The Housing Bubble

This is not like a retail home buyers strike. The people quoted at the Dallas auction are unemotional professionals. There’s no money to be made in the current foreclosure environment. Good, this is progress. I was worried that irrational end users would be buying these distress properties and thus prolonging the process. Being the lender of subsidiary debt may soon be code for property holder. I’ve got Citigroup on my sh–t list now. (That’s short list BTW.)

“70 of a total of 91 units were sold before interest rates rose, forcing up prices that turned off prospective buyers.

“The (Federal Reserve) raised interest rates and that started the housing bubble; it took a lot of speculators out of the market.”
—

I’m seeing this “blame the Fed” mentality all the time now. Are the rising interest rates REALLY the main bubble popper here? I thought the bubble popped when the loose lending simply soaked up all the current and future demand, or when speculation drove the prices too high to buy even at low interest rates. Not the interest rates themselves. Am I missing something? Or is Blame the Fed the new robo-response?

“‘We were selling as fast as we were building a year and a half ago,’ Phil Johnson said. ‘The (Federal Reserve) raised interest rates and that started the housing bubble; it took a lot of speculators out of the market.’”

Good lord, No Phil raising rates did NOT cause the housing bubble!

“Borrowers of subprime loans would have been much better off had they improved their credit scores first and then shopped for less costly mortgages, Panzardi said.”

… or got rid of their debt entirely and started renting. What is the reality that this advice is ever offered by credit-counseling services? OT, but probably a good little cottage industry to get into with the new BK laws.

Drove out east of Phoenix past Queen Creek yesterday. Very scary, homes for sale everywere, big homes in the middle of a desolate area by the San Tan Moutains. Used to be farming land cotton, potatoes, stuff like that.
My friend who lives in Chandler AZ has a big home next to his bought by a flipper from Cali. Now its going into foreclousure after a year on the market. The pool was green.
It is not good out here and getting worse IMO. I rent and have NO PLANS to buy any time soon. Coastal Cali will never get this bad.
However like the foolish flipper in Chandler there may occur pockets of distress if Cali RE was used to buy in Queen Creek AZ?
I expect next year will give us a clearer picture.

Cheers

At Child & Family Services of Eastern Virginia, the number of cash-strapped homeowners seeking help to avoid foreclosure has jumped sharply during the past six months, said Allen, vice president of the agency.”

And, pray tell, just how is this going to help “the children”.? These are government funded programs that “help” deadbeats, felons, and other assorted riffraff under the guise of charity.
I hope you all really research which charities you decide to donate to, because very few of them are legit. I’ve seen the most advertised and appealing children’s charities and “family services” give the most nefarious, scheming, lazy people goods and services that should, but never really make it to those who truly need it.
So now we have it. The housing bust is officially a social issue that will need “assistance” and magazine articles about the poor children of gamblers who took the money and pissed it away.

I’m from the Northern Virginia area. I am sure this has been at least touched upon before, but how much do you think prices will fall in Northern Virginia? Nearer to DC than not.

What about all the soccer moms and PTA moms who all got together to flip condos why their busbands went off and slaved at work so they good drive their huge suburban assult vehicles.

Do you think the hubby is pissed now when all his savings are gone? Do you think the moms are mad at the one mom who convinced them all to invest in condos with her. You know, “Flip em”.

Flipping condos, step right up.

I guess the soccer/PTA moms didn’t care that their children would be priced out of the market . What about all the investment clubs that went around in buses buying property and creating demand everywhere . I still think that the builders and the investment seminar promoters where marketing this real estate investment dream together .The builders and sellers of inflated property prices had the perfect climate by easy lending .

“‘We were selling as fast as we were building a year and a half ago,’ Phil Johnson said. ‘The (Federal Reserve) raised interest rates and that started the housing bubble; it took a lot of speculators out of the market.’”

And yet another real estate idiot savant’s astute analysis gets quoted in the press…

‘There are as many for-sale signs as they are political signs,’ joked Tawes. ‘Everybody thinks land is worth a lot of money.’

He could just as well be talking about San Diego here — we have huge competition between our political signs and For Sale signs along our public byways…

“Reduced appetite for speculation?” How about severe indigestion, soon to be resolved by purging?

OT, from the WSJ:

“Why Fed Might Keep Rates on Hold Longer Today Than It Did in 1995″

Washington — INVESTORS LOOKING for a road map to the Federal Reserve’s next moves on interest rates often look to 1995.

At the time, the Fed had raised interest rates steadily after a long period of unusually low rates. With the U.S. economy slowing, it paused for five months and then started cutting rates.

Many investors have been looking for that cycle to repeat itself and expect the Fed, which last raised interest rates in June, to begin cutting rates at some point in the next few months.

This year differs from 1995 in ways that suggest the Fed could stay on hold longer. One is that interest rates are lower now than back then. Another is that Fed officials’ tolerance for inflation is quite different today.

“We have to watch carefully to make sure that [inflation] doesn’t rise or even remain where it is,” Fed Chairman Ben Bernanke said three weeks ago. In other words, it isn’t enough that core inflation, which excludes food and energy, stops rising; the Fed wants to ensure it will be lower a year or so from now.

Mr. Bernanke’s predecessor, Alan Greenspan, never laid down so explicit a marker. When Mr. Greenspan became Fed chairman in 1987, core inflation, at about 4%, was above most definitions of “price stability,” (the Fed’s statutory goal) including his.

However, Mr. Greenspan never put a number on what represented price stability. Transcripts of deliberations by the Fed’s policy-setting Federal Open Market Committee in 1994-95, while showing plenty of concern about inflation pressure, show little discussion, especially by Mr. Greenspan, of whether the inflation rate at the time was acceptable. That frustrated some of his colleagues.

At one point, Robert Forrestal, then president of the Federal Reserve Bank of Atlanta, complained that, “We talk about price stability and lower inflation, and inflation being quiescent, and so on, but I don’t know what our level of tolerance is.”

An important reason Mr. Greenspan didn’t put a number on price stability was that declining to do so made it easier to cut rates in the face of a weak economy even if inflation was above his long-term goal. He eventually achieved price stability by taking advantage of circumstances, an approach dubbed “opportunistic disinflation.” Disinflation means declining inflation.

A RECESSION and weak expansion in the early 1990s helped nudge inflation lower, and “pre-emptive” rate increases in 1994-95 kept it from rising again. Accelerating productivity growth in the late 1990s, which enabled the economy to grow rapidly with less strain on existing capital and labor, nudged inflation lower still. Mr. Greenspan later declared that price stability had been achieved by mid-2003, when core inflation was between 1% and 1.5%.

Core inflation has since risen to 2.9%, according to last week’s report on September’s consumer-price index; it’s a bit lower using the Fed’s preferred-price index. Though the Fed has no official target for inflation, Mr. Bernanke and many of his colleagues have often suggested a ceiling of about 2%, and all agree today’s rate is too high. Still, most investors expect the Fed to leave short-term rates unchanged at 5.25% at its policy meeting tomorrow and Wednesday.

Having known price stability, and then lost it, today’s Fed is under added pressure to regain it. But Mr. Bernanke doesn’t intend to restore price stability immediately regardless of the cost in terms of jobs. His central forecast is that as energy prices retreat, so will their indirect impact on core inflation, bringing the core rate back to around 2% by 2008. Yet the Fed is still counting on some slowing in economic growth to bring that about. That is one reason it is not alarmed, and is indeed pleased, that since June, annualized growth has probably slipped below 2.5% and is expected to continue at that rate through mid-2007.

“The economy appears to have entered a period of below-trend growth,” San Francisco Federal Reserve Bank President Janet Yellen said last week. As long as that continues, it will “gradually . . . reverse any underlying inflationary pressures.” Rather than “opportunistic disinflation,” the Fed’s current strategy could be called “deliberate disinflation.”

A steeper slowdown or looming recession would probably prompt the Fed to shift its attention to growth from inflation, and thus to cut rates. Fed officials are aware that 2006 has parallels not just to 1995 but to 2000. In 2000, as now, strong growth had been fueled by strong investment — business then, residential now — and related asset prices — stocks then, home prices now.

IN 2000, FED OFFICIALS last raised rates in May, then maintained a public bias toward higher rates for seven months as, privately, their inflation worries receded and growth worries grew. In part, they feared a premature shift to easier monetary policy would reinflate the stock bubble. In retrospect, the Fed didn’t realize how far tech investment would fall, undermining the entire economy. Though officials today believe housing isn’t like the Nasdaq Stock Market was in 2000, they keep an open mind.

Uncertainty about housing is a major reason the Fed paused when it did in its rate-raising campaign, and that creates another distinction. Even adjusted for inflation, short-term interest rates, which the Fed controls directly, are lower now than at the same point in either the 1995 or 2000 cycles, and long-term rates are even lower.

Treasury-bond yields, minus consumers’ long-term expected inflation rate, are just 1.7%, compared with 2.8% in September 2000 and 3.4% in May 1995. “Financial conditions remain quite supportive of borrowing and spending,” Fed Vice Chairman Donald Kohn said three weeks ago. “Market interest rates are not high.”

Fed officials still debate why long-term rates are so low. It may reflect pessimism about long-term economic growth and investment prospects world-wide, and so give the Fed a reason to worry less about inflation and more about growth. Nonetheless, moderate rates make it harder to argue monetary policy is especially tight right now — and thus, make the case for rate cuts less compelling.

“Throughout Virginia, fewer investors are showing up at foreclosure auctions, and more homes end up in the hands of lenders, said Eric White, VP of a Virginia Beach law firm….”

Why am I not surprised. From reading previous threads on auctions, it seems like a royal waste of time. The specuvestors and lenders are hoping to sell these properties at or a smidgen below current perceived market value OR at best to cover mortgage balances.

These auctioneering killjoys need to sweat it out another year or two; let the market wring their silly expectations dry; then and only then will they be begging to give up these properties; right now, it’s still an end to end suckers market including at the auction block.

“At least 70 of a total of 91 units were sold before interest rates rose, forcing up prices that turned off prospective buyers.”

I still don’t think interest rate hikes had much to do with the slowing of the bubble. I think the slow down in price rises was because of a lack of affordable prices and without a guaranteed price rise then first the outright speculators and then the part time speculators dropped out of the market. It might make sense to buy a overpriced $500,000 condo if you think it is going to increase in price to $750,000, but it makes no sense to buy if prices don’t go up. Without the speculators then prices could not be maintained.

2. Minyanville Presents: Who Do You Trust?

Give the following choices, who do you trust?

a). The National Association of Home Builders
(Who last week trumpeted to anyone who would listen that the declining home building market has “stabilized” after a one-point surge in their index of builder confidence.)

b). David Lereah
(”chief economist” for the National Association of Realtors and author of the book “Are You Missing the Real Estate Boom?: The Boom Will Not Bust and Why Property Values Will Continue to Climb Through the End of the Decade - And How to Profit From Them,” who last week noted that “Our sense is that home sales may have reached a low in August.”)

c.) Actual, real-life traders of mortgage-backed securities
(And the derivatives on which those securities are based.)

Look, we have no idea who you chose to trust on this.
Maybe you chose to trust (a), the NAHB - an association whose mission, according to their own Website, is to represent the building industry and to “create an environment” where housing and those who provide it are recognized as the “strength of the nation.”
Or maybe you chose to trust (b), the “chief economist” for the NAR, an association whose mission, according to their Website, is “to help its members become more profitable,” which last time we checked will only happen if more houses are sold.
Did we mention that David Lereah, the NAR’s “chief economist,” has a book for sale?
Or perhaps, like us, you instead chose to trust real-life traders who:
- Couldn’t care less about helping builders build homes and become the “strength of the nation”
- Couldn’t care less about whether realtors are profitable and successful
- Have not written any books about the never-ending boom expected to continue over the next decade in real estate
- Actually trade mortgage-backed securities for a living
- Based on their actual trades made with their real money are expecting mortgage delinquencies and foreclosures to increase at a time when the number of homes for sale as measured by the National Association of Realtors (whose mission is to help its members - realtors - become more profitable) is at a 13-year high
Further, did you know that the ABX index, which measures the risk of owning bonds backed by home-loans to people with poor credit, rose 30 percent since Aug. 9 to the highest since January, according to Bloomberg?
As well, the percentage of home-loan payments more than 60 days delinquent rose to 7.23 percent in July from 5.9 percent a year earlier, the fastest rate of increase since 1998, Moody’s Investors Service said Oct. 17.

“Borrowers of subprime loans would have been much better off had they improved their credit scores first and then shopped for less costly mortgages, Panzardi said

And who put these people into their mortgages in the first place?

All the sleazebag pennystock pump and dump scumbags, used car salesman, cash checking service operators, et. el., who poured into the lending biz to take advantage of an unregulated industry with big buck lobbyists to keep the field clear.

hehehe…and now Nancy Pelosi and Co. is goin’ to ride to the rescue
to bail out the legions of FB’ers, ’cause it’s all “W’s” fault.

The brain dead masses will lap this up like a dog on his balls.

While driving through Vacaville California, west on I80 yesterday - there was a big sign for new homes. It had originally said “from the $300K and up”. THere was a sticker pasted over that said $280K and up:”. Lots of FBers in Vacaville. THis is half way between Sac and SF.

“Jim Dodson belts out a laugh.”

I’m sure his last-year buyers don’t share his humor. Don’t look for any Christmas cards this year Jimbo.

Off the immediate topic here, but I just got back from a multi-state vacation that took me across Tennesee, Virginia, Maryland, North Carolina, and Pennsylvania. Many of us observe exactly what we see in our own areas, many of them in bubblezones- I being from the Bay Area, CA.
So it was interesting to see that there does indeed exist a nation-wide bubble in just about every state I saw. The difference is that in some of these places, like Nashville for instance, the prices are not exactly a bargain, but still about 1/3rd the cost of back here in CA. People there and in many of the other less bubbly areas aren’t neccesarily not buying because prices are too high, but more because they have been reading the reports of a slowdown, and most spectacularly in California and New York. Indeed, in most of these Southeastern cities, all you have to do is drive about 10 minutes out of town and wallah- instant farmland. Even with this seemingly endless supply of cheap land, nobody seems to be buying, which is the opposite of California where people have stopped buying because they simply cannot afford- no matter how much they make.
The most vulnerable of these off-bubble areas I saw was lancaster Pennsylvania and Asheville, NC. I mention Asheville because there isn’t much industry there other than retirement homes and service industry, yet homes were somewhat high( for the area) -150-300k. This is out of whack with their economy, so I assume that they will have a hard fall once the reasons for buying vanish.
The rural parts of pennsylvania were equally bad because these homes were actually pricey. In the 350-450k range, which is high given that the closest city was over an hour away ( Philadelphia) and there again wasn’t any industry to speak of there.
All said, there is a national bubble, but some areas barely got onboard at the very end and though cheaper, are seeming to stall out just like the most expensive areas. Buyer sentiment is perhaps the most powerfull ally in bringing the prices back to substainable levels.
I returned yesterday and as usual, the number of homes for sale seems to be multiplying like mad. You get used to seeing literally 4 signs per intersection every weekend, but leaving for awhile and then returning to see it again after seeing a part of the country that doesn’t have this issue is almost comical and astounding at the same time. The Bay Area is and will fall hard if this kind of non-selling, massive oversupply continues.

Great to see Hampton Roads (Norfolk/Virginia Beach and surrounding cities) news on my favorite housing gloom and doom site. Are there many other locals that read Ben’s blog? I took a picture or two this weekend I will upload tonite of a mountain of “for rent” signs near a newer low-end construction in Virginia Beach. Sadly, the bubble *is* having an effect on rents here. They are going up, as recent investors try to cover their costs, and long time owners go after similiar dollar amounts.

i’m in santa rosa ca,and DQ news came out with the new #’s,showing yoy-10%.it is dropping fast recent sales are 15-20% below last years peak from what i see (broker flippers p-ing and moaning) sonoma county already has significant job losses,and a whole pot full of 2nd homes “bought” as investments with arms. the market here is close to seizing up.and btw,i am one of those whose marriage is going down the tube over housing…i will try to keep her from getting too badly screwed when she buys,if i can. between mencken and epictetus,i can always find comfort…as my dady said,cheer up son,it only hurts while you breathe.