000. Plus HOA/property tax/mello-roos, you’re looking at a carrying cost of $9,200/month.
http://bubbletracking.blogspot.com/2006/10/stupid-is-as-stupid-does-in-carlsbad.html
Looking at all the private equity LBO’s happening lately, I’d say the liquidity spigot is still open, maybe just migrating elsewhere. That and all the money the hedge funds can hardly deploy. In Current Yield column by Randall Forsyth on Barron’s Online, they attribute the “abundance of credit” to 3 factors: “large net capital inflows, narrow credit spreads and securitization.”
“These two nontraditional factors — foreign capital flows and securitizations — total 67% of nonfinancial credit market debt. And they can be expected to keep flowing — as long as credit spreads remain tight, Cosgrove concludes. How long will investors continue to accept a small margin of safety on risky credits? As long as there’s no disruption, such as the collapse of Long Term Capital Management in the fall of 1998.”
They go on to make the point that the reason for the tight credit spreads is the proliferation of credit default swaps. “Credit default swaps allow investors in risky assets to, in effect, buy insurance against something bad happening, just as a homeowner transfers the risk to an insurance company writing the homeowner’s policy. But flood insurance has not reduced the chance of a hurricane. Indeed, flood insurance has increased the chance of a hurricane hitting a populated area by letting people build houses at the shore, seemingly without risk. In the same way, credit derivatives don’t eliminate credit risk but arguably facilitate it. In so doing, the risk to the entire system has increased. Meanwhile, expect more highly levered deals such as Cablevision and Harrah’s.”
I think CDS and other derivatives that the masters of the universe think have eliminated their risk is the key to the whole debt explosion. I think sooner or later there will be a blowup and a contagion effect that could cause cascading defaults because of counterparty credit risk. If that happens, then the whole house of cards comes down, and look out below.
By the way, here’s the link, but it requires a subscription to Barron’s Online.
http://online.barrons.com/article/SB116077937091192471.html?mod=9_0031_b_this_weeks_magazine_market_week
Misstatement: “The lending bubble has quietly put on the brakes.” Meant that only with regard to home-equity withdrawal and consumer access to debt, which is becoming more constrained. Credit continues to expand over the consumer’s head, but once the consumer gives out, the pyramid of debt built on the back of the US consumer will give way as well (MBS, CDO, CDS, derivatives).
Brooklynite
If you’re still around, what do you think of these?
http://brownstoner.com/brownstoner/archives/2006/10/119_court_stree.html#comments
I just don’t get it.
“…unfortunately I need to liquidate some of my nicer goodies.”
Here’s the kind of eBay activity I want to see around Christmas time!
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Need advice - should I pay an extra $100 per month and choose a 6 month apartment renewal lease OR should I just save the $100 per month and go with a 12 month lease?
6 months = 1-1-07 to 7-1-07
12 month = 1-1-07 to 1-1-08
Assume the actual Rent amount would be the same except for the extra $100 “Short Renewal” Premium.
Save the $100, go 12. Plus, if you see a life-time opportunity before the lease is up, sublet, or, pay the penalty and bail. (it is a lifetime opportunity so what’s 1 mo’s rent)
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the penalty is to pay the whole rest of the lease!
ouch. If you’re looking at houses and you’re married, go 6!
lol
I was in a similar situation for 2 years and I stuck with the 6 month. Why? At any time the job could end with little notice and they would stick me with every payment. While it cost me a little more, I slept better. (Note: The company always had a backup job for me in another location if that project tanked.) At one point we had no choice but to roll 17 people off the project (budget cut); most were able to pick up and move with little pain as they kept their leases short.
Neil
Go 12, 6 months will be here tomorrow.
The bozos should pay you to go 6. who on earth wants to move on 1/1 ? THat is a terrible time to move for most people, so their rental is going to stay put. Suggest 6months without the penalty with the above reasoning.
Or just move.
Can you negotiate at all? Our landlord hit us with a $100/mo increase and we said that seemed a bit too much of a jump, so they cut it to $75. It’s only a $300 savings but it’s better than paying the full increase.
High end market is DEAD:
http://bakersfieldbubble.blogspot.com
Forget squirrels… how about a turtle!?
http://www.sandiego-mls.com/detail-new.asp?frequency=15814&totalpage=69&mlsnum=66084874&hometype=detached&curPage=5
(read remarks)
or
3350 KAROK AVE, San Diego, 92117 if my link doesn’t work
…”***Comes w/ ‘Myrtle the Turtle’, a 50-lb African Spurred Tortoise w/ personality!***”…
Here is nice updated home in North Highlands Sacramento. I think what is updated about is that they attempted to trim the hedges.
http://sacramento.craigslist.org/rfs/220309253.html
Boy if you buy this home you are only two minutes away from catching a nice flick at Sacramento’s only XXX movie theater. North Highlands is a crack neighborhood.
I think the upgrade was the corregated roof on the patio. I love the unpainted lumber, tres chic.
If this is anywhere near the old McClellan AFB then the XXX theater is actually one of the nicest buildings in that part of town. Down Watts Ave there are rows and rows of vacated commercial buildings. My guess is the area never recovered from the base closure.
Yes the area of North Highlands, which is where the former McClellan AFB is located has not recovered not that it was ever a great place in the first place. Well maybe a few decades ago it was, I have seen pictures of Mather AFB across town also closed down, from the 1950’s and that place looked like a nice decent community. You know that “Guns & Roses” song “Welcome to the Jungle” it could be the housing bubble burst for homes in the da’ hood theme song for Sacramento.
The yellow on that Sacramento house on David’s posting is hideous!
Hey, does anyone know anything about the realtor in Long Beach that had a billboard of her in a bikini on the 710 fwy? Just curious?
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for all you pious, holier than thou Democrats -
Senator Harry Reid’s Land Deal
http://www.ajc.com/opinion/content/opinion/stories/2006/10/12/1013edreid.html
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Sen. Reid should look in mirror first
Published on: 10/13/06
Senate Democratic leader Harry Reid would be well advised to stop thundering about corruption in the Republican ranks or crying “cover-up” over the GOP’s failure to promptly and appropriately deal with former Rep. Mark Foley (R-Fla.) and his sexually explicit e-mails to congressional pages. Reid faces too many questions about his own behavior to crusade against the misdeeds of others.
Currently, he’s trying to explain a land deal in Nevada on which he made a pile of money and which may not have been properly disclosed. When the property was sold in 2004, it belonged to a company formed with a long-time friend and included a parcel that once had been owed by Reid. Despite having transferred his parcel to the company, the Nevada Democrat continued to report in Senate documents that he still owned it personally. That’s a breach of Senate disclosure rules, according to the Associated Press, which first reported the transaction details.
Reid is now considering whether he should amend his disclosure statement.
Two months ago, the Los Angeles Times reported that Reid had smoothed the way for a campaign contributor and friend to develop a huge tract of land northeast of Las Vegas. Reid tried twice — before he was successful — to get a utility right-of-way moved from the proposed development site onto public land.
The first effort stalled because of objections from the Bureau of Land Management and others that the developer wasn’t going to pay anything for a deal that would greatly increase the value of his development site. Eventually, it was determined the developer should pay the federal government more than $10 million.
Then there are the free boxing tickets Reid took from the Nevada Athletic Commission. The panel was hoping to block formation of a national boxing commission; Reid favored one.
Only after the Associated Press reported this summer that Reid got the expensive tickets did the senator decide he would no longer accept such gifts.
Unfortunately, Reid’s ethics meter only seems to work when it’s too late.
—David McNaughton, for the editorial board
If you want to start some kind of political fight, why don’t you go on over to redstate or dailykos?
It is a bogus story, anyway, from the same reporter who has three times now come up with bogus ’scandals’ involving Reid. I could go on, but out of respect for everyone else I won’t.
I think this Reid deal is relevant to the housing bubble, and would be an interesting topic on its own. I would like to see the deal impartially dissected by the readers here who have some knowledge of the laws in Nevada. Why does this have to involve a political fight? Facts are facts, on whomever they fall. Remember, when the tide goes out we see who was swimming naked.
C’mon gekko, that’s about the most useless post on the board today.
- Agree -
“C’mon gekko, that’s about the most useless post on the board today. ”
Not since it’s related to real estate. Or maybe your political leanings are showing, which would cause you to make that statement.
I have a topic I would like to hear from others. What is the reason that many of the FBers feel like they need every ‘toy’ in the book? Meaning, some fancy new car, boat, exotic vacations, best of everything for kids, fancy furniture, jewelry, clothes, etc. And they are willing to HELOC their home or other means of debt to acquire it. I had started an idea for a thread that I was content with stuff I had and didn’t want to buy any more crap. What causes all of this for the majority of the sheeples that think they are entitled to crap before they have the money to pay for it?
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Got to “Keep up with the Joneses!!!”
It’s the entitlement society we’ve created. Most people believe its their right to have everything they want. Oh, and they deserve it, too. As I’ve said many times, people are not allowed to fail anymore. Someone will bail them out if they get too deep, whether the government or BK court. Why not buy all those flip houses like that 24-year-old? What’s going to happen if he fails? Nothing will happen. He’ll BK and go on to something else. Do you know of anybody that has starved to death in the street lately because they bought too much house?
I don’t think the FB’s whose parents grew up during the Great Depression have any excuse for getting so materialistic. I was born in 1959 but my parents grew up in the Great Depression. I saw how thrifty they were. Ironically, two of my sisters never got it. They just spent whatever they earned. Then they get depressed because they have fewer choices in life.
A few years ago I read about “social intelligence,” the ability to get along with others and essentially be a magnet to attract friends. IQ is one thing, but there are a lot of high IQ people who are socially inept. There are a lot of socially intelligent people who are of average IQ. I think there is another measure of intelligence to consider: personal finance intelligence: The ability to plan ahead, produce more than consume, and the ability to determine the opportunity costs you incur when you tie up your money in asset X instead of asset Y. Those who rank high in all of these areas (IQ, social intelligence, personal finance intelligence) would certainly be gifted people!
It’s called the Diderot effect. The european philosopher Diderot wrote an essay about is Dressing Gown. He had accquired a new dressing gown and as he sat there reflecting in the glory of it, he noticed how shabby his chair looked. Then he got a new chair and his rug looked out of place. You get the idea. I’ve seen so many occasions of people buying beautiful homes and their futons and Ikea furniture just dont cut it, they need nice stuff now.
Is it too early to say “I told you so” to the likes of Gary Watts, Leslie Appleton-Young, and other California REIC “experts,” or would it be wiser to wait for six more years — the time it took from the start of the last California housing recession until the foreclosure rate hit its peak?
———————————————————————————
Foreclosure rates, default notices soar
Analyst credits rise to flattening house prices
By Roger M. Showley
STAFF WRITER
October 14, 2006
San Diego County is experiencing mortgage foreclosure rates not seen for the past eight years, two monitoring companies reported yesterday.
Locally based DataQuick Information Systems said foreclosures totaled 171 last month, more than 10 times what they were a year ago and the highest since 1998.
http://www.signonsandiego.com/uniontrib/20061014/news_1b14default.html
Michael C. Fratantoni, senior economist at the Mortgage Bankers Association, said the rising level of default notices and foreclosures in California still does not approach the national average.
____________________________________________
The tsunami is now visible from the shore line and this guy has obviously chosen not to tell others to run for higher ground. I hope he gets sucked out to the sea!
As always, Austin is 3 years behind the coasts and the official runup begins…
http://www.statesman.com/business/content/business/stories/statesmanhomes/10/15/15whatworth.html
What I don’t understand is why everyone in Houston and Austin (apparently) think that California money is here? Californians spent a lot of money in Hawaii the past 2-4 years, and Hawaii has been at a complete standstill for at least 6 months. The west coast is not buying Hawaii anymore. According to a longtime broker I spoke with two days ago, only the locals are buying and they can’t afford anything over 300k, which is most of the past 2 years of construction. He closed his Hilo office this summer and works out of his home in Kona, has lots of time to fish and jog, maybe too much free time he said. He expects lots of foreclsosures in 6-8 months, and two years before anything starts to turn.
They’re in Austin buying in the $180-300K range. A co-worker was outbid on 4 different houses, all by Californians. On her street where she finally bought, there are 9 houses complete and and 7 are occupied by Californians.
I should also note that I sold my house in June sight-unseen to an investor from San Diego.
Front page news today in the local newspaper for Spokane, WA talks about massive layover at a Liberty Lake cabinetmaker (next door to Spokane) due to the slowing of the housing market.
“Liberty Lake cabinetmaker Huntwood Industries laid off at least 120 workers this week, cutting costs in the wake of a slowdown in the U.S. wood products industry.”
http://www.spokesmanreview.com/breaking/story.asp?ID=7655
So far, prices in Spokane have remained high, but the inventory is over twice what it was at the beginning of the year.
I don’t know if this has already been posted somewhere on this blog (I did a search), but more from Washington State:
“Gov. Chris Gregoire has directed the state Employment Security Department to help workers who will lose their jobs when Longview Fibre Co. closes its sawmill near Leavenworth, Wash.
The company announced Thursday that it will close Leavenworth Wood Products, its only sawmill, within 60 days. The sawmill was built in 1991 and employs about 100 people. It has produced between 65 million and 70 million board feet of lumber a year.”
Forgot the link:
“Governor promises assistance for Longview Fibre workers”
http://seattle.bizjournals.com/seattle/stories/2006/10/09/daily23.html?surround=lfn
Thanks for the tidbits about layoffs in the WA. lumber industry,
Spokanerenter.
I was wondering what was going on with that. Been hearing a lot about the Canadian industry troubles in the past week, but this is the first I’ve heard for WA.
I noticed this blog from Sacramento Landing Housing Bubble.
I’m a superintendent for a large residential builder in the Bay Area and Sac markets. On monday we laid off 1/2 of our hourly workforce. If things don’t improve, cuts will become even more severe. I think I have 6 more months- tops. I am saving as much money as I possibly can- I know in my heart I will never make 100K+ a year again. I laid off a guy monday who made 23.00/hour. He’s a Mexican who bought a house in Modesto for 345K, a bargain he thought- lots cheaper than a house in his native San Jose. Now here’s a guy with no real skills (he’s what we call a “detailer” the guy that touches up and tunes up the house right before you do your walkthrough). He’s got a 30 year mortgage with a payment of over 2k per month. What is HE going to do?
This shit sucks ASS! Why were so many people who had NO BUSINESS “buying” homes allowed to do so? It looks to me like this is gonna snowball- heres another anecdotal case of a guy getting laid off due to a housing inventory glut- a glut he’s gonna exacerbate by adding ANOTHER house to the pile of unsold stucco boxes. He’ll soon be walking away from that house, like THOUSANDS of others are doing right NOW.
Mebbe I’m getting caught up in all this doomerism, I dunno, because all the big players in EDH (Pulte, Toll, Elliot) etc are building inventory RIGHT now like crazy- there are mass grading operations all over the county, if the slow down is that bad, why are so many builders still cranking them out????
Friday, October 13, 2006 6:59:00 PM
Maybe the “touch up” Hispanic guy can get a job “touching up” the detention camps and debtors prisons being built across the U.S. (the thought causes me to shudder, about what a nation we’ve become).
“I laid off a guy monday who made 23.00/hour. He’s a Mexican who bought a house in Modesto for 345K, a bargain he thought- lots cheaper than a house in his native San Jose. Now here’s a guy with no real skills (he’s what we call a “detailer” the guy that touches up and tunes up the house right before you do your walkthrough). He’s got a 30 year mortgage with a payment of over 2k per month. What is HE going to do?”
Don’t know. Does anybody know?
He’ll get two $8 - $10/hr jobs.
Yeah flipping burgers at McDonalds and Burger King until one of them finds out he is working for the other and they find that a conflict of interest and he gets fired.
Why are the builders building? Simple, they are publicly traded companies and if they stop building, their stocks stop trading and tank. So they build.
While the mass gradings I’ve seen are outside the geography I wish to buy in… I love seeing it. They will house someone who might otherwise have competed against me.
The layoffs have just begun.
$23/hour for detailing? I’m thinking that will be $15/hour pretty quick…
Neil
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“Why were so many people who had NO BUSINESS “buying” homes allowed to do so?”
Because too many Crooks were certain to make a bundle while it lasted and still are. The day that American Dupes, and I mean the majority of the “educated,” understand that what we have is a Fraudulent Financial System, overseen by Fraudulent Reserve System, where people can lend money, FIFTH HAND!, and make a commission, regardless of any concerns of the lent money ever being repaid, is not a free market system, but a free ride system. Who is at the center of it all? Bankrupters and Fraudsters of New York City (BFNYC), a group of born-and-bred parasites, making an unseemly living by perpetrating financial fraud in all its forms.
The good thing is that it will come to an end due to over-use, i.e., ab-use, like a drug addict, and the bad thing is that it will come to an end, because it guarantees the Greater Depression that will engulf the world economy.
Jas Jain
A house of cards ready to fall!
Dominoes are tipping!
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You can say that again.
Sounds like an exact scenario being played out in the Inland empire(riverside/SaN bernardino). The so-called booming IE economy is/was largely driven by RE construction
activity, and all the related ancillary activities such as lending, infrastructures,retail, furniture wholesalers,plumbing $ heating,Gov,t spending,artitectural planning,ect. A lot of Mexican/CAmerican immigrants such as your $23/hr layed -off worker also purchased homes all over Scal/IE last several yrs which drove up Demand/prices for the $400,000 range “starter” home in such places as Riverside and the deteriorating inner LA burgs. These folks probably had no inkling of the fluctuating nature of the Construction business, and will in fact toss the keys back to the Banks when they get laid off . This will be played out all over Scal, especially in IE and the inner-city LA areas. I heard recently that riverside/San Bernardino were near the top in national foreclosure rates as measured on a countywide basis.
And yes, last i checked back in late summer of 2006, the HB’s were still grading like crazy out in the IE for even more housing tracts.
Here’s a nice one for most non-sequiturs in one paragraph:
http://miami.craigslist.org/rfs/219301702.html
“With demand for affordable condos at an all-time high, the ParcCentral makes perfect sense.” Uh, right.
quicky from my neck of the woods. Looks like the great & magnificent OC isn’t so different after all–
Coto de Caza (92679) — 176/307 reduced– 57.3%
Ladera Ranch (92694) –167/325 reduced — 51.3%
Irvine (all) — 582/1167 reduced–49.8%
my area (92604-IRV)– 68/128 reduced-53.1%
All OC –7827/16797 reduced–46.5%
for those not in the area, Coto median is about $1M-sfr, Ladera $918k, irvine combined around $800k.
Reduced % has gone up by about 10% for the Irvine #’s in the last 90 days or so.
Cracking in the UMC.
Here is another nice home in the Hood of Sacramento for only $292,500.00, what a bargain. The local mall, previously called Florin Mall shut down. Would you buy a home an area that could not support a local shopping mall and I am not talking about a strip mall, this mall had anchor stores, Sears and JcPenny’s.
http://sacramento.craigslist.org/rfs/219592332.html
It looks like a sad house. I offer $80,000 for it.
Ok last one,
This dump in the hood is near one if not Sacramento’s highest crime areas and you can have all that for around $180K, but price is only good for this weekend. Let me tell, you this neighborhood is a shxx hole. The price of this Cracker Box should be at 50K at the most.
This neighborhood is a crack dealers dream.
http://sacramento.craigslist.org/rfs/217319827.html
If they put a Koi pond in they would probably get multiple offers.
I just did our tax return for 2005 and I am really pissed. If you don’t have kids or a house, you get royally screwed. I have to pay the bastards a lot of damn money
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You got representation with the taxation! Aren’t you happy to pay all those taxes for the Right to Vote?
Jas Jain
Tell me about it.
Go back to school! Lower tax bracket since you’re making less $, a tax break for paying tuition, plus once you’re out, the interest on your student loan is tax deductible.
The American Revolution started due to something like an 8% tax rate, and one could argue they had better representation in government that we do now!
http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_wasik&sid=aRmF45ghi5wg
Good read. Surprisingly few people discussed outsourcing and free world trade as something to depress real estate prices. Most Americans do not look beyond their front windows. They don’t want to discuss problems. Then they put themselves into deep trouble because they do not see these things coming. In the mind 1990s a colleague of mine (software engineering) showed me a newspaper clipping of people in India working as software engineers for GTE (or maybe GE). The software engineers were earning 1/10 of what I was earning and they were in SEI CMM level 5 organizations (a high rating for software engineering organizations based on Carnegie Mellon University’s standard). I filed that article in my mind and referred to it. Became a renter in 1996 and focused on saving instead of building up material things.
The funniest thing is that yesterday morning I got a phone call from a job recruiter - some woman. I could hardly understand her. I could tell English is not her first language. I had her tell me the job description twice, but stil could not make out more than two words. I finally asked where she was calling from. This time I heard her say India!!! So job recruiting is now outsourced to India! I kindly said I’m not interested. I did not tell her why - the reason I could not understand what she was saying. I have no qualms about getting a job from someone in India to work in the U.S. But it was an eye-opener, to say the least!
The handwriting is on the wall. Americans have had it too easy the last 50 years. We have to allow other nations realize the merits of adopting free markets in their societies. The only reason we Americans had it so good is that we were one of only 4 or 5 countries with relatively free economies. Now many nations have freer economies than the United States. The problem is not world trade. The problem is with fat lazy spoiled Americans. If you (I’m not talking to Txchick57, but to Joe Soccer Mom) did not see this 6 years ago, it is not my fault. But if you think the cure is to coddle your lack of productivity by slapping a bunch of tariffs so that you can have a 3 hour internet break at work, you got another thing coming! You are dragging America down, along with the 150 million others similar to you, Joe Soccer Mom!
The housing bubble will burst and there is no saving it.
Lenders have done all they can short of paying people to take money.
Whatever was blowing up the balloon, is out of breath.
While the rest of the economy might be affected, each sector has its own problems. These are not all “overprice” assets like housing.