Bits Bucket And Craigslist Finds For October 16, 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
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He doesn’t get the new paradigm either.
http://www.youtube.com/watch?v=lPnA1cnewLA
David Lereah has purchased condos in Florida. ROFLMAO!I wonder if NAR is going to bail his a$$ out with “loans” that ultimately are never required to be paid back? (This is, after all, an acceptable form of CEO compensation.)
mike morgan vs cramer
this is one of the best stories i´ve seen the last month.
http://globaleconomicanalysis.blogspot.com/2006/10/kool-aid-krispy-kremes.html
jmf-All that can be said is that the article is sobering.
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The success of a shrill and a charlatan like Cramer says a lot about American investment climate.
Jas Jain
No Debt Problem In America?
“Homeowner - This one really hurts, and this is the next wave of the massive tidal wave hitting this industry. As surfers know, the third set is the biggest. This homeowner purchased her home for $390,000 plus $15,000 in closing costs. It is now worth maybe $300,000. Their interest only ARM is scheduled for refinancing. The bank told them they need to come up with additional cash to cover the drop in equity. But they don’t have the $75,000 the bank wants. And even if they sell for $300,000 and clear $280,000, they can’t pay off their $390,000 mortgage balance. You see, their mortgage was 100% and it was interest only. They are going to walk away from the house and give it to the bank. The bank, if they are lucky, will sell the house for $300,000 less commissions and expenses. Maybe they will net out at $280,000. The math is simple. The bank, at best, will lose at least $110,000 on a $390,000 mortgage.”
A dear woman, the Controller of Canton of Zurich, visited me when the Housing Bubble was still gathering strength. It was very obvious to me (an engineer, while she being in finance) that the Housing Bubble was a direct result of what later was termed “Reckless Mortgage Lending.” It was also obvious to me then that the US was building a catastrophic debt problem. Anyway, we had a very disagreeable exchange on the subject of the mounting debt problem. She, being a Swiss, born a German, couldn’t imagine the recklessness of American bankers. Bankers are supposed to be unpopular for saying no to those who want to borrow, but for the past decade, or two, these once conservative gentlemen, turned into Debt Pushers. My intellectual mentor, Joseph Schumpeter, taught be that financial “catastrophes” are a result of “bankers’ mischief.” Well, I have been watching that mischief in full force. Now, all that remains is the catastrophe in full force.
Jas Jain
just to bad that the first victims of this will be the savers that have deposited their money, and not the crooks that run the banks. If things get bad the banks will fold Argentina-style and all the management will retire early with their fat bonuses and paychecks of the last 5-10 years. And the crooks higher up the food chain (like those at the BIS and in the London City) will still be collecting interest on all that bad credit.
Yeah, I laugh at those Washington Mutual commercials where the cadre of old-timer bankers is making fun of the new WM banker, but the new guy always gets the last laugh. Perhaps the old timers just have a little longer to wait.
There is not doubt that there will be many individuals and insititutions like this taking massive losses. The question remains how many such cases will there be as a share of the total. Opinions differ. I guess all we can do is wait to find out.
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I am sure that you have heard of the term — Stress Testing.
The Stress Testing for the US economic system, especially, banking, means: Could it withstand a depression, or a deep recession like 1980-82?
The idea that our govt., with the help of the Fed, wouldn’t allow a depression is childish, at the very least, and idiotic, at worst.
I am from a family of businessmen, with moneylending being a significant part of the business. Even though I didn’t enter the family business I understand the business better than my most successful relatives who are primarily moneylenders. If you ask me to approve loans on homes, I will limit the amount to the lowest appraised value in the past five years. Why? Because prices could fall at least to what they were within the past 5-10 years. It has happened countless times.
I think that the US has at least $2Tr. of mortgage debt, thanks to re-re-re-financing, that would be under the water within a year or two.
Jas Jain
I will limit the amount to the lowest appraised value in the past five years.
Doesn’t matter-the rubber stamp number hitters have been in control ever since Congress dissolved the FHA/HUD fee panel system and mandated state licensing of appraisers.
The sludge pile has been building for a decade plus.
Interestingly, I read an article about a year or maybe eighteen months ago. The European Community did a form of stress test on itself, only it was testing whether it could cut off the US market and prevent the spread of market contagion. They apparently were able to do so, but the very fact of the testing indicates 1) they forsee a scenario where the US goes sour fast; 2) they are at least working on ways to stop the spread of financial chaos - think of it as building firebreaks before there is a forest fire; and 3) even if they weren’t prepared at the time, they have learned from the test and it becomes much more likely that they will be prepared in the future.
Of course, it’s entirely possible that the medicine might be worse than the cure. A bad financial cold in the US might trigger Europe’s defenses, which could bring about the very series of cascading failures which are theoretically being prevented in the first place. Who knows. But it’s very interesting all the same.
Good except the US has about 12 T in mortgage debt, by rough figures.
Real Estate Agent - She sold 10 of the 132 units I just mentioned to her friends, family, banker and co-workers. They’re all going to walk away from their $40,000 deposits, so they don’t lose $250,000. The developer will be stuck with 132 units that are not worth what it cost to build them.
With friends like that, who needs enemies?
The FDIC article referenced in the link to Mish’s post is also well worth a read.
http://www.fdic.gov/news/conferences/2006_Economic_Outlook/whitney.html
I loved that! It hit the nail on the head.
When I had thoughts similar to this last year, I wondered what was wrong with my thinking….it was obvious to me that a good percentage of home sales in bubble areas (florida, vegas, etc.) were to flippers, not “real buyers”, and eventually it would end causing a massive crash.
I liked this anecdote he related:
Real Estate Agent - She sold 10 of the 132 units I just mentioned to her friends, family, banker and co-workers. They’re all going to walk away from their $40,000 deposits, so they don’t lose $250,000. The developer will be stuck with 132 units that are not worth what it cost to build them.
That R-E agent is going to lose a lot of friends and family over this…they’ll never speak to her again!
I also didn’t realize that with an ARM the bank can “call” it at any time if the appraised value of the house drops far enough! OUCH! So even if you can make the payments ’til the end of the loan, you may still be forced out.
This is an angle which hasn’t really been explored in great detail. I’m pulling some ARMs from my files to take a peek at typical language and will post some details later.
I can only speak about Virginia loans, but this is what I find. First, an overview of the language. Virginia uses a Note and Deed of Trust system. This is different from a mortgage system. A mortgage is essentially an absolute conveyance of the title to the property, say, to a bank. A Deed of Trust places the legal title of the property with an independent Trustee, who can foreclose the title if the lender demands it and certain conditions are met. The “homeowner” retains what is known as an equity of redemption - meaning they can have the lien cleared or get the title back if they make payments as required.
Now, the meat of the matter. Foreclosure under a Deed of Trust is triggered in one of two ways: monetary default and nonmonetary default. The monetary default is just like it sounds: the borrower doesn’t pay the monthly payments (or taxes or insurance, whatever) as they fall due. Nonmonetary defaults can include using the collateral for criminal purposes, waste, etc.
The point is this: if there isn’t a default and there isn’t a specific clause relating to the value of the collateral, the loan can’t be accelerated and the property can’t be foreclosed.
I’ve skimmed a half-dozen notes and deeds of trust and I haven’t found any which have a restriction regarding the property value nor any right of the lender to demand new appraisals or payment of what is effectively unsecured loan amounts. I do not believe we will be facing any significant demands from lenders to bring cash to the table. It is possible that there are exotic loans out there which have such clauses, but I haven’t seen any and think they would be relatively rare.
I do not believe we will be facing any significant demands from lenders to bring cash to the table.
Interesting post. One question though: Surely the banks can demand an appraisal for a refinancing. Doesn’t this effectively cause money to be brought to the table? Otherwise, default occurs by nonpayment (assuming the homeowner is refinancing because s/he can’t afford the payment.)?
You are correct. My point is they can’t “call” the loan at random or because the collateral value has decreased. They can certainly decline to refinance it, but then again, they must know that doing so will cause the default.
This just emphasizes what many have been saying: there’s no way out.
As long as the loan obligation is been met under it’s term (interest only payment, whatever), why would the bank call the loan? Especially in a difficult climate?
The appraiser is going to look at current sales prices, and the bank is going to ask for additional funds to meet the equity requirements.
No he won’t. The rubber stamper will pull some sales from a superior subdivision to rubber stamp the number and slop together a misleading report.
He’ll knuckle under to what the mortgage broker tells him to do because he’s been fudging values for the last 4 years.
He’ll be black-mailed by his previous moral cowardice to do the right thing.
This RE game is diritier than most people think.
Happening as we speak. A friend just called to say he’s trying to get some money out of his downtown Seattle condo. The appraiser stopped by today to look the place over and informed him it wasn’t possible because comps have dropped in the building since another owner sold for 50K under “going” last month.
Alas, that’s not the end of the story. They’re going to talk more later this week to see how they can “make it work”.
Truly bubblicious!
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My Academic Background
Imploder: “I am confused. Google search lead me to believe that you were a “professional” economist. Or are you an “Armchair” economist. Or just some rich guy talking?…. Forgive me if I misinterpreted what I found…. ”
Quite to the contrary. I have not taken a single course, or have sat in a single class, in the area of economics!
I do have a Ph.D. in EE (Digital Signal Processing, Information Theory), but most of my expertise is in statistics and correlation of variables, something very useful in economics and investments.
Jas Jain
Jas –
You may already realize this, but many prominent economists were engineers first…
I have a BSE in Comp. Engineering. I am fascinated by Economics. It does appeal to the Enginerds.
Engineering and economics do have a lot in common. For example, both reward those who most efficiently use tools to achieve their objectives.
“Food At Disney World Is Disgusting [Very Unhealthy]
That is the conclusion of the nutritionist hired by the company.
The current CEO, Bob Iger, promised that he would introduce healthy food for kids at the company facilities using Disney characters. But, that would mean losing money. So, nothing has been done and not much should be expected. The food at Disney has been found to be far unhealthier than at Mickey D.
The above was reported on Bloomberg. This also reflects a lot about the American System.
If a Corporate Crook can make a buck by harming the general population, be they children, he, or she, will and he must, because otherwise he will be replaced by a Crook, or a Crookette, who will. This sums up the ethics of our current system. Morally blind Americans call these Crooks philanthropes, because they give part of their loot, via plunder of the shareholders, to charities. These people are misanthropes. When I see Bill and Melinda Gates on TV, I see two depraved human beings. As people who know me can attest that there is not a single person that I am envious of (I may well be the most contented man in America). Even when it comes to money moderation is the golden path. But don’t preach that to a population that worships the Almighty Buck. Sadly, Americans have been duped to their own detriment in pursuit of excess. Nothing exceeds like excess!
There is no material depravity in America, but lot of moral depravity. Trust me, the best for Americans is way behind them and what lies ahead is misery unimaginable for most of them. They are being reined over by one of the most evil group of men (and a few women). Those who support Corporate Crooks of America are responsible in the same way as other populations who have supported evil leaders.
The Housing Bubble is just one more manifestation of Corporate Crookery in America. The blame lies at the very top – Bankrupters and Fraudsters of New York City (BFNYC) and their agents at the Fed.
Jas Jain
Unfortunately, this is also spreading to India. I don’t know if it can be arrested there.
India IS a Bad Copy of America, especially, for the past dozen years.
We have Hollywood; India has Bollywood, a Bad Copy, I might add.
Jas Jain
One of the things I admire about India is that there are a lot of folks there who are seriously into Ayn Rand and Objectivism. I like Objectivism but never liked Ayn Rand’s personality and diatribes. Now I expect a lot of tantrums from the peanut gallery directed to me. Some people go nuts when they hear the name “Ayn Rand.” waiting…
I sure have read Ayn Rand and her philosophy, including Objectivism. It is very appealing but when you see the real world it is not very applicable.
Jas Jain
The funniest thing about objectivism is that it seems to lead modestly talented upper middle class people to “objectively” determine that they are the natural leaders of society, and they are somehow being held back from productivity and success by “the man.” Not really a very different result from the messages targeted at other demographics by other purveyors of Koolaid.
lol
that ran through my mind too but no need to start another shit storm on here
Ayn Rand did more for individual freedom than anyone. Her one fault was that she still saw the need for some government, but that was because she was a victim of Soviet socialism and the Cold War.
“Ayn Rand did more for individual freedom than anyone. Her one fault was that she still saw the need for some government…”
Hmmm, Mark, I detect some extremism here. Trust me, I loath big govt., but no govt means living in a tribal setting not unlike what part of Africa has had. Yes, it has it charms, but…
The problem we have is the other extreme of civilized life. We missed the path of moderation somehwere along the way to Big Govt.
Jas Jain
Right Jas. Ayn Rand devotees shoulds go spend some time in the Libertarian utopia of Somalia. No government there to keep you down!
Yep, I was really into Ayn Rand when I was 14 — childish minds love to believe in superheroes (and that they secretly are a superhero). I think if Ayn Rand appeals to you and you possess the intellectual goods you move on up to Nietzsche (Ubermensch, etc.). Then, if you plan on living in the real world, you drop the whole thing and get a life.
Supporters of government are child-like in their belief of “Santa Klaus”. Now pay your taxes.
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“Supporters of government are child-like in their belief of “Santa Klaus”.”
Yes. It is time for us libertarian brats to shut up and listen to our ultra-libertarian elder. OK, Fuehrer, we are waiting for the marching orders.
“Now pay your taxes.”
I wouldn’t mind paying some amount of taxes; what we pay now is thugry — Protection Money — pay it or somethong bad will happen to you, like jail term.
Jas Jain
“This sums up the ethics of our current system. Morally blind Americans call these Crooks philanthropes, because they give part of their loot, via plunder of the shareholders, to charities. These people are misanthropes. When I see Bill and Melinda Gates on TV, I see two depraved human beings.”
Very well put, and very true. This is a very accurate representation of the fiends in the corporate world. Attribute it to the kind of pseudo “caring and philanthrope-like” B.S. real estate agents do, convincing their clients to spend more than they can afford and more than they have, just for profit for the RE agent.
And we all know the end zone for that RE agent is profit, not a genuine care for the client (with the notable exception of a few RE agents out there that are actually not like this).
Whether it is a life of excess in Americans that permits it, I do not know. It is possibly that, added on top of the fact that so many people are so easily swindled.
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“Whether it is a life of excess in Americans that permits it, I do not know.”
I think that I do have some insight into this — No population in history has been subjected to the amount of brainwashing, from a very early age, than the Baby Doomers generation in the US (I am in the same age group). No?
The end purpose of the brainwashing? To SERVE the interests of the economic ruling elite who control the propaganda organs.
“It is possibly that, added on top of the fact that so many people are so easily swindled.”
Yes, drinking lot of coolaid “what me worry” does that to people.
Jas Jain
The end purpose of the brainwashing? To SERVE the interests of the economic ruling elite who control the propaganda organs.
I have believed this for a long time. It is naive to think that the bottom line isn’t their ultimate motivation.
Jas Jain ,
Let me get that for you. (picks up tinfoil hat)
“Morally blind Americans call these Crooks philanthropes, because they give part of their loot, via plunder of the shareholders, to charities. These people are misanthropes. When I see Bill and Melinda Gates on TV, I see two depraved human beings.”
What specifically makes Bill and Melinda Gates “two depraved human beings”? Just because Microsoft makes some crappy software?
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“What specifically makes Bill and Melinda Gates “two depraved human beings”? Just because Microsoft makes some crappy software?”
Of course not. It is how they got the tens of billions — Thru Accounting Fraud. In case you don’t know, Bill Gates has publicly apologized for the use of stock options compensation. But, can he undo all the stock price gains that resulted from the Fraudulent Accounting?
Another thing that you may want to know, his best buddy, Warren Buffett, has been opposed to the accounting schemes used by Microsoft and most of the Tech Scammers since 1995. Now, please tell me how high would have CSCO and MSFT gone had they expensed stock options, as was deemed correct before 1995 and after 2005? Oh, let us allow fraud for ten years? What a bunch of morally bankrupt people have we bred? Legalism of Americans is very damaging; they juts don’t know its full cost yet.
The Scam Options Fraud would end up costing the general public close to $5Tr when we look back in 2010.
Jas Jain
“Companies who fraudulently used post-dating of options to steal from shareholders” = too big to prosecute. If everybody was doing it, then it is smart, not illegal.
Microsoft is pretty much the one company that would have made a pretty penny even if options were fully expensed (which is why they did just that a few years ago). Monopoly profits will do that for you. Cisco is just GM with a fancy dot com aura around it.
Countrywide Financial Corp., the largest U.S. mortgage lender, is getting buffeted by bondholders as it prepares to sell as much as $4.5 billion of new debt in a slumping housing market.
The extra yield, or spread, investors demand to own the company’s $1 billion of 6.25 percent notes due in 2016 compared with similar-maturity Treasuries has widened by 24 basis points to 136 basis points since they were sold in May.
This is on Bloomberg:
Countrywide’s Borrowing Costs Rise as U.S. Home Slump Worsens
Things are beginning to turn….
Country is the perfect stock for Crammer to recommend
“Strong Buy” How this idiot appeals to an investment public tells me more about America than I could ever believe.
CNBC is an entertainment station, and anything to do with investing is just by luck. Crammer is the “pied piper” of
the masses.
I posted in yesterday’s bit bucket that Countrywide had a lot of staff layoffs last Monday. Cuts were up to 60% in some departments. Coutrywide is among the top four employers in Ventura County.
I have a plan to save their jobs
Countrywide should give all its employees a 100% Option ARM loan so they can go out and buy a new home. That way the employees will have work to do approving their own loans. Then next month they can all get new loans and sell each other their homes and have more work approving the new loans. This can go on and on forever so that the company will always have cash flow and meet Wall Street targets for loan approval.
Don’t gest with us….this is happening for real. Sacramento suburb: FB Flipper paid $625,000 for a home, rather than walk away from $62,500 deposit. Today’s value: Last sale at $517,000 15 days ago. Last week, the FB Flipper puts the property in escrow at $585,000. I was stunned. How? The FB Flipper said the new buyer is getting a 10% cash back loan. WHAT? Yes. 10% cash back at close. The real sale price is $526,500. The seller (current FB Flipper) agreed to script a $585,000 sale, but take $526,000. The appraiser came out the very next day and “confirmed” the value.
This is a scam with some real dicey people taking on a lot of real estate under shady scenarios and putting a lot of cash in their pocket. The seller (FB Flipper) gets out from under the depreciating asset, losing just a bit more than walking away from the deposit 6 months ago. Amazing.
Imagine, they are FNM’s number 1 loan originator and FNM still is yet to report; I suspect a secret FNM bailout is in the works; they are probably awaiting congressional approval, however. Or, perhaps they are buying time in hopes enough of their losses turn back to gains.
thanks for the post…very informative about where we are headed
Here’s an interesting article about the teardown trend in suburban Chicago:
http://www.chicagotribune.com/business/chi-0610160128oct16,0,1372528.story?coll=chi-business-hed
It’s not so much about the bubble bursting (although I think it way downplays how far these properties have to crash), as a statement on the excess of the past few years.
Good article. A quote:
“Still, Hinsdale remains the Mt. Everest of the western suburbs for people aspiring to ascend the heights of high-end housing.
“It’s kind of a bubble community, compared to other suburbs, because it has a very special, unique downtown,” said builder Jim McMahon, who is constructing a $5 million-plus house on Fourth Street, a few blocks from the rail station.
‘It’s a place where kids can walk to a store and get a Slurpee,’ he said.”
If I was building a $5 million spec house, I would try to come up with a better selling point than that. And $5 million? That would make a Frank Lloyd Wright house in Oak Park worth a billion dollars.
What a joke. Builder hyperbole. This s a crude version of what I was talking about yesterday. Trying to manipulate the emotions of people for profit. You have to pay $5M to live in a neighborhood where your kid can walk to the store? BS. And rich isn’t safe. Just ask the parents of that Utah kid who was kidnapped from her bedroom.
Interesting. My old neighborhood is in the news. I sold my townhouse in Hinsdale before moving to San Diego. I can vouch for the tear-down craze there. It’s also happening in Downers Grove, Lombard, and Westmont as well.
“It’s kind of a bubble community, compared to other suburbs, because it has a very special, unique downtown,” said builder Jim McMahon
At a cursory, glanced read within an article about Chicago, I thought it was the famous Super Bowl quarterback. Of course it isn’t, but, how about those Bears!!!
So, either David Liah-rah really believes his own BULLSHIT, or he is the best bold faced liar I have ever seen. Has he been there during a good hurricane?
I love reading this blog and need some of your fine imput.
I am wondering what your analysis of the market in Charleston, SC is. There is a lot of new home builidng, but primarily in the suburbs.
This is the Q2 2006 market report from the MLS- James Island - $327,552 - 47 days on the market. What other indicators should I look for. My husband wants to buy and I think we should wait.
Thanks for all your imput.
I don’t know specific conditions in Charlston, but SC is the most overbuilt state according to the latest reports that I have read. Can you imagine 10% (TEN PERCENT) increase in housing units in one year?
Plead with your husband: “Honey, please please let us wait for at least two more years.”
Best of luck.
Jas Jain
My last comment did not post. i was wondering if some one knowledgeable could give me an analysis of the market in Charleston, SC. My husband wants to buy and I want to wait. I need numbers to show him.
Thanks
Charleston is a huge bubble. Air is leaking now and will increase velocity to Hugo proportions.
Was Victor Hugo very rotund? (”Hugo proportions.”)
‘South Carolinians are losing their homes and falling behind on their bills at a higher rate than the rest of the nation - part of the price of the state’s high unemployment rate and the rising number of high-interest loans.’
Textile and Furniture industry moved to China.
Thanks, ya’ll are awesome
I posted this local report late last night, so most probably did not see it. So, I thought I would send it again:
Clearwater Beach/ Indian Rocks and the GULF COAST BEACHES:
These areas have been tear-down condo havens for the past 3-4 years. Many houses and small apartments have been dozed to make way for the “new economy”. It’s been happening all over the Florida Coast but a few things have changed.
Nothing is happening. The razed lots with the pretty pictures are still vacant, and the pre-construction price signs are starting to look old. I saw this in Jax Beach and Atlantic Beach on the other coast a few months ago.
In one case in Clearwater, the “developer” is trying to sell Condo/time shares…MONTHLY for 285,000. That’s about 3.5 million per unit, a ridiculous price, but then, why not? Everything else has been pretty ridiculous.
Existing construction of all the towers that got out of the ground continues at a snails pace. Units that could have been completed months ago are still moving along………..SLOWLY.
But, here’s the BEST observation I have seen All year:
Vacant land, originally had 3 or 4 buildings with 6 to 8 rental units on it, and I think on house, with a PRE-CONSTRUCTION Condo picture on it. The sign was boarded-over with a new sign:
LAND FOR SALE: 32 Units.
The dumbasses got rid of cash-flow positive units, bought out the original owners for a pie-in-the-sky dream of easy Condo dollars.
They are now trying to find someone to bail them out.
Good luck, boys!
Note the quoute from Ben:
Cloudy Housing Forecast Could Mean Dark Days for Consumer Economy
Prediction: In Five Years, Prices will Be 15%-20% Lower After Inflation
By Bradley Johnson
Published: October 15, 2006
LOS ANGELES (AdAge.com) — If Moody’s economy.com has it right, U.S. home prices will fall next year for the first time since the Great Depression. That’s depressing for owners and gives buyers good reason to stay on the sidelines. But here’s a more unsettling forecast: Housing prices five years from now will be about the same as they are today — and 15% to 20% lower after inflation.
That’s the bearish prediction of the UCLA Anderson Forecast for California and the U.S., and it has troubling implications for the consumer economy: Housing could be mired in a malaise for years to come.
“We’re moving to a very low-volume period that’s likely to be with us for a long time,” said Edward Leamer, director of the UCLA business-school forecast. Speculative fever is over, but housing sales won’t rebound until sellers reduce prices and buyers accept that a home could have no short-term appreciation, he said.
Bubble won’t burst
The good news: The housing bubble won’t burst like the stock-market bubble, where the Dow Jones Wilshire 5000 plunged 50.2% from March 2000 to October 2002. The stock market has since regained most of its losses.
Stocks historically have been more volatile than housing prices. Stock prices fell in nine of the past 30 years. In contrast, U.S. housing prices have risen every year since the end of the Depression, though prices failed to keep up with inflation in nine of the past 30 years.
Researcher Economy.com this month predicted the median price of a U.S. house next year will drop 3.6%. That’s little more than one quarter’s price jump in 2004-05, but it made for unsettling headlines.
21 metro areas
Economy.com sees double-digit drops looming in 21 metro areas, mostly overheated coastal markets, including 10 areas in California and three in Florida. That generally would erase less than a year of appreciation. Local and statewide drops are fairly common, typically driven by recession or regional shocks, such as defense cuts in California in the early ’90s.
Housing prices have a built-in limiter on the downside: Homeowners loathe cutting prices and would rather stay put in hopes of market recovery. That helps explain why downturns take time to play out. Economy.com bets many metro areas won’t hit bottom until 2008 or 2009.
The Fed could cut interest rates in ‘07, but that’s unlikely to jumpstart housing as it did in 2001 given how the mood of the market has changed.
Buyers need to be convinced
Buyers need to be convinced “that they’re not going to buy into a downtrend,” said Delores Conway, who directs a real-estate economics forecast at the University of Southern California.
Consumers have unprecedented access to online information thanks to sites such as Zillow.com and TheHousingBubbleBlog.com. “There is more transparency, especially about prices. It should make the downturn happen faster,” said Ben Jones, the blog’s creator. But a bull market in housing appears a long way off.
http://adage.com/americandemographics/article?article_id=112476
I respectfully disagree with Ben’s quote on the subject. If anything, the internet will make pricing even more confusing for most homeowners (except the few who have the time and intelligence to really see what is going on) and prolong the downturn. With Liarreahs all over the web, there is support to be found for every bubble opinion no matter how wrong.
The 1635 tulip bubble in the Netherlands crashed within one week (more than 90% down) - the internet certainly had nothing to do with that.
I respectfully disagree with your respectful disagreement.
I think the invention of Zillow (for example) will cause people to realize that their housing investment is declining faster than they would have in prior generations. This will cause the smarter ones to get out quick, driving prices down faster.
Of course, we’ll never run a controlled experiment, so who knows…
The Internet does make matters worse. Whether that means prices will fall more rapidly or less rapidly we shall find out in another year or two.
INFORMATION IS NOT KNOWLEDGE! AND KNOWLEDGE IS NOT WISDOM!!
The most salient aspect of the US economy and politics is the Power of Propaganda. Let us see which was that power leads to.
Jas Jain
definitely not; why do you think tulip bulb prices in the Netherlands crashed within a week in 1635 (when news traveled by horse, pidgeon or even slower)? Don’t think it is different now, the equity at stake (some tulips bulbs traded for the equivalent of a huge estate) and percentage of the population involved were quite similar to the current housing bubble. They just didn’t have all the bailout and safety net options of today.
Even the latest tulip bulb mania in the Netherlands (around 2003) crashed FAR slower than the original one, despite (because of?) the fact that most of this new mania was internet-based.
sorry, the above comment was a reply to jp; I agree with the statement from Jas.
definitely not; why do you think tulip bulb prices in the Netherlands crashed within a week in 1635
Because the market was liquid, tulips sold every day. So horse-travel was carrying the latest market info.
In housing, you have the variable that everyone believes that “Housing is local”. So as a homeowner, you only believe the changes in local housing prices. Combined with the ability to find faulty differences (”well, their house sold low, but ours is different”) then denial can go on quite a long time.
Now in the age of Zillow, people can look at their own house. And they know that prospective buyers are also looking at that estimate.
In my area, there has been a 5% drop on zillow in one week. (!) Let me tell you, that has caused quite a stir among the owners of this little piece of paradise. And I seriously doubt that conversation would have occured 10 years ago.
But perhaps you are right, perhaps the internet flow of information will have no effect on housing prices.
When hopeful sellers see the price go down, they can still be optimists: “Look, prices have already dropped so much. If I hold out just X more months, prices will begin rising again!”
Unfortunately, sellers can now get into a “groupthink” mentality where they all decide to hold up prices together (this is why the foreclosures and FORCED sales are so important).
Unfortunately, from what I’ve seen, the sellers are actually more aware of the market than the buyers (haven’t we all seen overpriced homes on the market for 9+months, only to see some idiot buyer come along and pay FULL PRICE!!?).
Once upon a time, sellers relied on Realtors (who wanted to move sales along and would recommend “market” price) to price their homes. Now, they see what their neighbor got last year and have determined that is what their house is worth, the market be damned.
I agree with Jas. The internet will slow things down, if anything. That is what I’m seeing in our area, as well.
Another house in the hood of Sacramento for only $266,000.00. If you want to buy any type of narcotic there will be plenty of dealers near you.
http://sacramento.craigslist.org/rfs/219670814.html
Most of these homes have chain linked fences in the front yard some actually have chicken wire for fences on this street. That’s what I like to see in a neighborhood is nice wire fence in the front yard. For some reasons there are lots of shopping carts available throughout this area, maybe that is a bonus.
Looks like a buy to me, what a deal.You know that is why I do like hoa’s. They can be nasty but at least people keep there yards clean and you don’t have chickens running around the neighborhood.
What a dump. I wouldn’t give them $100,000 for it. If you think that’s bad for Sacramento, in Orange County that place would be asking near $600,000 (and be still on the market for 8 months).
Yeah I know, Sacramento has tons homes for sale in the hoods, and Sacramento has a lot of hoods. These homes are priced between $180K to $299K, depending on size and the number rat droppings. Maybe the size of the rat droppings might come into play, I am not sure.
I think I may start reviewing the crime reports for these areas and then find the nearest rat dropping house and post that on Ben’s Blog.
That’s a good idea, seriously. The one thing that I’ve always felt is missing from the housing bubble discussions is how very VERY bad some of these areas are. Discussion of that would only accentuate the true ridiculousness of the asking prices.
Exactly, I heard that homes in Compton go for $400K, who would pay that only to have your house robbed, your car stolen, and a chance a stray bullet from a drive by will come through the wall board. People pay these amounts to live in complete hell. It is crazy!!!
Belive me homes in the hood in Sacramento hear gun fire nightly.
Here’s a good one from an Austin realtor’s blog. This realtor may need to re-name herself Pollyanna after her insightful analysis of this fellow’s presentation:
Austin & Texas Real Estate Market Forecast: Buy LAND!
Last night, I attended a real estate forecast at a CREW Austin event. CREW is a highly-respected organization for commercial women in real estate. It’s a great group to be involved in because of the high level of trust and ample networking opportunities. I’d say 2/3rds of the attendees were women, but there were a lot of men present.
The forecast was given by Ted Jones of Stewart Title. He’s a very entertaining guy and we had a lot of fun. We discussed the Austin and Texas real estate markets. According to Ted, we are currently overbuilding in Austin, as was happening in California and Florida years ago.
0. Problem #1. Many investors and home buyers are putting less than 10% down on their properties. Around 43% of homes sold in our area were zero down mortgages. Since appreciation is not slated to continue at it’s current rate, these homeowners are going to be in trouble when more inventory is available.
0. Problem #2. Investors and out-of-town buyers hit our market hard in the past 2-3 years. Since many of the homes sold are to people who do not plan to keep them, there will be a flood of inventory since most plan to sell within the next 2-5 years.
0. Problem#3. Ted compared jobs to home builds. We are at .70 jobs for every home that is built when we should be at at 1:1 ratio. Part of this goes back to issue of out-of-town investors and speculators, who are buying much of our inventory at full price even when the homes are overpriced.
Now the good news…
0. Good news#1. Job growth is on the rise in Austin and Texas overall. Many companies are relocating here and we also have a city push to grow current organizations. Commercial real estate is doing very well because of this. The office and retail sectors have never been better.
0. Good news#2. Homes appreciated, on average, about 9-10% last year. Previously, we were holding at a steady 4%. Although they are not expected to appreciate this much in 2007, we will at least maintain our home values for the next few years.
SUMMARY
0. We definitely do not have a “bubble” because we are not so far ahead of ourselves that we’re in a feverish market. Texas property tax rates are a little prohibitive and will usually help balance our markets.
0. By all accounts, this means 2007-2008 is probably ok, but you may want to sell your property within those years before the market starts to cycle back down. This is when demand should still be high, but inventory will not be. ALERT: Most of the new condo communities are slated for completion around the end of 2007-2008. If you have a condo, you may want to sell soon. Unless you have a rental, second-home, or long-term hold, the time to sell is before these other ones are complete.
0. BUY LAND. Buy as much of it as you can because the true value any property is in land. Within the past few years, the cost of land in the City of Austin has grown at a much higher rate than before. I tried finding affordable acreage and could barely find any in Travis County, let alone the city. Smart investors will use their 1031 exchange or Self-Directed IRA to buy land for later use or a long-term hold.
If you have comments, questions, or need advice, feel free to contact our team.
it’s from http://texasrealestateblogs.com
This is typical Texas RE bullshit. This broad will be back working the pole within a year. BTW, what are “commercial women?”
I don’t think I want to know the answer to that.
FYI - Best guess is women who sell commercial real estate
Good thing I had set my drink down before reading that. As it is, I’m drawing some looks about the laughter from my desk.
0. We definitely do not have a “bubble” because we are not so far ahead of ourselves that we’re in a feverish market. Texas property tax rates are a little prohibitive and will usually help balance our markets.
Thanks for posting this article, with the link, as our family is about to move to Texas. They can say they’re not in a bubble, and maybe they’re not, but the number of foreclosures in Texas are higher than in most of the country. That has to be taken into account.
There is a bubble in TX as big as anywhere else. You are reading material written by someone with a vested interest in your thinking there is not. A “commercial woman” to boot. LOL.
In light of the fact that we’re making our way there and facing the same bubble situation we faced in California (albeit on a lower price scale), I’ll be just as confused about when and if to buy, and what lol
If you were to guess, what kind of a haircut would you see on the horizon for Austin in the next two or three years? There is a part of me that is yearning to get back to the Hill Country where I can raise my kid on some land.
Wait, link didn’t work…
“BUY LAND. Buy as much of it as you can because the true value any property is in land. Within the past few years, the cost of land in the City of Austin has grown at a much higher rate than before. I tried finding affordable acreage and could barely find any in Travis County, let alone the city.”
Reminds me of family members saying that I should buy gold in 1980, for the simple reason that “it is going up like a rocket”. What ever happened to ‘buy low, sell high’, or adding value (re-zoning, building) to land to make money? Oh well, I’m so old school.
–
Aiken, SC?
Anyone familiar with the area’s housing mkt?
I have a friend whom I convinced during her visit in summer of 2005 to dump her place, a 3+1 home on a commercial lot, ASAP (in her financial situation she needs to, badly). The last time she called, 6-8 weeks ago, she hadn’t and I haven’t heard from her since. So, I bet it is not sold. Her realt-whore was not serving her well at all.
Are prices dropping there and fast?
Jas Jain
Our Fed chairman says not to worry about the reverse wealth effect on consumer spending. Other prominent economists are less certain.
http://economist.com/finance/displaystory.cfm?story_id=8028512
David cee said:”Country is the perfect stock for Crammer to recommend
“Strong Buy” How this idiot appeals to an investment public tells me more about America than I could ever believe.
CNBC is an entertainment station, and anything to do with investing is just by luck. Crammer is the “pied piper” of
the masses.
Exactly, I remember last summer, Cramer said that RE was always a good investment, and that it never goes down. Someone that I worked with would chant his preachings like he was a god, while drinking large gulps of the tainted kool-aid.
If you can believe it the builders are getting upgraded per MarketWatch:
http://tinyurl.com/y658ue
Press Release Source: Teuton, Loewy & Parker LLP
LendingTree Sued in Nationwide Class Action Announces Teuton, Loewy & Parker LLP
Wednesday October 11, 8:58 pm ET
IRVINE, Calif., Oct. 11 /PRNewswire/ — The law firm of Teuton, Loewy & Parker LLP announced today that it filed a nationwide class action against LendingTree, LLC and its wholly-owned subsidiary, Home Loan Center, Inc., on behalf of consumers. The class alleges that LendingTree, LLC and Home Loan Center, Inc., which does business as “LendingTree Loans,” have engaged in unfair business practices and false advertising. The complaint was filed in Orange County Superior Court on October 11, 2006.
ADVERTISEMENT
LendingTree’s familiar slogan is: “When banks compete, you win.” With this slogan, LendingTree styles itself as an online lending exchange that connects borrowers to a network of lenders that allegedly “compete” for the borrowers’ business. The lawsuit alleges, however, that in thousands and thousands of cases there is no such competition at all; rather, LendingTree uses its LendingTree.com website and false advertising to generate leads for its wholly-owned, direct-lending division, Home Loan Center, Inc.
Specifically, the lawsuit alleges that LendingTree’s website attracts over 70,000 potential borrowers per month by touting LendingTree as a loan origination service that is not a lender, and claiming that LendingTree’s “origination” service allows lenders to compete for borrowers’ business. The lawsuit further alleges that LendingTree secretly diverts many LendingTree.com leads to its subsidiary, where unsuspecting borrowers are sold loans at inflated prices based on the materially false representation that “competition” has occurred among lenders.
According to the lawsuit, borrowers are deceived into believing that they need not shop for a better loan rate because LendingTree has already done the shopping for them through use of its lender “network.” In truth, the lawsuit alleges, LendingTree uses the “when banks compete, you win” slogan as a gimmick to attract unwary borrowers and sell them loans through the company’s direct-lending division at inflated prices and without any such competition.
The class action seeks declaratory and injunctive relief, millions of dollars in compensatory and punitive damages, restitution, and attorneys’ fees.
A related lawsuit was filed on September 15, 2006 by Fadel Lawandy, a former mid-level executive of LendingTree who was fired for alleged “insubordination” after he complained about LendingTree’s business practices.
Thanks for that post mcat.
GetStucco, you’ll find this interesting (also of interest to PPT non-believers): http://tinyurl.com/ygjuuw
“However, one senior official close to the group said the explosive growth of such funds, the leverage available and the increasing exposure of pension fund money to them had cast doubt on that approach.
Speaking on condition of anonymity, he said: “It’s an unavoidable question that you ought to look comprehensively at how this framework is working? Is counterparty risk management still the right approach?”
A senior SEC official said: “There’s an opening to thinking about alternatives.”
One focus of concern was that hedge funds had access to financing from multiple prime brokers.
“Several years have passed [since LTCM], hedge funds are bigger and significant developments have taken place not just in the mechanics of the prime brokerage business but also the way in which leverage is provided,” the first official said. “The real concern is the transmission mechanism of the failure of a hedge fund into entities of a size that really are of systemic consequence for the [financial] system. You don’t want the failure of a hedge fund to bring down a Morgan Stanley or a JPMorgan.”
http://www.risk.net/public/showPage.html?page=347521
“(also of interest to PPT non-believers)”
Fred –
What exactly is a PPT non-believer? Is that someone who believes with 100% certainty (as a matter of faith) that the PPT idea in any way, shape or form is a tinfoil hat conspiracy theory? What would such a believer have said back in 1999 to the “theory” that Enron was hiding its losses off shore, and would soon go bankrupt? Or to the “theory” back in the early 1970s that Nixon was involved with the Watergate breakin? The problem with 100% certainty that conspiracy theories are bunk is that it opens the door for conspirators to conduct their business without scrutiny.
Some people still deny that the Working Group on Financial Markets even exists. I was addressing those people, not you.
And those foolish enough to think they only operate in an advisory capacity. (see below)
The problem isn’t dogmatic unbelievers, it’s uncritical believers, who weave tales of speculation supported by nothing, and attribute observed effects to unseen causes which they take as confirmation of their speculation.
Asking for and believing on the basis of evidence doesn’t protect or exempt anyone from scrutiny. Believing on the basis of nothing, however, is sure to lead you into falsehood.
Since the collapse of Long Term Capital Management in 1998, the “President’s Working Group on Financial Services – made up of the Federal Reserve, Treasury, SEC and Commodity Futures Trading Commission – has believed that counterparty risk management is the best way to guard against risks to the financial system posed by hedge funds.”
PPT = President’s Working Group on Financial Services. The debate is not about whether they exist, but rather on how they operate. Can anyone enlighten us on this fascinating subject? In particular, do they (1) provide free insurance to the hedge fund industry against blowup contagion, and (2) protect asset prices (esp. headline stock market indexes) against large 1-day drops?
Slam dunk. home run.
I wobbled on PPT before, but when you word it this way, well then your argument is made.
“PPT = President’s Working Group on Financial Services. The debate is not about whether they exist, but rather on how they operate.”
Correct–does it operate in an advisory capacity–yes.
Does it engage in massive financial transactions with secret funds–probably not.
“MOSCOW, October 16 (Itar-Tass) - - The Central Bank of Russia (CBR) has begun investing gold and foreign currency reserves in Japan’s yen, CBR first deputy director Aleksei Ulyukayev said a conference on Monday.
As he said, the volume of investments is very little, but now the number of foreign currencies in which the CBR invests its gold and foreign currency reserves increased to four, the economic news agency PRIME-TASS reports. ”
IMO this is the true beginning of the US currency crisis, when foreign currency owners start bailing out of the dollar and looking for alternate investment. I expect higher interest rates shortly.
Interesting comparison: Go back to exchange rate data from the early 1970s at the end of the Bretton Woods accord (e.g., $/British pound sterling). You will notice a great deal of similarity over the first year after the BW accord ended to the behavior of the $/Chinese yuan exchange rate in the first year after unpegging — generally a clear break in structure with very little volatility. After that, all hell broke loose. Will it be different this time?
–
From a RE professional (not a realt-whore):
“Jas, I sold a house last year to a guy who could NOT get financing on any kind of a used car. But a local loan broker did get him loan on a house and the deal closed. This is a true story — the guy is still driving a 1960’s VW to work in L.A.”
-x-x-x-x-x-x-x-x-
Also, a doopus buddy of mine (very nice and honest handy man) tells me that his land property in Coachella Valley is very valuable and getting more valuable. I am pleading with him to sell it ASAP (this is most of his net worth).
Jas Jain
Real Estate Radio Ads:
Another off-topic item. I have been bombarded here in Tampa with ads from every RE Franchise in the country with puffs about how it’s a great time to buy real estate.
I am talking every hour, several times an hour, on every station i can tune in. Plus the NAR has been trying to sell the “code of ethics” crap, and how important it is to use a Realtor ™.
Is it just me, or have some other people been overwhelmed by these ads??
Yes.
“Comment by Jim Lippard
2006-10-16 09:18:26
The problem isn’t dogmatic unbelievers, it’s uncritical believers, who weave tales of speculation supported by nothing, and attribute observed effects to unseen causes which they take as confirmation of their speculation.
Asking for and believing on the basis of evidence doesn’t protect or exempt anyone from scrutiny. Believing on the basis of nothing, however, is sure to lead you into falsehood. ”
Doesn’t that describe believers in human casused global warming?
Why is San Diego still so wierd and overpriced?
$509000 ****** Duplex - Too much Nascar and I want out!!!!!!!*******
http://sandiego.craigslist.org/rfs/221423351.html
$189000 Looking for a cheap condo? 480 square feet ..
http://sandiego.craigslist.org/rfs/221413606.html
$1500000 Magnificent Compound on a Mountian
http://sandiego.craigslist.org/rfs/221391532.html
OT-
Brooklyn Update.
good news for other NY BubbleSitters (BS’ers? I may be onto some new terminology here that really describes us well). I know we have been frustated by the lack of action here in NY (longer time on the market, but not that much else)- but I have been Zillowing random Brooklyn Adresses this evening (including those found on Brownstoner.com), and things are DROPPING nicely this week! One building dropped 40G in one week (I am assuming thats multiple units, not one individual condo, but its still nice to see).
Also, a visit to Craigslist showed me lots of fresh desperation of the DDF’s (Dead Developers Flopping)–Lots of Ads Begging the Masses to take advantage of the GREAT PRE-CONSTRUCTION PRICES!!!! for their condos (that might actually get finished if someone on Craigslist decides to fall for the ads, but I don’t think they will)!
Cramer is not a charlatan!
But he is wrong to be bullish about housing.
When it comes to housing we’re just polishing brass on The Titanic. It’s all going down soon.