Bits Bucket And Craigslist Finds For October 18, 2006
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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New Observation:
I was listening to Bloomberg I think (something on XM) when I heard an advertisment for lots priced at $69,000 “conveniently located” on some corridor half way between Atlanta and Asheville NC. I forget the name of the development.
Is this what the developers are coming to already? Advertising a lot on Bloomberg in the middle of the rural SE?
Also:
My grocery store now sells Home Depot and Lowes and Best Buy gift cards. I’ve never seen that before. that’s exactly what I want from a grocery store: to buy a $50 gift card for Home Depot!
weird. The housing slump is causing strange bedfellows.
I don’t think that the gift cards has anything to do with housing, we have had that for a long time now, and our housing slump hasn’t really started (greater Seattle). I think maybe the stores are all owned by the same parent company now.
The gift certificates at the grocery store have long been there in my neck of the woods, for Home Depot, Blockbuster, Pottery Barn, iTunes, etc. They are in the checkout aisle as impulse buys, I imagine. Or perhaps the, stopping to get flowers/cake/wine/appetizers for friend’s retirement/b-day/graduation party and then say, “Ah, what the hell, this would be a nice gesture.”
At the local stores (Walgreens, Publix) they have gift cards for Bass Pro shops - the nearest one is 100 miles away.
Our gorcery stores have had these gift cards for a while. Not just home improvement, they also have gift cards for eating out, airlines, Disneyland, bed and linen stores, and even credit cards that you add money to before using. I don’t think the trend is housing related.
Second (Vacation) Homes (Not the Timeshares) — Buy Vs Rent?
Friends (a couple in Silly.con Valley) owned a condo on the beach, that I used few times, and then after owning for 6-7 years they sold it based on the fact that they were using it lot less than they had hoped and also they computed that it is lot cheaper to rent a similar one for the weekend than to own it year round.
The main factors would seem to be cost and convenience versus hassle. Also, during a depression there could be increased problem of vandalism and even squatters. There could also be a huge decline in prices of vacation homes, relatively, during tough economic times.
No, I am not contemplating a vacation home until I can buy a nice home in Fanta Barbie for below $250K (now $1.25-1.5M) and move there.
Jas Jain
Jas:
I’ve never understood the time share thing either. ESPECIALLY at today’s prices.
We looked at a time share one time way way back. I found that the cost of the time share plus upkeep and maintenance was more than the cost of 6 full vacations to the area per year including airfare, 5 star hotel, and all food!
time shares resell at 40% on the buck in good times
You should see what bankruptcy trustees sell them for (if they don’t abandon them). 5-10c on the dollar and even then, you can’t sell them.
Every time I hear somebody say something about buying a timeshare I always tell them that there are plenty of timeshares on the resale market with plenty of people desperate to get out of them, just go to the classifieds on any Florida newspaper.
Also, years ago I received an invitation to a “presentation” (timeshare) for both me and my wife. When I called the 800 number for reservations they told me that it can not just be for one person, it must include my wife. I was not married, but they insisted. So I was never able to get my three free nights. This was about as stupid as the telelphone call that I received from a roofing contractor when I was living in an apartment complex. They still wanted to fix the roof.
Wow, 40 cents on the dollar? That’s indeed good times! A friend of mine’s (now deceased) parents bought a time share some years back, and it’s been dead weight ever since. When they can rent it out, they often don’t even get enough to pay their maintenance fee! If they could get 40% on the dollar to sell it, I’d tell them they’d be stupid not to take it immediately.
I’ve been suggesting to them for years to just unload it, but they can’t bear to “lose” most of the $15,000 that was sunk into the deal. A few fools in that complez are trying to sell for $10k, but $3k-$4k seems to be the advertised price for non-dreamers selling. Yet even those aren’t really selling, since the ads stay up a long time. I think txchick is right on the numbers for someone really wanting to get rid of a timeshare. Wow, those are some baaaaad investments.
Timeshare debate is interesting. I’ll be at the beach in Maui from Dec 23 to Dec 30 at my oceanview, on the beach timeshare. Maintenance for 1 week a year is $700. I paid $19,000 from the builder 6 years ago, and it resells for $13,500 less 10% commission.
You ain’t getting a week reservation at XMAS at any hotel in Maui under $400 a nite. And the condo building next to the timeshare for a 1+1 600 sq ft ocean view sells for $1.1 million.
It’s nuts, but if You Want to Play, You Gotta Play. You are not going to find 60% discounts on timeshares on Maui, its that location thing.
Yo, David, you seem to have hit a lucky one there. Myself, I wouldn’t go to the same place year after year, even if it is Maui with oceanview at half price (which when I run the numbers seems to work out to $200/night including maintenance and opportunity cost of the $19k). But if I had to buy a timeshare, Christmas week would be the week. One week of the 52 on offer.
My friends with the timeshare, by the way, have a slightly less favoarble time and location: mid-July in New Orleans. Why on earth would they have done THAT?!? Just take that money and… FLUSH.
I agree NOVA;….Don’t become prisoner of place….
You can always rent the same timeshare from an owner on the internet for a bit over what you would be paying in maintenance fees. Last month I rented a 1 bedroom oceanfront unit at the Maui Marriott for one week. Awesome unit right on the beach for about $250 a night.
The wife and I entertained the idea of buying a timeshare in Maui, but when you factor the maintenance fees into the equation, it took about 35 years to break even in our situation. Even on the resale market, the 1 bedroom at this Marriott goes for approx 25K plus $1100/yr maintenance fees.
On the other hand, I’ve seen others buy a 2 bedroom with lockout and rent out the lockout to recoup their yearly maintenance fees, then they use the remaining 1 bedroom for themselves thereby cutting their breakeven time considerably. Different strokes….
-eric
Certainly a timeshare is a better idea than to own a second home. With a home all your own, you leave it vacant 11 months or 50 weeks out of the year. I agree with the original poster. Maintenance expenses and the potential aggravation caused by breakins during the upcoming economic crisis and oil shortage crisis will cause you more grief than joy. Some timeshares such as SVC (Shell Vacation Clubs) give you about 9 or 10 places to go to. You don’t have to go to the same one all the time. For instance, my timeshare has tradeoffs for 3 locations in Hawaii, 3 in San Francisco, 2 in Phoenix, one in Tucson, one in Anaheim, one in Chicago, one in Oregon, and one in Canada. All have top amenities. For now, I have not had time to go to my timeshare yet. I just got into this in May of last year. The RCI network is a cool thing because it opens up hundreds of places all over the world. I stayed at a friend’s timeshare in Cabo San Lucas and I loved it! I went there with a couple of friends and we just had to pay $67 each for one week. Air fare and food not included. The accomodations were top notch. That experience was the only one that made me say yes and purchase mine. But yes, I understand there are disadvantages and advantages.
Youre lucky to get that week. Most people don’t get their choice.
I have a friend who for years has had a timeshare conveniently located by his favorite ski resort in Utah. He’s probably not making a profit on the place, but it’s a guaranteed place to stay at a reasonable price in a place he visits for 2+ weeks a year, sometimes more.
All in all, it’s not a bad deal. I might do the same in his shoes.
We were the “guests” of a timeshare last week. Sales presentation was a lot of stall and tap dancing but they gave up when we kept repeating that we would not be returning to the timeshare location (Kissimmee-style tourist mill in the Smokies), preferring something quiet and where we could actually drive a quarter mile in less than 40 minutes.
No, I didn’t just do it for the free room nights. I was genuinely curious. They haven’t been able to sell much of this POS since starting in ‘04, and yet tourist sheeple are clearly flocking to the area. And well, yes, they got me, too - eh? Baaaaa.
Maybe timeshare ventures are more “durable” than residential RE? Without the need for sheriff eviction and such, it’s a nice, streamlined “foreclose, resell, repeat.” I noticed that while their offer “required” a household income of 60K minimum, it looked like we were possibly the most affluent folks in the room, and that our sales guy would have been a lot happier pitching that afternoon to a younger, lower-income and more indebted family.
what kills me with timeshares is all those points to keep track of…same as airline miles…too much time to figure out what’s going on
I believe the 2nd house/vacation house scheme is largely responsible for the spec run of 01-2005. With no cost analysis or plan, creeps, fools and nutjobs all gave in to their “dream”, albeit an idealized fantasy no different than the 16 year old girl pandering to the white picket fence and woven pram. What these delusional dreamers now face is the realization that they’ve settle far away from their comfort zone and family, their imagined retirement savings are evaporating through runaway inflation (do you really believe the govt. numbers?) and that they might have to don a smock and greet customers for $7.50/hr.
“an idealized fantasy no different than the 16 year old girl pandering to the white picket fence and woven pram…”
That’s more likely a 36 year old, single woman’s dream. I think most 16 year old girls dream of taking up with the lead singer of a successful acid rock band.
I ran the numbers last January on a $260K condo in Jackson Hole.
It would require spending the average Americans amount of vacation there every single year for 26 years to break even with getting a nicer hotel room.
Do you want to vacation in just one locale for the next 26 years?
I recall a cost analysis done on RV’s v. hotel rooms a few years ago. The numbers grossly favored hotel rooms.
A few years back I looked at buying a nice travel trailer, then ran the numbers on renting one for a week to do the trip we were planning. Yeah, you guessed it. It was much more sensible to rent. Brand new trailer, no storage, no maintainance, no guilt for not using it twice a year to justify the cost…..oh, and way cheaper in the long run. The downside was I wasn’t able to put the behemouth eyesore on the side of my yard in an attempt to elevate myself above my neighbors with the “see-what-I-got” display.
“The downside was I wasn’t able to put the behemouth eyesore on the side of my yard in an attempt to elevate myself above my neighbors with the “see-what-I-got” display.”
Welcome to 21st century USA.
Anyways, I love RV’s, owned an affordable bumper tow unit. Camping is a great family activity and besides, I love to bass fish. I hate to profit off of someone elses misery but so many RV’ers are upside down on their rigs lately that the mid-winter deals will be everywhere this year. So goes capitalism….. there are winners and losers for the masses, protection and concentrated wealth for the ruling class.
Really O/T - Captn’, have you done the pop-up trailer thing? We are past the age of tent pitching and are considering one.
Pop up campers are great but work the numbers before you buy. I know people who bought a pop up to take on vacation causing them to now have some kind of truck/suv to pull it with, and they pay $20-30 a night to camp while using it. Adding up the payment, camping costs, additional vehicle costs, gasoline, maintenance, and opportunity cost and it comes up to something like $200 a night where a nice hotel is $99.
You can get a really good one for cheap around here.
Seems like it totally depends on the situation. If you were to only do the vacation 2-3 weeks a year then it’s probably way more cost effective to either rent an RV or hotel room, so that you don’t have the great cost of RV depreciation. However if you wanted to use an RV a lot more, e.g. every other weekend or for months at a time (e.g. during retirement), then it’s probably better financially to buy the RV, especially if you buy a used one which has already encountered most of its depreciation.
Same principle for timeshares - definitely not worth it for 1-2 weeks a year if you buy it new and do get stuck in the same place (and don’t want that), but if you don’t buy it new and/or use it more than 1-2 weeks a year, seems more worth it.
I’ve never owned a timeshare, buy any one I’ve ever looked at or heard about are in programs where you can swap with other locations. Perhaps there are some programs where you can’t, but if you’re someone who doesn’t want to vacation in the same place every year, why would you choose such a program? I think when you see people who do that, it’s not because they *have* to vacation in the same place, it’s because they *want* to.
I love this blog, but sometimes the high horses are annoying, I have to say.
Nope……
Re Sunsetbeachguy’s post:
If you were retired, spent 6 months of the year there, your kids and grandkids used it , you bought it at a time when it was half of today’s price and you have it placed in a rental program for the time you are not using it to cover some of the out of pocket costs, it may make sense. We do not like to vacation at different places every time. I like being familiar with the best hiking trails, fishing spots, coffee shop, restaurants etc. Going to our ski condo is like going home to a beautiful small hometown. I hate staying in hotels when on an extended vacation. Maybe I am wierd in that regard.
–
“In resort areas - given the number of days people actually use their second home - staying at the Ritz for $500 a night could be a much better deal. Do the math; it’s not pretty.” - http://www.moneyweek.com/file/10891/six-months-to-housing-hell.html
Excellent link. To a renter it seems logical and the now is the time to rent.
My rules of thumb: never, ever, ever buy a timeshare. They’re impossible to sell (no one wants them) and you’re burdened with maintainence fees for perpituity. Much more affordable to save the cash and just pay for a vacation via hotel/renting.
Re: vacation homes. Personally, I’d never buy one unless I had the cash on hand to buy it oughtright. A relative once told me about a condo in a vacation area they were considering buying. We ran the numbers, and for their costs (down payment, PITI), I could vacation as often as they were planning, but stay at the 5-star hotel in the area, go out everynight, go skiing everyday, and still spend less per year than they were planning on. Granted, this discounts appreciation of the condo, but that’s hardly a given. Plus we did not factor in the hassles of ownership, the fact that they’ve increased their debt load, etc., etc.
mrquoi, I wouldn’t do a popup although alot of people do, hence their popularity. Alot start with popups and move up from there. If you think you like camping and are tenting it now, I’d skip the popup and go with a hard sided bumper tow rig so long as you have something reasonable to tow with.
Good Luck.
I don’t know Jas. You just can’t have it all. With a Depression raging greater than the Great One, Santa Barbara is likely to be a popular stop for “Road Warrior” bands roaming the country, searching for well heeled folks to rob and ruin. You can’t have a comfy retirement and a raging storm of social, political, and economic unrest too. Just doesn’t work that way.
P.S., are you sure you truly believe in the later manifesting? A lot of your personal hopes for the future don’t sound so gloomy. They sound down right pleasant! Of course we all hope for the best.
Also:
Cramer acknowledged the housing bubble sort of yesterday, and he advised people to “take their profits” from the equities market.
He said “I told everybody to sell in late 2000, to take their profits. I’m not saying that we’re going to have a huge downturn like then again, but I think given the great runup a wise man takes a little off the table”
He then said “I know that people are calling me a cheerleader… but I’m not. I’ve sold in the past, and I’m selling some again now. I’m also not in bed with the bears, but I respect some of what they’re saying”
all way paraphrased.
I like his show, but since I recently read the updated Benjamin Graham’s classic ‘Intelligent Investor’ that discusses herd mentality and used Cramer in 2000 talking up .com stocks as example, I take what he says with a grain of salt.
He was (cowardly) trying to hedge himself against a bad CPI number. Saw a lot of bearishness the last two days after core PPI. Now, it’s gone. Wall of worry market - every gain brings on new bearish sentiment.
Housing numbers: starts above expectations. Lots of noise in the number due to seasonal adjustments - remember Sept. last year, which factors into adjustment. Raw data also are not clean - come from surveying builders. Permits - lowest in five years.
Crammer was bullish in 2000. The Abelson review of his 2000 stock picks were off over 95% due to his love of high tech. The guy is a joke. I think he must have relatives with connectiions to be on CNBC. He claims or has others claim he is rich from investing. I doubt it.
He’s “rich” from his TSCM stock.
I don’t know to what extent he participated (his name was on the door and all so he probably wasn’t sweeping floors) but Cramer Berkawitz posted annualized 24% gains (net of fees) for 13 years, including a banner year in 2000. I’m impressed they survived 98.
Cramer said sell? You’ve just convinced me to to go to 100% invested.
I’ll have to read the full comments, but in general agree with you. Fade Cramer
I don’t follow the guy (or any of these guys, really) but to his credit I caught part of one of his shows back in June and he was going hysterical about how the market had gone way way overboard in the correction and was telling everyone to buy.
http://www.nysun.com/article/41432
I like this quote:
“Many of the aging baby boomers are now looking to sell their suburban mini-mansions and move back to the city. Once the press stops making negative predictions on housing prices, the boomers may start to snap up available inventory.”
These folks need to get their stories straight. I thought the boomers were all broke. How are they going to “snap up” (god, I hate that term) available inventory?
good question! Where is that money coming from? Even more looser loans?
“Many of the aging baby boomers are now looking to sell their suburban mini-mansions and move back to the city.”
It’s back to the city or into assisted living accomodations for these dreamers and psychos.
Hey cap’n
We geezers are not necessarily ready yet for the rocking chairs. I tell you what. I’m a fitness swimmer, age 47. I’ll wager I can beat you by two, maybe three minutes in an 800 yard race in a pool. There are many boomers such as myself who are serious about fitness. You just see the fat ones whereever you go. All the fit ones are busy working out biking, running, swimming, lifting.
I wouldn’t exactly call you a geezer. Besides, I’m in my 40’s also yet I have nothing to prove physically. Nevertheless, I was speaking directly to the demographic trend and there is no question that trend is growing.
My apologies if I offended you.
The demographics are clear and the bets have been made in every downtown metro accross the country…The advantages for the boomers are obvious…The main question I have is affordability….Its expensive to live in major cities…What percentage of the boomers can afford this ??? And, of that percentage, who will want to ??? My hood is full of boomers and they ain’t moven to ANY downtown….
The best hospitals/doctors are located in large metro areas. Assisted living facilities speak for themselves. This trend is already established and in its infacy stage. I know a real-turd, one with vision, (I didn’t say integrity) who is making piles of money on this already. Sales and referrals from those who can no longer stay in their house. It isn’t talked about much here on the blog but that doesn’t mean it’s not happening.
It is the circle of life. I read a study in USA Today July issue that only 13% of boomers will continue to work past 65. Boomers crack me up, because they say as a group they will work until 70, but as individuals they all want to retire by 55. Well if they can retire at 55 that would be great, but I suspect must cannot and then the health demons will get them. I work with some boomers who are in their 50’s and they ache all over. Some boomers I am sure are better at keeping themselves fit, but most too much abuse to the body and mind.
I’m from the age range where I was too young to be a hippie “in those days.” So I never took drugs. I get a security investigation regularly anyway so I have to keep on the straight and narrow. In other words, live moderately. Green tea helps a lot too! I have had aches every now and then since I was 21 but I know how to control them without drugs or new age meditation. It’s called, “turning over the mattress.” Aches go away within a couple of days.
Good for you Phoenix. Living a healthy life is living a rich life.
Bill in Phoenix- can I get in on this wager?
ha! Since I telegraphed my punches, anyone else who picked it up and wants in - is probably a member of Stanford’s swim team. Like twice as fast as a 47 year old!
My wife and I are in our mid fifties and retired. Some days I feel 25 and some I feel 75. I am considering taking on a part time job to feel a part of the community. I walk 4 miles and bike 8 miles a day. Boomers may think they are going to work until they are 70 but I think most will change their mind. Life is to be enjoyed and money has little to do with that.
Bill in Phoenix- regarding the wager, I will be 50 in a few months and I’ll take 3 minutes from any 47 year old…LOL
From the WSJ:
“Manhattan Complex Sells for $5.4 Billion; Apartment Buildings’ Price Is One of Nation’s Highest; Big Potential for Profits”
“IN ONE OF THE biggest prices ever paid for a U.S. commercial property, longtime New York landlord Tishman Speyer Properties and a partner have agreed to buy a massive Manhattan apartment complex for $5.4 billion.
“Tishman Speyer and a unit of New York-based money manager BlackRock Inc. announced they are purchasing Peter Cooper Village and Stuyvesant Town, adjacent complexes with more than 11,000 apartments on 80 acres on the east side of Manhattan. The seller was MetLife Inc., which has owned the apartments since they were built for returning World War II veterans.
“The sale culminated months of speculation about how high the price would go for the iconic Manhattan complexes, which are seen to have enormous potential for future profits even though 73% of the units are currently rent-stabilized.
“Real-estate experts predict the investors will eventually convert the apartment to luxury condominiums, though Rob Speyer, senior managing director of the closely held Tishman Speyer, said there are no immediate plans to change over from apartments. Yet, even that statement may not mollify the fears of some city officials that the new investors will look to raise apartment rents whenever possible, aggravating a shortage of affordable rental housing in a city where housing costs continue to skyrocket.
“Mr. Speyer said the purchase is another reflection of the company’s deep roots in New York, similar to their investments in Rockefeller Center and the Chrysler building.
“‘This is a long-term investment for us,’ Mr. Speyer said in an interview. ‘We believe passionately in the future of New York City, in our economy and in the real-estate markets, both commercial and residential. So the opportunity to buy 11,000 apartments in a terrific neighborhood is something that any real-estate investor would cherish.’
“BlackRock, a publicly traded global investment and risk-management firm, issued a statement but declined to comment further and referred all questions to Tishman Speyer. The two companies have previously teamed up to purchase properties in Los Angeles and suburban Chicago.
“Some observers say that because of the high price, the rate of return for the first year — known in the real-estate business as the capitalization rate — could range from roughly 2.5% to 4%. That’s lower than the median cap rate of 5.8% paid for New York apartment buildings in the third quarter, according to Reis Inc., a real-estate research firm, and potentially one of the lowest initial yields that market watchers have seen. Tishman Speyer wouldn’t say what capitalization rate it expected on the deal. Yet, the cap rate is in some ways irrelevant if Tishman Speyer manages to dramatically expand its income stream through apartment upgrades and conversions.
“‘If you only look at a cap rate, it’s misleading,’ says Alexander Goldfarb, a real-estate investment trust analyst at UBS. ‘This is a very long-term play. The buyers have to be ready to work with this asset for 10, 20 years or more. The real value is going to come in those later years.’
“The deal comes at a time when New York is boasting one of the most robust apartment markets in the country. In the third quarter, Reis said the vacancy rate was 2.5% and the average monthly rent grew to $2,467 in the third quarter, up 2.4% from the previous quarter.
“The creation of more affordable housing has been a priority of New York Mayor Michael Bloomberg.
“New York City Councilman Daniel Garodnick, who lives and grew up in the complex and pushed for the Stuyvesant Town-Peter Cooper Village Tenants Association to bid on the project, said the group is concerned that the percentage of rent-stabilized units will drop steadily. He pointed out that the complex was built expressly as middle-class housing. ‘We are committed to finding a way to preserve the long-term affordability of this community,’ he said.
“Mr. Garodnick said it’s difficult to say if the tenants’ association bid was competitive. Though its $4.5 billion bid was clearly lower than the winning bid, it also involved a favorable tax structure for MetLife, he said.
“MetLife officials had said about 100 potential investors qualified to bid on the project, but the final bidders were believed to be limited to less than a dozen. A MetLife spokesman wouldn’t say how many bidders took part in two rounds of bidding for the property, which was marketed by CB Richard Ellis.
“MetLife said it expected to net a profit of about $3 billion on the sale, which is expected to close in the fourth quarter.
“Mr. Speyer said his company is reaching out to the tenants’ association and to elected officials about the future of the complex. ‘We are confident that in the long run they are going to see us as a devoted partner in maintaining and enhancing the property.’ Of the tenants in the 8,000 rent-stabilized units, Mr. Speyer said: ‘We respect and welcome their continued residence at the property.’
“Mr. Speyer wouldn’t address directly the likelihood that rents would rise in apartments that are vacated but said when the rent-stabilized tenants make a decision to leave of their own volition, ‘we are going to have different choices on how to treat those units, and we are going to make those decisions as they come along.’”
If the report in the NY sun is correct, additional partners are the pension funds of two NYC public employee unions and the Cal State Teachers Pension Fund.
http://www.nysun.com/article/41720
PCV/Stuytown is almost as big as some small cities lol. Have several friends in there.Younger ,lower level wall streeters etc. It’s always reminded me of some kind of social experiment. Self contained existence. Like a prelude to a Mars colony or something.
My old apartment in NYC was rent stabilized *sigh*
When leaving NY for CA, giving up that lease hurt. I know I’ll never have a deal like that again. 3 BRs in Soho for $1450.
Another from the WSJ:
“Real Estate Finance: Commercial Real-Estate Peak Seen; Survey Expects ‘07 Pullback With Return of the Sector To Norm of Income Producer”
“The commercial real-estate cycle appears to have reached its peak and will begin pulling back in 2007, according to a new survey of industry executives.
“The Urban Land Institute, a Washington-based nonprofit planning and research group, and PricewaterhouseCoopers surveyed more than 600 developers, investors, brokers, consultants and lenders this summer for an annual report on the industry, dubbed Emerging Trends in Real Estate 2007.
“The survey suggests commercial real estate is beginning a return to its norm as an income-producing investment rather than the wildly appreciating asset class it has been this decade. The easy lending of the past several years will tighten next year in part because of worries about the economy, surveyed executives said. Investors will have to turn to asset management and operating performance to raise returns as investment inflows slow because of lower return expectations, respondents added.
“‘I think it’s a clear mandate from people that you’re going to have to make money the old-fashioned way,’ says Stephen Blank, an Urban Land Institute senior fellow who specializes in real-estate capital markets. ‘You’re going to have to earn it’ through leasing, cost control and other asset management.
“The report also says real-estate investment trust stock prices ‘appear to have more downside risk than upside potential over the short term.’
“Still, those surveyed expect commercial real-estate cash flow to continue to grow as factors such as reduced vacancies and higher rents keep improving across most property types. One reason: High construction costs are putting a damper on new construction.
“While the commercial real-estate market has exhibited some signs of a bubble in recent years — driven by low interest rates and an influx of investment — it has differed from the residential market. A key difference is that supply and demand have been more tied to vacancies and rents and not as closely linked to the rising interest rates that have cooled the housing market.
“The report advises investors to sell marginal properties and hold on to well-performing ones, with an eye to improving their performance in advance of a potential economic downturn. It advises developers to ‘hunker down,’ saying most property markets don’t need much new space.
“A pullback in the galloping commercial real-estate market will raise capitalization rates — the initial return on investment in the first year — by as much as 0.7 percentage point in some property types and restrain the increase in property values, the report says. Falling cap rates mean investors are willing to take a lower return for their money. Cap rates are already rising in some areas, especially in lower-quality properties, after dropping between 2.5 and three percentage points to record lows over the past five years. Cap rates vary by property type, but high-income apartments, for instance, averaged a 5.66% cap rate in July, while limited-service hotels brought a 7.93% cap rate.
“The property sectors with a ‘buy’ in the report are warehouse, which the executives interviewed said will boom on the East and Gulf Coasts because of overflow import traffic from the West Coast, and moderate- income apartments, especially on the coasts. Retail property fared worse, with executives suggesting consumer spending will be ‘middling’ and advising investors to sell weak properties while holding strong ones.
“Those surveyed said Seattle is the best office market to invest in right now, with office rents set to rise and supply tight. The city is also sitting in a prime position to benefit from explosive growth in Asia and has the best potential of any American city to become the next ‘24-hour’ hub like New York or San Francisco, according to the report. The report lists five U.S. cities as ‘global pathways’ with bright futures for real-estate investment: New York, Seattle, San Francisco, Los Angeles and Washington.
“Philadelphia and Chicago are ranked among the worst markets for investment in all property types in the survey. Chicago is being dragged down by economic problems, the ‘Midwest malaise,’ the report says, while investors question Philadelphia’s future as a global city since it lies between New York and Washington.”
And don’t think for a second that there isn’t a ton of leverage and speculation in that sector.
One more WSJ:
“Housing Data Clip Treasury Gains; Prices Rose Earlier in Day On Record Capital Inflows, Weak Industrial Indicator”
“Treasury prices ended modestly higher, ceding much of their earlier gains after a private-sector housing indicator broke a string of eight straight declines.
“The National Association of Home Builders’ index for sales of new, single-family homes rose one point in October to 31. The increase followed an unrevised reading for September of 30, the lowest monthly index in more than 15 years.
“The data led to a gradual unwinding of the gains Treasurys had made earlier in the session, helped by a weaker-than-expected September industrial-production indicator and data from the Treasury Department showing record net-capital inflows into U.S. securities in August.
“At 4 p.m., the benchmark 10-year note was up 3/32 point, or 93.75 cents per $1,000 face value, at 100 25/32. Its yield fell to 4.774% from 4.784% Monday, as yields move inversely to prices. The 30-year bond was up 6/32 to 93 25/32 to yield 4.903%.
“Michael Cloherty, head of interest-rate strategy at Banc of America Securities, said the home builders’ number offered fresh support to those who believe the housing slowdown will avoid being so severe it drags the rest of the U.S. economy down with it.
“Is this a real sign of strength in the housing sector? Absolutely not, but at least the rapid descent has stopped,” Mr. Cloherty said. This is one of several recent “glimmers in the housing market that say that the acute slide that we saw in the third quarter will moderate somewhat in the next couple of quarters,” he said.
“The Federal Reserve has held rates steady at 5.25% for the past two meetings, citing a slowing economy — especially weakness in housing.
“Earlier in the session, Treasurys had gained some support from data showing record net-foreign purchases of U.S. securities.
“Tony Crescenzi, chief bond market strategist at Miller Tabak & Co., said that in addition to renewed interest in U.S. government bonds from foreign central banks, the data “indicate that Japan has returned as a buyer in the U.S. Treasury market.”
“Debt Issuance Surges
“Issuance this year of collateralized debt obligations already has outpaced the total for all of last year, according to the Bond Market Association, a trade group representing dealers, underwriters and investors.
“The sale of global CDOs, or securities backed by pools of bonds, loans and other assets, totaled $322 billion in 2006 through the third quarter, a 20% increase from 2005, fueled by corporate profits, a large supply of loans and investor demand, the association said in a news release.
“The bank-loan market reported a 3% gain in issuance in the third quarter, compared with the year-earlier period, for a total of $356 billion, according to data from Reuters Loan Pricing Corp.
“Also, issuance of CDOs in the third quarter, at nearly $118 billion, is up 30% from last year’s period.
“Cash-flow and hybrid CDOs, with issuance of $90.1 billion, accounted for more than 75% of issuance in the third quarter, the largest sector in terms of structure.
“Cash-flow CDOs are securities backed by pools of bonds, loans and other assets, while hybrid CDOs also include credit-default swaps.
“Credit-default swaps, the most popular type of credit derivatives, are insurance-like securities that allow investors to protect debt against default. Credit derivatives are investment contracts structured so their value depends on the behavior of some other asset or event, such as a loan, index or bond.
“The notional amount outstanding of credit derivatives increased 52% in the first six months of the year to $26 trillion from $17.1 trillion, according to the International Swaps and Derivatives Association Inc. The growth rate this year for credit derivatives is 109%, from $12.4 trillion at midyear 2005.”
Ed Yardeni: “Better Than the Goldilocks [for the US economy]”
Dr. Yardeni appeared on CNBC early this morning.
Folks, we must be closer to the 1929 fall season than most think – the economy weakening visibly; housing debacle to come is barely in its infancy, or in the first inning; and the bubble-meisters, among economists, are talking about “permanent plateau” type of perfection of the management of the US economy.
Needless to say, Dr. Yardeni thinks that Scams are a great place to out your savings into. I think that some Mutual Fraud company pays his salary. The biggest free market in America is for deception of the general public by professionals and public servants.
Jas
Make sure your trailing stops are up-to-date on all your stocks. The Dow pierced 12,000 for the first time. What? Me? Worry? When any of my stops activate, I’m still in good shape but I move the proceeds into a good yield money market fund.
That ass clown has bounced from firm to firm. He has never seen a market he didn’t like. He was bullish in 93, in 98 and in 2000.
Paid shill comes to mind. The Comedy Channel ( CNBC) always dusts him off when Wall Street needs to unload. He predicted a 15 % RISE in the markets next year, although history tells us that 80% of the time after the Fed stops tightening the markets drop 10 % or more the following year. I cannot stand the likes of him, Abby Cohen, Grubman, Meeker, Battapaglia, etc. Whores all of them.
Don’t bet too heavily on an immediate collapse. The RE collapse in Miami Fl was in 1926, years before the stock market collapse in 1929. It might happen quickly or slowly.
–
“Consumer Bankruptcies Will Rise”
That is what “a major bank” is broadcasting, as reported on CNBC (I missed the name of the bank).
I guess, we never thought that such a thing would happen. And the major banks were the last ones to know it in advance.
My STANDING forecast for the past four years: AT LEAST HALF THE AMERICAN HOUSEHOLDS WOULD HAVE LOST THEIR HOMES OR DECLARED BANKRUPTCY AT LEAST ONCE IN THEIR LIFETIME, SOME TIME WITHIN 2009-2012.
Jas Jain
> AT LEAST HALF THE AMERICAN HOUSEHOLDS WOULD HAVE LOST THEIR HOMES OR DECLARED BANKRUPTCY AT LEAST ONCE IN THEIR LIFETIME, SOME TIME WITHIN 2009-2012.
So far, these are just big words of yours, LITERALLY. Wanna bet, by backing it up with real dollars? How much?
Definitions:
- lost their home = got foreclosed upon their real primary residence, or sold it after 2008 and went renting instead (the latter being probably a bad financial move 2009-2012)
- half of the American households = half of the American households will experience loosing their home or experience bankruptcy between now and 2012
Oh wise housing bubble bloggers — I need your advice!
I am contemplating making an offer on a house in our little town in the SW MO Ozarks. The all brick house is about 1600 sq feet — essentially one big room for the living room/ dining room/ kitchen/ entryway. There are 3 small bedrooms and two small bathrooms. There isn’t a family room. There is a laundry room that goes between the garage and the kitchen. Attached large 2 car garage and a large unfinished basement with a simple bathroom. Pellet stove in living area. House built in 1998 by local Amish builder and it is very simple, nothing fancy. Appears to be well maintained. Has hardwood floors and a bit of wood trim but formica countertops, molded showers/tubs, linoleum bathroom floors. Plain ordinary appliances. Inexpensive oak cabinets. 1/3 acre unfenced. Big disadvantages are the windows are few and small. Entry way poorly designed…there is a nice big door with glass on either side but you open the front door and stare into a fake wall (because it is covering up the stairway to the basement). Basement access is in garage rather than house, although this could be changed. Propane gas (this may be good or bad I’m not sure.) High ceilings in the big room (it kind of looks like a barn inside) — could be heat and cooling problem. Location is nice but not my ideal
I missed out on buying an older house earlier this year that I much prefered — it required some simple renovation (e.g. replace carpets with hardwood) but the yard was 1/3 acre, location better since near the town square. That house sold for $117K (asking price was $134.5K).
This newer house is priced at $165K. It just went on the market yesterday. Owners have new job in another state and are almost moved out already. They designed the house and had it built for them so there isn’t a price history. It is in a subdivision where just a few blocks away there are many new houses and lots of empty lots. Builders are still building. There are 5 houses for sale within a few blocks of this one, not counting all of the brand new houses and lots.
Right now I am living in a 800 sq foot duplex with a big yard, but only a small part fenced. It’s pretty cramped in here, and there isn’t a basement, which I would like as this area seems to have a lot of tornados lately. My rent is $550/month. I don’t know what the house would rent for but around here mostly lower income people rent…typical apt. is $250/mo, a 3 bedroom 2 bath duplex rents for $620/month. My duplex is only 2-3 years old and cost $120K. A typical older 3/2 rental house in town cost $65K and rents for $500/mo. That indicates to me that the rent that house I am considering could get would be $750-$800/month. The real problem though would be that there are very few renters in that price range and renters here are hard on the rental properties. So trying to value the house based on rent might not make sense.
Right now the money I would use to buy the house is in the bank, getting about 5.25 percent. I can pay cash.
This is not my dream home but it would be a lot more comfortable to live there for the next couple years than in this cramped duplex (I have already rented for a year).
There are no good jobs in this town…people with good jobs have to commute 30 miles on E to Springfield or S to Joplin. There are plenty of places for sale in those towns plus the other hamlets around here. (I do online consulting so I work at home.)
What should I offer for the house?
Should I make an offer? If yes, at what price? Or am I crazy to even consider buying now? There are probably 30+ new finished spec houses on the market around here, and hundreds more in the nearby towns (but I only want to live right here in this town).
Thanks for any comments.
That’s a tough one. 165K is high for that part of the world but it sounds like it’s well built.
Why don’t you try around 149K cash offer.
What city? Judging by your comments I’m guessing Aurora or Monett. Plenty of houses and land available in those areas. $165k sounds extremely high. Maybe $135k cash would be fair. When I left Springfield in 2000, a very nice 3/2 with a huge yard went for $85k. I rented a 3/1 house there for $300 a month less than I am paying for a 1/1 apt now.
Town is half the size of Aurora. I agree tons of houses available — for some reason houses in Springfield are less expensive than here. I have to live here in this town because the rest of my extended family lives here and I am also responsible for my 83 yr old aunt who lives in assisted care.
Shouldn’t I offer a 2000 price? That wouldn’t be more than $100K would it?
$100k is fair, but I can’t imagine they would take that unless they are completely desperate. Housing prices in MO are out of line with fundamentals but nowhere near the level of the coasts. Looks like the average house in Springfield is $111k vs. $83k from a few years ago, but the houses are a lot nicer and bigger.
-
if you want the house and it will make you happy, offer $100K cash and let them counter. Rule #1 - Don’t get emotional. Walk away if you have to.
“If youre not embarrassed by your offer, you offered too much.”
Good luck and let us know how you make out.
Thanks. I am mulling everything over will let you know what I do (if anything!)
Projection: You’ll be headed back to the land of fruits and nuts inside of 5 years.
Why do you think so? Because prices there will crash? Or because I will miss CA too much? I do love the Red Bluff/Redding area I couldn’t believe it became bubbly too.
Because that’s where an equity bandits heart lies. Home. Irrespective of the fact that Madison Ave research instructed the REIC to refer to your house as a home.
I suppose you are trying to be mean but I can’t move back to CA from here. My entire extended family moved here and I just moved my elderly aunt out here last week…she couldn’t afford to live in Houston anymore and she was all alone. Now I can see her and help her out every day (she lives in assisted care). We are also contemplating moving our even more elderly mother here. When you have old people to take care of, you need extended family around you…it would be terribly difficult all by yourself.
Not at all being mean but it is worth mentioning this in the name of truth. To “profit” from one transaction to gain in another in a different area, by itself, created the housing bubble. On the other hand, profiting as a result of life circumstances is a different situation entirely. But the latter speaks directly to my point. You and your extended family relocated for a life circumstance, not because your heart is in AR.
MO not AR.
A distinction without a difference.
Haha. That’s funny! because it’s true…
I do love the Red Bluff/Redding area
Have you looked at that market lately Saratoga ?? You would be quite surprised…You can make some great deals now…Maybe better this winter….
WAIT. How long? At least 3 years.
Your patience will be rewarded.
Jas Jain
I have great respect for Txchick57’s advice but am going on another direction. No offer. Wait longer to find something else. Chances are high that prices will drop further. Meaning if you are dying to buy soon, you will likely be ‘trapped’ in what you buy. Meaning you need to love it. Love it. Wanna marry it. Dreaming about being there before you go to sleep.
This no light, linoleum thing sounds depressing. It might be better than what you are in now, but it is not a dream for you.
No offer.
Yeah, I really want a DWELL style house (thanks txchick57 for telling me about that magazine, I love it). My dream house is boxy and square and made out of a grain bin or recycled storage containers. Big windows, radiant heat concrete floors with a drain in the center for easy hosing down. I’m also looking at the latest pre-fab homes there are some really cool ones even a designer/manufacturer here in MO.
http://www.rocioromero.com/LVSeries/index.htm
I thought of you when I saw that article in this month’s mag. I figured you’d check those out.
I’m going to go visit her business by the end of the year. They have one showcase day/month.
“Big windows, radiant heat concrete floors with a drain in the center for easy hosing down.”
Ozarkian, will you marry me? My girlfriend thinks I’m a freak for loving the idea of a home that is easy to hose out!
In our town a converted do-it-yourself carwash (cinder blocks) is now a wonderful cozy yet spacious gourmet coffee house. When I walked in there this morning I had a brilliant idea — why not just build something like that? The people that did it and run the coffee shop are friends of mine…I can hire them as my “designers”. Their house is a metal barn, also very cool, but I like the coffee shop better. I asked them what they thought it would cost to build the coffee shop (carwash) as a house…they estimate $100K plus or minus $20K. More on this later…
I have 4 dogs, 1 cat, and 9 birds (the birds used to live in an outdoor aviary in CA) — a hoseable floor would be just perfect.
Wow, that’s quite the menagerie!
My fantasy house is along those lines–dry-stack CMUs (cinder blocks) surface-bonded, with some of the cores filled with concrete/rebar for strength. Concrete floors, radiant heat, and all the insulation (EPS board) on the outside of the CMUs so there’s high thermal mass inside. Lots of glass on the south with well-designed overhangs for good solar in the winter and little in the summer. Solid as a rock, lower heating/cooling costs, and you can hose it out!
>drain in the center for easy hosing down
WTF?
I second apocalypso’s recommendation. From what I’m seeing here in the South (having moved from Orange County California to rural Georgia), inventory is building at extremely high levels. Experienced developers have stopped developing, they see the writing on the wall. Builders are sitting on inventory and they are starting to go bankrupt right and left. Local MLS has huge increases in buyer incentives and price reductions, ton’s of lease-to-owns and foreclosures in one year have DOUBLED.
I bought a great house in a great subdivision a year ago. Clearly though, I can see that had I been just a bit more patient, like another two years, I could have gotten a fabulous house instead of a great house for the same amount of money.
I expected an erosion over a much longer period of time and when factoring that in, decided I didn’t want to wait. However, seeing how quickly this is happening, I wish that I had waited. You are in the sweet spot right now. Hold your cash, let your monies build. You won’t have to compromise in a very short period of time, you’ll get what you want at a much better price than you ever thought possible.
What I was trying to get to was an offer that “might” be accepted, using the ~92% of asking price that used to be the norm back when the market was sane and operating on the assumption that she wants to buy the place. Offering 100K is a waste of time, just like my offering 498K for a 700K ask was a waste of time. It might work in a year, not now with a brand new listing.
“Location is nice but not my ideal.”
Then don’t buy. Take the time to find what you really want and plan on staying there a while. Houses are too illiquid anymore to buy something you only kind of like with the intention of moving a short time later - especially in the area you are in.
If that is where you want to settle, and you have cash, build. Find a piece of land that you like and build the house that you want. If you have cash, you can be your own general contractor without having to worry about banks not wanting to give you a construction loan without a GC license. And with construction slowing down, you can get top notch subcontractors for everything at good prices right now.
I agree 100% with DC. Don’t buy now. You said there were quite a few lots available/not built. Why not look into those?
Are you **really** happy in MO, compared to CA? If you’re not sure, I’d also recommend waiting a few years, just to make sure. You have little to lose and a lot to gain by waiting, IMHO.
Good luck!!!!
FWIW:
I wouldn’t buy that house from your description and reading between the lines. House sounds overpriced. Stay crammed through the winter, save on rent and heating, keep feeling it out, take a nice warm-weather vacation. Pull the trigger in Jan at the earliest - best deals (I’ve found) are had in late winter on homes that have been on the market throughout the winter. The secret to real estate is buying cheaply - don’t throw away $20-30K for no compelling reason.
This sounds a lot like the Monett area? I visit a manufacturing plant there every once in a while. If this manufacturer begins to out source in the future like I think they will, home prices will collapse….I’d wait a little more.
sorry, can’t say which manuf. but its not the tyson chicken plant.
good luck!
Yes, not Monett but very near. A smaller town near I-44. Some people in our town work in Monett.
The town devastated by the tornado a few years ago? Heck I can’t remember the name of it, but that’s a pretty area.
Two towns nearby have been devastated by tornados. But not here, according to the locals, we are SAFE! The tornados have never jumped I-44! The tornados are AFRAID of the interstate.
This despite a wide swath of destruction just 1 mile away! But on the SOUTH side of I-44.
Price is what you pay, value is what you get.
If you don’t like the house now, I guarantee you won’t like it anymore once you buy it. All the little quirks and flaws will start to jump out at you.
I would advise you to wait until you find something you really like.
If you want to make an offer, I’d say $100,000. That should insulate you if prices revert to 2000 level. They’ll reject it but may counter. Ignore the counter. Let them come back to you.
If this isn’t your dream house, treat it like anything else you might buy. Take it at a price you can feel confident is a reasonable bargain or pass on it. I agree with the others here, I wouldn’t spend much time on properties that you don’t really, really like. What I’d do is, pick a few you really like, really low ball them and then wait for counter offers. They’ll come and, chances are they’ll be someone who, for reasons you’ll never know, HAS to get out. You have to find those people, uncover them with some kind of bid and then wait them and the decline out.
Don’t buy now. The housing market is no where near the bottom. It doesn’t matter which locality, all houses are going down substantially from here. Stay where you are or rent a better place for at least a year. Then take another look. And don’t be surprised if this same house is still for sale then but at a radically lower price then today.
If you’re cramped in your duplex, rent a larger domicile.
I don’t see why the options have to be listed as
1) stay in crappy duplex
2) buy crappy house.
why not add in
3) rent nicer place, which will decrease the “pressure” to get into a SFH.
See if there’s a SFH or larger/nicer duplex you can rent. then you can sit back and wait until your “dream” home comes on the market.
Even “dream” homes end up not being so dreamy after a few short years. I’m sure that a “so so” home is gonna be agony.
Don’t offer. Rent something nicer instead.
I agree, even if you have to pay higher rent, you will save money in the long run. You should hold out for the house you really want.
This is not my dream home but it would be a lot more comfortable to live there for the next couple years
That is what concerned me most about your question Saratoga;….If you time period is a couple of years, DO NOT BUY….
I would pass. If what you truly want is an older home with character, hold out until the home you really want comes on the market. It may take another year or two (or three), but I agree that 165K seems high. I wouldn’t pay that for a similar house here (NE Ohio) either.
Why don’t you offer them $750-800/mo rent and see what they say?
Yup, this is a good idea. I’m mulling over this option.
THANK YOU EVERYONE FOR ALL OF YOUR SUGGESTIONS AND COMMENTS!
I will let you know what happens. I am leaning in favor of just passing, since I can build something exactly what I want for less than this house. I will probably tell the realtor the price is too unrealistic for me to even make a lowball offer (I would take it for $100K!). If the house is still on the market in 6 months and they are getting desperate, then she should contact me. Also, I’ll tell her I’m interested in renting. Coincidentally, the realtor lives behind this house!
In your heart of hearts, you already know the answer, but just want affirmation. Sit tight. Hang in there for another 12-18 months. You’ll find a better place at a better price. If you buy now, you’ll be kicking yourself later, especially since you had a pretty good inkling that the real RE meltdown hasn’t even started yet.
Thanks. It’s tough to sit on the sidelines as my extended family makes fun of me constantly. They claim I’ve looked at 50 houses (like that is stupid). It’s only been about 30 anyway. Yesterday one of my siblings said he is thinking about doing a refi to pull some money out of his house. I couldn’t believe it. We have been talking about the housing bubble for 2 YEARS! I told him that his house was most likely worth less than he paid for it two years ago. He didn’t try to argue (for once); he just looked sad.
–
Housing Starts Up 5.9% in September
Bring on the supply!
BTW, this is as per my forecast several months ago (due to the pipeline).
Jas Jain
BUILD BUILD BUILD!!!!! Yesssssssssssssssssssss!
are we doing the UK bounce= weird
Yeah - my wife and I are renting - we were on the fence about buying - but that housing start number clinched it. We either renew our lease or find another rental. This is going to end badly.
Subdiv we are renting is in N-NE Atlanta suburb bewteen Cumming & Dawsonville. The builder, Touchstone, has a bunch of new houses here - non with contracts as of last week. So they threw up a bunch of condos (19 I think) at the front of Subdiv. Then hung up a BIG sign saying “Selling Fast” - as of this weekend - one under contract after three months. Why do they keep building - and why do the banks keep lending? In this one, SunTrust Bank may be on the hook in the end? There are so many houses available around here for sale here.
“Why do they keep building - and why do the banks keep lending?”
Because that is what they do, builders build and banks lend. If they don’t do those things they go out of business especially if they live off cash flow from building and lending.
4.3 b$ in condoloans and only 1% loss reserve / corus
this makes sense to me……
http://immobilienblasen.blogspot.com/
More on the Montana market..
I’ve put together a web page (actually sort of a mini-blog) to complement the Billings housing boom video.
Billings Market Conditions
Pardon the slow opening post. But scroll down and you’ll see lots of new graphs. Also a point-by-point rebuttal of an optimistic housing article in a local business journal (the one where the Realtor said that Billings housing is like a corporate bond, and you WILL get 6-10% a year).
Of interest, did you know that 33% of loans in Montana in 2005 were interest-only or pay-option?
I think this simple pair of pie charts explains the bubble:
Why first-time homebuyer demand will dry up
Time to spread the word around town now. Thanks for your support of the video!
hope realhores get sued w mort slimers
6-10% = bs= jail time
I apologize if this one was already posted. Here’s a gal
willing to “go all out” to get your mortgage business. Pics
included.
http://austin.craigslist.org/cas/221715586.html
The writting is on the wall. Its comming. I’ll pay your closing
costs, I’ll give you a new jaguar, and I’ll let you bang my hot
wife for a weekend if you buy my house at 04-05 pricing.
Wow that must be a joke. That must violate so many laws nobody would post it online with a picture of themselves.
Looks like a guy with implants.
Is this a legal form of refinancing “services”?
Article in today’s Washington Post about increases in home sale cancellations:
http://www.washingtonpost.com/wp-dyn/content/article/2006/10/17/AR2006101701613.html
One thing new that I hadn’t seen is that homebuilders are now offering home sale assistance - e.g. staging, to help stem the tide of cancellations due to buyers not being able to sell their previous home. Too funny, I have to say. They’re really getting desperate.
One couple walked away from a $60,000 deposit, after not being able to sell their existing house when it was on the market for only 3 months. I simply can’t fathom putting down a $60,000 deposit on a new home when you haven’t even sold your previous home yet.
“One thing new that I hadn’t seen is that homebuilders are now offering home sale assistance”
Yep. I saw “Trade-In” offers on new homes from Standard Pacific (I think) in San Diego this weekend. They’ll give you fair market value for your old place to get you into the new place.
they were already under water more than 60k on the new one=walking time
Yes - very true. They probably made the right choice. It was very foolish of them to put themselves into that situation in the first place though.
here’s part II to the 4Closure Ranch post: Don’t Catch the Falling Knife
I only see the same one you posted last night…
Now I see it. This is really a great post, as it shows one example of a story which I expect to be repeated thousands of times in bubble markets across the nation. In short, a flipper got caught buying multiple McMansions in a new tract home development (4Closure Ranch in this case) at the point the market was turning against them. Now they are desperate to unload multiple flips-turned-flops, which will royally screw up the comps. This is exactly why nobody in their right mind would buy now, as Darwinian forces have been unleashed which will drive prices lower for the foreseeable (foreclosable) future.
I found this on yahoo:
http://biz.yahoo.com/ap/061018/housing_starts.html?.v=4
The Commerce Department reported that construction rose by 5.9 percent last month to a seasonally adjusted annual rate of 1.772 million units. It was the first increase after three consecutive monthly declines.
First, who is increasing building? Someone in Austin or another “lagging market?” Second, isn’t the absorption rate 1.2 to 1.5 Million? So a rate that has declined to 1.772 million is 200,000 to 500,000 more homes/year than can be absorbed? Wow! Hey, no guts no glory. Let’s see, that means that every month another .15 to .4 months of inventory is destined to languish on the market?
I’m not calling this bullish news.
Neil
Anyone seen the breakdown on the starts-regions and percentages.
Just Curious.
AR6221098
Townhouse in VERY desireable Arlington, VA location, would have sold for over $700K last Summer, assessed at $700K, asking $600K.
Did any of you guys listen to this on NPR yesterday? Can’t believe there are still folks trying to pimp up San Diego as an investor’s market.
http://www.npr.org/templates/story/story.php?storyId=6284610
Sorry if this was already posted, but here’s a homebuilder that will give you zero mortgage payments for one year on certain home purchases. They don’t give a lot of details about it, but it certainly sounds strange to me:
http://cibolacreative.com/taylorwoodrow/oct/zero_payments.html
It certainly sounds like a form of “cash back” to me — implicitly the buyer is financing 1-year’s worth of home payments for buying a home whose price is (illegally) overappraised by 1-year’s worth of home payments. So, for instance, if the buyer is paying $3K/month on the other home, 1-year’s worth of payments would amount to a $36K fraudulent overstatement of the home’s value, and a loan where $36K’s worth was basically a cash-back deal financed over the life of the note.
You know, I hate to keep harping on the same thing … but look at the bonds. Yesterday’s “great” decline in headline PPI caused bond prices to spike up … but they gave back almost all of those gains by the end of the day. Today’s big decline in headline CPI … and on-consensus increase in core CPI … caused bond prices to spike higher. Now, they’re trading back to flat. The “weak” jobs report several days ago? That got sold aggressively. We simply have to keep watching the interest rates here. The big rally in bond prices (and decline in rates) helped stabilize housing a bit in recent weeks. Will rising rates on renewed inflation fears change that dynamic? That’s what I’m watching closely.
More thoughts on the latest econ. data and interest rates available at my blog, if you’re “interest”ed (sorry, couldn’t help myself) …
http://interestrateroundup.blogspot.com/
LA Times/Dataquick sales numbers for September are out:
http://www.dqnews.com/ZIPLAT.shtm
YOY summary (SFR):
LA County : 3.0%
OC : 0.7%
Riverside County : 7.2%
San Bernardino County : 5.9%
San Diego County : -0.9%
Ventura County : 0.0%
Santa Barbara County : -1.0%
Looks like I may have been a little early in calling for negative YOY for LA by October…revised to December?
Just what Mr. Market needs: More leverage..
SEC Expected to Ease Margin Requirements
“Margin requirements, set by the Federal Reserve, limit borrowing to 25 percent to 50 percent of a security’s purchase price. Under the new system, they could be reduced to as low as 15 percent for institutional investors.”
http://www.chron.com/disp/story.mpl/ap/fn/4263548.html
1929, here we come…
SEC and NYSE lowering margin requirements on some institutional accounts (probably the ones at my prop firm although they are already a joke). This I would think would have implications for higher stock prices and also would increase the risk in an outlier event (9/11, LTCM, what have you)
True story. I have a small account at one prop firm. It contains a 4-1 margined position in a low priced, low liquidity stock (under $5 I might add). During the summer, I wasn’t paying attention to it and the equity percentage declined BELOW ZERO. They never said a word. Now, 4 months later, I’m up 100% on it. But that’s how nutty things can get.
Is this the same firm that enables you to naked short?
Yup, but they prefer that I do it with my clothes on, at least during market hours
IMO this requirement is solely to enrich the members of the NYSE etc. The hedge funds are exempt from SEC oversight except for naked positions “the proposal would allow for margin requirements for financial institutions and hedge funds that are below current levels of as much as 50 percent”. The “as much as 50 percent” has not been seen in years. Current rules for hedge funds are ~1% - Amaranth was at 25%. I agree with GS except I think it rhymes with 1893 and not 1929. (1893 was the mortgage collapse that led to the formation of the federal reserve.)
I know but it will encourage them to take on more risk (my guess) since it’s OPM. Look at what they’ve done the last two weeks!
Hoz –
I was hoping you would not agree with me on this
GS I often agree with you (as well as Txchick 57, House inspector Clouseau -who says he’s from California, but has staunch midwestern sensibilities, Kim, and many others on this blog); but it is just my contrary nature to try to find the right question, since I am too old to know the answer. About disagreements as to the PPT etc., c’est la guerre; as to the disregard from the government to its current poverty inducing policies, I am in agreement.
Hoz –
I still maintain our respective positions on the PPT question are largely faith based — and my convictions are not very deep, and rather fuzzy to boot. But I will not be surprised if, ten years from now, we learn that some massive level of artificial manipulation was propping up the stock market during these conundrumish times we live in…
I have an analogy that I’ve used for many years:
The world is a big ball of interconnected strings. If you connect a string for every trade agreement, security arrangement, treaty, corporate/government contract, currency agreement, World Bank, IMF, Trilateral Commission, Central Bank Agreement etc. etc. the whole world would be covered with string, and very few powerful people can pull on selected key strings, affecting many others. I tend to view the PPT as part of a very complex ball of string. The PPT is just one of those key strings manipulated by very powerful people who intend to keep their power and wealth. I am suspicious of their intentions to say the least.
Chief Seattle said it pretty well over 100 years ago
Whatever befalls the Earth - befalls the sons of the Earth.
Man did not weave the web of life - he is merely a strand in it.
Whatever he does to the web, he does to himself.
“we have no evidence, other than this article, that Chief Seattle ever gave this speech. Smith was an amateur poet and his “Chief Seattle” speech sounds suspiciously like his own poetry. ”
http://tinyurl.com/wayky
“The “Record of Proceedings” of this council is among the records of the Bureau of Indian Affairs in the National Archives. It contains the following statements by Chief Seattle:
I look upon you as my father, I and the rest regard you as such. All of the Indians have the same good feeling toward you and will send it on paper to the Great Father. All of the men, old men, women and children rejoice that he has sent you to take care of them. My mind is like yours, I don’t want to say more. My heart is very good towards Dr. Maynard [a physician who was present]. I want always to get medicine from him.
Now by this we make friends and put away all bad feelings if we ever had any. We are the friends of the Americans. All the Indians are of the same mind. We look upon you as our Father. We will never change our minds, but since you have been to see us we will be always the same. Now! Now, do you send this paper.16
These are the only words of Chief Seattle recorded in the official record.”
US Government Archives
http://tinyurl.com/hubze
Heh heh heh. Does that diminish the message? Nobody knows if that was actually said or not but it sounds good . . .
http://www.halcyon.com/arborhts/chiefsea.html
I serve on the finance committee of a private school in flyover country. So far this school year we have had 2 requests for financial aide due to the downturn in RE. The first guy was loaning $$ to a speculator that went broke and the 2nd is in the home improvement biz/speculator who is having trouble making payments on his “investment” properties. Should we give them the aide?
No. Why not teach them why it is a bad idea to gamble instead? That would be a far more valuable lesson than “bailouts are always available.”
Is it for their kids? Maybe yes, the kids did not do wrong. In the ideal world, as a condition of receiving aid, I would make these guys come and give a demo/lecture of “How I was an idiot with money” as part of a financial ed.class, say in middle/high school.
Kids should be disabused of the notion of ‘easy money’ by the time they get out of school. Nothing else will stop the endless government bailouts.
Only way to diabuse them of the notion is to have the sins of the parents visited upon the children. Biblically harsh, but true.
Children of the depression saved. Children of folks who get financial subsidies will learn that bad decisions do not have consequences.
Yes, it’s for the kids. It’s a private grade school. We have an annual financial aid budget for either low-income families or families facing hardships such as illness or job loss but the aid budget is maxed out for the year.
I’ve been in this position, but had more guidance in loan regs. defining hardships.
If your hardship provisions are not clear, you will struggle.
Can you do loans to interested parties?
No, we only provide tuition discounts for families in need.
invest3, those situations are not true hardships, but examples of people who spent their private tuition money on other things. These are now public school students.
How would your fiduciary insurer, if you have one, view this? Worst case: 50% of parents come to you next year because they lost money in the stock market or in an Enron-type bust, and then cite these two hardships against you in a discrimination case?
Good advice, Pat!
No, it’s not for the kids. They bet with their kid’s money. Did they promise a nice endowment if they hit it big.
Look at it another way: why reward them for their incompetence? Plenty of other parents saved and sacrificed to provide for their kids- why not reward these people, not the incompetent.
Finally, as fine as your institution is, private school is a luxury in this country. The unfortunate deadbeats can no longer afford the luxury. Help them all learn a good lesson, and the lesson is not that a good fairly thinks that they are so loveable that their actions do not matter.
Several years ago I worked for a company that taught reading classes around the country in partnerships with established educational institutions. Part of our agreements were to provide for scholarships for needy families (full tuition for the six class program was ~$300, scholarships were for ~$50, which basically just covered marginal cost of consumable classroom materials). The scholarships were need-based on a first-come, first-served basis and were capped at 2% of expected enrollment at any one location. I served on the scholarship committee for my last year at the company.
A good number of applicants did suffer from legit financial hardships for which they provided documentation: single mothers with no education, medical expenses, etc. Some of the letters really broke your heart. But a majority of applicants didn’t have the money to spend because of some very poor financial decisions.
One in particular was a two income household that earned $70,000 somewhere in flyover country. They paid well under $1000/month for rent. Their “hardship” was that they had moved a half dozen times in three years trying to run away from wage garnishments from the IRS for back taxes for tens of thousands of dollars. They provided plenty of documentation (including a threatening letter from the IRS that said further attempts of evasion would lead to a possible jail sentence) and bills from their lawyer (about $10k, which they were also quite a bit behind on, of course).
Another was a single mother of three in Chicago who lived in Section 8 housing, was a retail sales associate, got food stamps and her kids got free lunches at school, made $7.50/hr, but had a $600/month truck payment for a vehicle that was less than an year old. I remember thinking that her application had gotten separated from the documentation she had sent in. Who the heck would give someone an AUTO LOAN where ~50% of their gross is going towards it? As a committee, we agonized over this one for over 10 minutes (we usually spent less than two minutes on each applicant) because on the one hand the family qualified, but on the other hand there were only a handful of scholarships for the area left and we had dozens of applications that had arrived on the same day. Ultimately, we denied the scholarship and found plenty of applicants just as deserving. Still felt sorry for her kids, though.
Awarding scholarships are so difficult because the opportunity cost is almost always an equally deserving kid help that they need as well. But I agree with the earlier sentiment expressed: a private education is a luxury good. If parents decide to spend their disposable income on toys for themselves rather than their kid, that’s unfortunate (and probably not the decision that I would make in their position, I would hope) but the consequences of that decision should not be mitigated at the expense of a household who is just as unfortunate but smarter with respect to financial management. It might sound cold, but free loaders will continue to abuse social safety net programs for as long as they can–at the expense of truly needy.
I am having a discussion with my cousin in Atlanta who is in negotiations to purchase some land and build three houses. He’s a mortgage broker who has seen his book of business drop 40% since the peak last year and has no building experience. I am looking for info on the Atlanta area to help talk him down from the ledge. Any advice is appreciated.
Have him contact that Sonny guy (the Atlanta realtor who is on both Mish’s blog and on the Motley Fool). Sonny has written several long articles about that market and is having a terrible year, with nothing selling.
Anyone have access to The Financial Review (Oz)?
“Roof may yet collapse on US economy
Starting to feel confident that the United States economy can escape a hard landing? Here are two sobering facts to keep in mind: the present US housing downturn is shaping up to be twice as bad as the previous two in 1995 and 2000, and in all but one of the previous six housing downturns since the early 1970s the US economy went into recession.
The Financial Review 18/10/2006 Cost: $3.30 577 words”
Good thing the PPT has kept the fire hoses turned on full blast…
“Dow defies the October jinx
By Leslie Wines, MarketWatch
Last Update: 1:27 PM ET Oct 18, 2006
NEW YORK (MarketWatch) — The Dow Jones Industrials’ much-awaited burst Wednesday through the 12,000 level allowed the average to resist the dreaded market weakness known popularly as “the October jinx.”
October is feared to carry a whammy because of the stock market crashes which occurred that month in 1929 and 1987, and mini-crashes that occurred in 1978, 1979, 1989 and 1997, according to the Stock Traders’ Almanac.”
http://tinyurl.com/ydpxxp
P.S. Some bozo was asking about PPT evidence a couple of days ago (Lippard the troll?). The evidence is simple and anecdotal, but could easily be quantified by a motivated researcher. Simply put, there are too many days when highly volatile downside stock price moves lead to a close very near the opening price to be explained as “random.” If this is not enough evidence for the likes of Mr. Lippard, perhaps he should refresh his knowledge of modern finance.
This is telling:
“Comment by Jim Lippard
2006-09-28 19:07:10
Immoral is not the same as illegal; lying and misrepresentation are not necessarily, in and of themselves, criminal.”
With that kind of philosophy, he must work for the REIC.
Not a philosophy, but a legal position. He’s probably a lawyer.
I stand by that statement–it is in no way a defense of lying or misrepresentation, which I agree are immoral and objectionable. I was noting that there is a distinction between legality and morality. That distinction is itself a good thing–it would not be a pleasant world where the law concerned itself with every detail of life, such that everything was either mandatory or prohibited by law.
My academic background is in philosophy (specifically epistemology and cognitive science), and I’m neither a troll nor a real estate bull.
Jim Lippard is the board’s self-appointed Thought Police enforcer. It’s not too hard to imagine that he lacks any kind of core principles or convictions, beyond a blind hatred and distrust of any manifestation of independent thought.
“Jim Lippard is the board’s self-appointed Thought Police enforcer. It’s not too hard to imagine that he lacks any kind of core principles or convictions, beyond a blind hatred and distrust of any manifestation of independent thought.”
Where on earth did you get that impression? I’m out in Nat Hentoff territory on free speech, and I have a quarter century online record of principled defense of civil liberty, independent thought, and critical thinking.
The statement is a veiled argument used by the left to legalize things that many would view as immoral. Mr. Lippard has an agenda and is trolling for his blog. It’s obvious he runs in the crowd that attacks anything Christian or Republican, he’s a supporter of gay marriage, and is an atheist or a secular humanist. The latest targets of his wrath have been homosexuals who happen to be Republicans. He speaks no unkind words about Frank, Studds, Condit, Clinton or Kennedy. His intellectual prowess is superior to most.
“The statement is a veiled argument used by the left to legalize things that many would view as immoral. Mr. Lippard has an agenda and is trolling for his blog. It’s obvious he runs in the crowd that attacks anything Christian or Republican, he’s a supporter of gay marriage, and is an atheist or a secular humanist. The latest targets of his wrath have been homosexuals who happen to be Republicans. He speaks no unkind words about Frank, Studds, Condit, Clinton or Kennedy. His intellectual prowess is superior to most.”
It’s not a “veiled argument,” it’s a statement of fact. Illegal and immoral are not equivalent terms, and it is erroneous to use them interchangeably.
You’re right that I’m critical of Christianity and Republicans (and also of Democrats, Greens, and Libertarians), and that I’m an atheist. I’m not a secular humanist–I don’t endorse the political principles in the “Secular Humanist Declaration” which are too statist for my taste. I haven’t commented lately on Barney Frank, Gerry Studds (who hasn’t been in office since 1997 and is dead–I don’t think he should have been re-elected after his affair with a page), Gary Condit (who hasn’t been in office since 2003; I have little doubt that this scumbag was involved in the death of Chandra Levy), or Ted Kennedy (I haven’t heard anything newsworthy about him lately). As for Clinton, I criticized Bill Clinton for many reasons while he was in office, including his dishonesty, his support of the Communications Decency Act, his sending U.S. troops to Somalia. As for Hillary, I have recently criticized her on my blog–she’s no friend of free speech.
My preferred solution on marriage would be to have the state butt out of it completely, but that’s unlikely. I don’t see any good reason why gays shouldn’t be allowed to marry.
It’s not true that “the latest targets of [my] wrath have been homosexuals who happen to be Republicans.” Most of my criticism of the Foley matter has been of those who covered it up or failed to act.
But this is all a bit off-topic for the blog. If you’d like to discuss these issues further, we should do it elsewhere.
Thanks for the compliment in your final sentence.
I stand behind the comment Fred quoted–it was no defense of lying or misrepresentation, only pointing out the fact that there is a difference between morality and legality. There are things that are illegal that are not immoral, there are things that are immoral that are not illegal. The terms are not equivalent.
It’s interesting that a demand for supporting evidence makes me a bozo, a troll, an REIC employee, or a lawyer. Sorry, you’re all wrong, and you’re all engaging in fallacious ad hominem argumentation. I work in the network security field and my academic background was in philosophy (epistemology and cognitive science, though I also took some philosophy of law courses with the late Joel Feinberg).
Well I was in the ballpark then and I wasn’t implying anything uncomplimentary by saying you’re a lawyer. Every morning when I get up, there one of those leeches in the bed next to me. LOL
Jim,
So what you are telling us is that absense of evidence is evidence of absense? Or that only hard evidence is admissable? If everyone thought as hard as you do, then conspirators could have cart blanche to do as they pleased without scrutiny.
“So what you are telling us is that absense of evidence is evidence of absense? Or that only hard evidence is admissable? If everyone thought as hard as you do, then conspirators could have cart blanche to do as they pleased without scrutiny.”
I believe I responded to almost exactly this same statement in comments on an earlier posting within the last week or so. I’ve said nothing that dismisses the ability to scrutinize, investigate, criticize, or speculate–only that I’d like to see supporting evidence when conspiracy claims are made. (BTW, you did provide a link to some evidence of Working Group-directed market interventions when I asked, and I thanked you for that.)
The burden of proof falls on the claimant (that’s true of both positive and negative claims). Absence of evidence can be evidence of absence, in the right circumstances. For example, if you look in the right places for consequences of X, and don’t see them, that’s empirical evidence against X. The absence of evidence of an elephant in the room is evidence of the absence of an elephant in the room, if you’ve looked in the elephant-sized spaces. There are circumstances (e.g., see Jim Steinmeyer’s excellent book _Hiding the Elephant_) where a mere look from one vantage point is not sufficient to rule out the presence of an elephant in the room.
“The burden of proof falls on the claimant…”
You claim the government does not intervene in asset markets. I submit that they do — witness the role of the Fed in setting the price of money (interest rates). The Treasury, which decides the quantity of debt to issue at each maturity point on the yield curve, also clearly has a role in setting asset prices. And if you know anything about exchange rates, you realize that exchange rates are also influenced by government intervention.
What evidence can you, the claimant, offer to show government asset price targeting has not been extended from all these traditionally targeted groups to the stock market?
P.S. Jim, I once had a professor who told me that if you ever witness an argument between a business school professor and a philosophy professor, you could immediately draw two conclusions:
1) The philosophy professor was kicking some butt.
2) The b-school professor was paid 2X as much.
“The absence of evidence of an elephant in the room is evidence of the absence of an elephant in the room, if you’ve looked in the elephant-sized spaces.”
In this case, the elephant is clearly present in the room; the question is whether it engages in forms of stock market price targeting which violate traditional norms regarding the permissible extent of interference in asset markets. Since the elephant has the motives and capability to engage in such manipulation, I don’t see any reason why it would not do so, even though I cannot present direct evidence.
“You claim the government does not intervene in asset markets.”
No, I’ve made no such claim. You’re making that up.
Watch What the Fed Watches - Home Builder Bankruptcy
Wednesday, 18 October 2006 18:39:40 GMT
…Speculation has always a problem for the Federal Reserve and right now they are juggling two speculative bubbles, one in the housing market and the other in the hedge fund sector. Both of the bubbles are beginning to let air out, but the Fed is keeping a close eye on them to ensure that the deflation of bubble goes smoothly. Unfortunately, we are already beginning to see complications that could force the Fed to cut interest rates prematurely. US economic data has been very mixed over the past two weeks, which makes it even more important to look beyond the economic calendar and watch the other sectors that the Fed watches - like banking….
Regulating Hedge Funds Has Become So Concerning That it is on the G8 Agenda
In terms of the hedge fund sector, the market has joined Fed officials in their call for more regulation. Over the past week, every single major financial paper has extensively covered the debates in the industry about how to enact more regulation. After the demise of Amaranth Advisors, no one wants to see another debacle lead to a liquidity and banking crisis. The problem lies largely in that the $1.5 trillion hedge fund industry is virtually unregulated. Though attempts have been made to bring these funds under the jurisdiction of the Securities and Exchange Commission (SEC), a court in Washington, DC struck down rules requiring their managers to register with the regulatory body. The current lack of oversight has troubled observers wary of the potential effects of future hedge funds unwinding massive losing positions. …
Economic data has been very confusing these days with headline inflation prices falling and core prices rising. Every single piece of positive data has been met with if, and or buts. Nothing we have seen thus far has been compelling enough to tempt the Fed to make any changes to interest rates. However, as we begin to see more cracks in the banking sector, which will tell us how the housing market downturn is really impacting the bottom line of US consumers and corporations, the Federal Reserve may feel the need to act preemptively by cutting interest rates. We are sure that Bernanke wants to avoid a recession at all costs. ”
http://tinyurl.com/y65urr
nuff said
“After the demise of Amaranth Advisors, no one wants to see another debacle lead to a liquidity and banking crisis.”
But it looks like the PPT effectively quarantined the markets from Amaranth-related contagion. Given that they have perfected quarantine measures since LTCM, what’s the worry?
GS, If you just watch the DJIA then it appears we are in a rally, however if you look at the Dow Transports and the diminishing volume in the stock markets, a reasonable investor would conclude that this is not the time to buy. The massive liquidation by the hedge funds (buying stocks since early September) is almost over. Who else is left to buy?
hedgefundanalyst, do you have any insights to insert here?
Boolish. Hold your nose and buy
“We are sure that Bernanke wants to avoid a recession at all costs.”
At all costs? Whatever happened to inflation targeting? Has that been dropped from the cost-benefit calculation entirely?
Are the skies clearing for the bulls or will the bears finally have their day in the sun?
Da bulls
http://tinyurl.com/yxfspr
Da bears
http://tinyurl.com/y99gvu
This article from the FT is a bit dated but I don’t recall it being posted. Hedge funds are growing negative on housing.
http://tinyurl.com/u553l
If you’re not grading enough A’s, then lower the bar:
“Top corporate debt shrinks as punters embrace risks”
“AAA-rated corporate issues now account for a historically low proportion of debt outstanding.”
“Moody’s Investor Service said the decline had been so marked that it was forcing the US rating agency to consider relaxing the criteria for their top grade.
Daniel Curry, head of corporate finance in the Americas, said: “We are wondering whether it makes sense to keep the quantitative standards at the same level for triple As.”
http://tinyurl.com/ygrmyt