Bits Bucket And Craigslist Finds For November 1, 2006
Please post off-topic ideas, links and Craigslist finds here.
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Silly and not so silly anecdotal info. Last night took the little nugget trick or treating in two adjacent developments. One is blue collar very low/middle class duplex community and one is SFH built in the last 3 years. 5SFH for sale and at least 3 others empty. Many of the occupied houses not participating in the holliday. Those that were participating went for the cheaper candy. Only 2 peanut butter cups. Too many FB’s to splurge on the name brand candy? hahahaha.
Oddest thing is I can buy as many bags as I want, but it just seems to taste better sending the children out to harvest them.
Nobody came here for candy (small town coast of Maine), because all the locals know this road is two unsold spec houses and three recently-built, currently-unoccupied summer houses. So far only a few would know that one of the spec houses has tenants (us).
Don’t know about the treat givers, but we shattered all records yesterday here in NY as coincerns the filthy little street urchins that come a begging for treats :-). Wife bought 8 boxes of Hershey bars at Costco , 48 bars per box-all gone(okay I ate like 3 of them) and shut the lights out by 8:15 PM.
Reason we get so many trick or treaters is that we’re on a cul-de sac loop of about 35 houses , built about 7 years back. The area , southern Rockland County NY , about 15 miles North NYC , does not have many of these “developments”. Most of the buildable land was built out in the 70’s. So we literally have dozens of minivans parking at the end of the block and letting the young kiddies do a loop. It’s perfect for them really , they can hit 35 houses in about a 1/2 hour and head home. reason I’m telling y’all about the block is this:
http://www.zillow.com/search/Search.htm?addrstrthood=delongis+ct&citystatezip=10976&mode=browse
Hope that loads for everyone. Zillow. See the first house on the block with a Zillow zesstimate of $781,000 ? Yeah , well that house just sold a few months ago for $650,000!
http://www.domania.com/homepricecheck/search.jsp?address=2+delongis+ct&CSZ=sparkill+ny&type=property&startyear=1987
Don’t put too much stock in Zillow people.
Re: Zillow. A.K.A Total Fantasy. I owned 2 properties in Southern California which I sold too soon (lol) in 2002. Just for fun I check Zillow to see what they are worth (another lol) now. Zillow posts fantasy numbers. One is/was $150,000 off the mark and the other was $200,000 off the mark. Yes, you read it correctly….$200,000 off the mark, Of course, both numbers ABOVE their real price.
you may 2002 soon
actually I’m thinking if we go lower than 03 ammo may be the most inportant thing going
Huck,
Funny thing, Zillow even lists the 6/29/2006 sale for 649K. Suckers haven’t even updated the zestimate.
There’s nothing like the real world to spank a nice Zillow algorithm.
‘48 bars per box-all gone(okay I ate like 3 of them)’
3 bars or three boxes?
Or 3 street urchins?
Or like 3 Costcos?
LOL. 3 bars , but I feel this morning as if I’d eaten 3 boxes and a couple of urchins. Chocolate hangover!
I tried another post showing the moral of my story , but it doesn’t seem to have hit , so I’ll just tell you without the links (which I suspect are causing the trouble).
The area is a cul-de-sac loop of about 35 houses built about 7 years back. There are not many “developments” like this in the area (southern Rockland county NY , 15 miles or so north NYC) , and so we get dozens of minivans parking at the end of the development dropping kids off to do the loop. It;s perfect for them , nice , safe , enclosed and they can hit 35 houses in about a 1/2 hour.
Anywho , go to zillow and take a look — Delongis Court , Sparkill NY.
See that first house , the one with a zillow zuesstimate of $781,000?
Yeah , well , then go take a look at domania dot com and type in the address - #2 Delongis Ct. You’ll see that this house just sold a couple months ago for $130,000 LESS than the zillow value.
So , a lot of the stats you see regarding the RE markets acroos the country , the ones using zillow numbers , are even more flawed than you think.
Good for Mr & Mrs Huck …. giving out A treat worth hiking for! I have done the same for years. We probably all remember the disappointment of receiving the miniscule offerings in our youth, and don’t want to be those people.
Now if the homeowners would just learn this lesson with their paper equity …..
My yard apes swarmed over the nearby Sterling Hills. Halloween heaven. $1.2m houses on 50ft lots with 15ft driveways behind gates on lighted streets with full sidewalks and no real curbs.
We were so disappointed in the rugrat turnout in our town in SE Pa. I had 6 pounds of chocolate miniatures, and only 6 trick-or-treaters all night. Usually, we get about 50.
What happened here?
Last night we had around 1,200 kids come through. Always the same. We’ve been here for 7 years and it’s been like that every single year. It rained here 3 years ago and that year still brought in 200 kids.
Some of the parents from a few blocks over said that it was dead quiet on their street. No one can understand why our street gets so many kids. Lots of fun for us and my 2 little ones.
Lack of trick or treat urchins? Maybe they are doing what the latest “fashion” is here. The big shopping malls are hosting “trick or treat” events. Possibly a trend of the future? The kids can be watched (safety) and the stores benefit from parents buying something. 3 years ago we had 20 + trick or treat urchins. Last night we had 2. However, last night was a funny experience. One of the 2 groups were from a family (actually 2 familes) who are from south of the border and only speak spanish. The 2 familes moved into “flipper” house in the cul-de-sac opposite my (rented) house. We figure it was a house which the fb couldn’t unload, was probably bought on an exotic loan and the rent was too high for just one family so he/she rented to 2 families. From what I understand, they speak very little english. The kids (there were 4 of them last night but the familes have about 9 or 10 kids between them) were with their mother. So, my wife opened the door with a, “Hi, kids!” She held out the bowl of candy and the kids helped themselves………but before my wife could withdraw the candy bowl, the mother suddenly reached in and grabbed a BIG (and I mean BIG) handful for herself! Hey, maybe south of the border halloween trick and treating includes the parents?!
Wow, that story contains just about every element of the arguments the anti-illegal immigration people use.
10 kids, over $100,000 per year in educational expenses. Care to guess whether the parents pay $550,000 per year in taxes on their $1.4 million annual incomes thst would cover that? (The math is hard but trust me, that’s how it works in Kalifornia.)
My [no hablo espanol] aunt used to manage an elementary school cafeteria in East Texas. She had a lot of trouble explaining to the moms that the free breakfast and lunch program for the students did not include the parents.
Studio City was alive and rampant with costumed gremlins! Hundreds. We save the good candy for the local kids and give the cheaper candy to the obviously “bussed in” kids. Droves and droves.
I think some trick-or-treaters came by last night. But my porch light was off, and I don’t answer the door after sunset unless I know that someone is coming here.
I live in apartments and had some kids come by for candy. Unfortunately, I forgot about the holiday (no candy) so I passed out cans of Bud Light instead (j/k).
Sacrilege to give away your beer!
Damnit Moman you just cost me a keyboard. To funny.
“Many of the occupied houses not participating in the holliday.”
Dramatically less people participating in our fave area. Lots of we’re out of candy signs at 7:30 if the porch lights were even on. Friends seemed to sense many still giving out candy didn’t seem especially festive either.
I had more kids show up at my door trick or treating last night than I have had in long time. They were really cute and it was fun. I’m glad to see kids still doing it, despite all the “safe trick or treating” that is heavily advertised at the local malls to bring in traffic. It’s one of the few times that I actually see some of my neighbors.
I buy the expensive candy to hand out generously. After all, I get the leftovers.
We had quite a few kids out in our Arlington, Va., neighborhood last night. Lots of young affluent (or think they are affluent) families in our ‘hood, so that probably explains it. Hopefully not too many of those young families are FBs, but it wouldn’t surprise me, given that the cheapest SFH in the ‘hood is about $600k.
From WSJ:
“Banks Take a New Tack on Mortgage Lending; With Loan Volume Slowing, Rebates and Rate Discounts Are Used to Woo Customers”
“GET A MORTGAGE from another lender and we will pay you $250.
“That is the latest marketing twist from Bank of America Corp. With competition for home loans increasing, the Charlotte, N.C., lender is encouraging its customers to apply for a mortgage with the bank and then shop around. If they decide to get their home loan elsewhere, Bank of America will write a $250 check to cover a portion of their closing costs.
“The Bank of America offering is the latest sign some lenders are beginning to emphasize price, service and stronger customer relationships in the face of slowing loan volume. Mortgage originations fell 29% in the third quarter compared with the same period last year, according to the Mortgage Bankers Association, as the housing market cooled and rising interest rates made it less attractive for borrowers to refinance. [...]
“Other lenders are using rewards programs to try to boost customer loyalty. National City Corp. gives customers enrolled in its rewards program 50,000 bonus points when they take out a mortgage with the bank. Customers also earn bonus points for tapping a new home-equity line of credit. Citigroup Inc. offers special reward points to customers with a Citibank mortgage or home-equity loan, provided they also have a Citibank checking account and debit card. The points can be redeemed for a variety of rewards, from gift cards to plane tickets.
“The offers represent a new tactic for lenders, which for years vied for customers by rolling out mortgage products that allowed borrowers to lower their monthly payments. These include interest-only mortgages that allow borrowers to pay interest and no principal in the loan’s early years, option adjustable-rate mortgages that let borrowers make a minimum payment but can lead to a rising loan balance, and mortgages with 40-year terms. But the flow of new products has slowed and bank regulators have raised questions about the risks some nontraditional mortgages may pose to borrowers and lenders.
“Some lenders are wooing customers with pricing guarantees. LendingTree.com, a unit of IAC/InterActiveCorp, is offering a $500 price guarantee to certain borrowers who use its loan network to shop for a home mortgage. The offer, which runs through year end, applies only to borrowers taking out standard fixed-rate mortgages for $417,000 or less. To qualify, borrowers must document they received a better offer from another source on the same day an application was submitted to LendingTree, an online service that matches borrowers with lenders. LendingTree will pay the $500 if it can’t get one of its partners to meet or beat the offer. So far, only one customer has put in a request for the $500 payment, but the request was declined because the loan was for less than $100,000, the company said.”
Imagine all the loan companies that “specialized” in the “creative” loan market? Do you think they’ll get return customers?
The bankruptcy department will get the return of these customers.
Every new wave of advertising is getting more and more interesting in the loan business and the home-selling business .
As sales and refinances slide the industry is getting more and more creative trying to get the limited business .
Just how many buyers are going to go for a loan that adjusts to 8-13% effective interest rate within 6mo. to a year now that the mania is over ? Maybe Casey or one of those guys in prison might be interested in one of those creative loans with creative underwriting .
What amazes me is that you get qualified on the teaser rate. All the builder ads with 3.75% financing (for the first year!) states this in the small print. After 3 years the rate is 6.75%, but I guess the buyers expect about 60% increase in their salery by then?
OB-Tom …And on top of it its a builder buy down on that loan I think . A street rate would be higher at adjustment time . But still, the lenders are qualifying on the teaser rate . I guess these borrowers think they are going to get big raises for the next 3 years . Curious on your example loan, what happens to the rate of 6.75 ,or how long is the 6.75 effective for?
Here’s an actual text from today’s Union Tribune. This was a full-page ad (on a Wednesday !), a cardboard box east of I-5 with fake rock-walls from the high $900,000s.
“Above rate is the initial rate with a 2-1 buydown on a 30-year fully amortized mortgage for qualified borrowers. Certain restrictions apply. Initial start rate of 3.875% is for year 1, year 2 rate is 4.875%, year 3-5 rate is 5.875%. Borrower qualifies at 3.875% rate. And I guess you’re right, borrower qualifies for bankruptcy if he doesn’t ask what happens in year 6-30…..
This one was actually slightly different, the print was small, but readable. It’s usually tiny, grainy green text on blue background…
Another WSJ:
“Real Estate Finance: In Manhattan, Delayed Gratification; Low Capitalization Rate On Housing-Complex Deal Reflects a Host of Factors”
“Tishman Speyer Properties, which agreed to buy Peter Cooper Village and Stuyvesant Town in partnership with a unit of money manager BlackRock Inc. last month, won’t reveal the cap rate on the deal. But some observers have said the number could be anywhere from 4% to roughly 2.5%. Such a low cap rate — the rate of return on a property in the first year — comes at a time when cap rates on many apartment deals are continuing to shrink.
“The average cap rate on apartment buildings sold for more than $5 million is 6%, according to data compiled by Real Capital Analytics, a real-estate research firm. That is 2.2 percentage points lower than the average cap rate in 2002.
“Cap-rate compression is being driven by several forces affecting commercial real estate, and the apartment market in particular. One reason: Investors may be more willing to accept lower cap rates because they mirror declining returns on bonds and stocks in recent years.[...]
“Investors are also more willing to accept lower cap rates because real estate has become a more accepted asset that they want to own as part of their overall investment portfolio[...]
“Finally, the apartment sector has been enjoying a recent resurgence, after a slump that began around 2000 when the booming single-family housing market and low interest-rate mortgages siphoned off would-be renters. The apartment market has captured many people now squeezed out of the housing market by rising home prices. Cap rates have fallen in anticipation that the rental market will continue to boom.”
“Cap rates have fallen in anticipation that the rental market will continue to boom.”
Cap rates have fallen as excess liquidity has chased limited assets. The justification for apts switched from cashflow to appreciation. The idjits thought this was alright because they assumed if appreciation slowed rents could rise. Quite the contrary, when the liquidity dries up apperciation stops, they got that right but people won’t be able to afford higher rents.
And will be able to rent all those unoccupied SFH cheaper.
Seems to be a lot more SFH with all the building over the years and amazingly is still going on!
Therefore, more houses to rent/competition.
And in my past experience cap rates for sub metro markets carried a premium due to lack of appreciation and the quality of the income stream…Not any longer….Boise ID or Bend OR they are all the same now…You get a slight bump if you go into the south but not worth the distance trade off for most…
NYC housing laws are a little weird. All the bidders studied the tenant roster in this case and I think they plan to make money new buildings in the area and renovating apartments that are close to being market rate in order to push them into market rate territory.
Since I suggested the Bits Bucket and Craiglists originally I now suggest a change: “Bits, Zills and CLs” (or just add Zillows to the title). Here’s why:
http://www.zillow.com/HomeDetails.htm?city=Fresno&state=CA&zprop=18690803
This is a home I convinced my friend to not purchase at a discount in August. The appraisal was as zillow shows, $330,000 and he could have purchased out of an estate sale for $312,000-$315,000. “One week change: -$3,787.” Heck this millstone has been losing $500/day every day since August not just since last week.
Now I know zillow has many, many flaws but for entertainment value stuff like this needs to be shared.
Oh, and for those of you with real computers remember to switch to Firefox as Zillow doesn’t “support” Safari. Truth be told Zillow is a topic all by itself.
Sale History
08/02/2006: $121,700
05/18/1994: $115,000
???????????????????????????
Estate sale, 2nd sold to a sucker who then purchased the 1st for $121,700 making them the “owner.” My friend was living there while administering the estate. The new “owners” from SF issued immediated “eviction” orders so they could fix n’ flip. The politie reply was; “The deceased has already left. Anything else can be brought up before the courts next month.” They are getting screwed so bad on this one. My guess is they’ve been burning $3k/mo since July and losing $15k/mo in value. Casey Serins Version 2.
If housing is in fact bottoming, as Alan Greenspan recently claimed, someone should tell the folks at the Mortgage Bankers Association. The groups purchase mortgage application index just sank to a new cycle low in the most recent week. Granted it was by a fraction of a point, but if we get one more big down week, we’ll break through a “floor” to some significant new lows.
Some more analysis and charts available at my blog if you’re interested…
http://interestrateroundup.blogspot.com/
I also had some comments about the housing vacancy rate and the strong rental market/weak rental market debate. Enjoy!
Another WSJ:
“Employment Costs Rise Faster, Adding to Inflation Concerns”
“Employment costs gained in the third quarter at their fastest pace in more than two years, a development likely to keep Federal Reserve officials on edge about inflationary risks to the economy.
“The employment-cost index rose 1% during the quarter after gaining 0.9% in the second quarter, the Labor Department reported. Employment costs were 3.3% higher than a year earlier, up from a 3% increase the previous quarter.”
Please. Inflation has been surging for quite some time. The Fed couldn’t care less.
We’ll see another hold.
The Fed has targeted housing, and is engineering a silent bailout for the banks. Thus, they can’t raise short term rates.
I just heard a commercial last night from Eloan I think (could’ve been countrywide or someone else too, there’s really no difference). The commercial went something like this:
“Mortgage rates are back down to 5% Call now to refinance before you miss these near-historic low mortgage rates!!!!!”
If the fed raised rates, could CFC, lend, WAMU, WFS do this???
Inflation can “save” housing. If we allow for 5-10% inflation for 10 years, nominal prices of housing can hold. That’s all the sheople care about. The real value of housing will of course be toast.
The bailout is well underway. 3 consecutive “holds”. Do I hear a fourth? (I think I do)
“Inflation can “save” housing. If we allow for 5-10% inflation for 10 years, nominal prices of housing can hold.”
I’m not so sure. The inflation will spread to fuel, food, etc. Wages always lag. People won’t have the income to support high $.
IMHO. Sustained/raising housing $ need the following:
Very very low interest rates
Raising wages/good job market
Easy credit
Foreign purchases of our bonds have helped keep interest rates down. If the FED lowers rates this will stop. We’ve gotten to this point with all the debt, Gov, consumer, and private.
The FED is trapped and so are we (some more than others like the FB’s).
Good paying jobs are being shipped overseas. Our manufacuruing jobs have been going over seas for decades.
There are signs the days of easy credit are coming to an end.
Sustained/raising housing $ or a bailout for home owners ain’t going to happen. Only the banks will be bailed out.
Problem is I’ve been seeing this since 2003. Of course gold was
tell that to the bond market,they dont seem to care.
As soon as it becomes common knowledge that Asia and others are selling US Treasuries, they will!
In a Bankrate artricle this morning: “The first thing that got the equity train rolling was when mortgage lenders started pushing piggyback loans to help borrowers avoid paying mortgage insurance.”
My question: was the avoidance of mortgage insurance really an attempt to avoid an additional level of scrutiny of the loan that would have resulted from the application for PMI? That seems logical to me, in that the PMI people wouldn’t be as rules-free as the MBS bag-holders seem to be. Anyone know, or have a theory? Originally, I paid little attention to the piggybacks, assuming that lenders and borrowers believed piggybacking to be more cost-effective.
Maybe I’m misunderstanding the question - but it seems to me the primary driver of piggy-back loans is simply to save $$ for the homeowner. I did it when I bought a house in ‘94, and it saved probably $80/mo if I remember correctly, on a $120K house. With the housing market today I wouldn’t think of doing something like that though (paid about 60% down on my last house).
I kind of agree with the statement about the equity train - certainly piggy-back loans made it way easier for people to creatively stretch their finances, but they’ve been around for a long time though; much longer than the beginning of the current bubble. They helped “grease” the wheels of the train maybe, but what really got it rolling was historically-low interest rates; coupled with pockets of price gains in places like CA due to the .com bubble. The CA housing bubble started in the late 90’s - 2-3 years before most other areas.
California; July 11th, 1995. Alright, Fall of 1995 if you don’t want the exact moment.
Then Clinton in 1997 signed the 2/5yr $250/500k exemption and it was off to the races. By 1998 people were wide eyed at the unbelievable appreciation.
I agree with you, the tax exemption played a huge role, add the 1031 exchange and low interest rates, boom.
In the SoCal area, I’m a thinking it wasn’t an attempt at avoiding PMI as it was trying to get em into the 1st. Lansner @ the OCRegister ran a story way back before he was on here about the stat’s that showed how OC was ok cause while people were using ARMS out the wazoo, they had sizeable downs (20%). He dug further and showed that almost all were really using piggybacks.
That tells me that for some reason, people were having a problem back then putting together the 60 or 70 or 80 k cash necessary for the down. And that was before the prices popped to $650k avg SFR. There’s a real butt-spanking on the horizon here, and it’s approaching fast.
the piggyback was used to reduce the overall cost to the consumer, as mortgage insurance is not deductible but mortgage interest is. the higher interest rate on the second was offset by the tax savings. that said, the yields on the piggybacks have gone up considerably, eliminating the benefit. the buyers of this paper now realize that their risk is much higher in a declining market. mortgage insurance will be back in vogue along with bellbottoms in no time imho.
My question about the piggybacks is why didn’t the first loan stipulate the borrower at 80% had to either come up with the rest of the money on his own, or else pay a higher interest rate (effectively a risk premium to cover the higher risk of default for borrowers who cannot demonstrate the financial self-discipline to save for a downpayment). Or was the interest rate adjusted upwards (either prospectively or retrospectively) when the piggy was loaded on to the borrower’s back?
Let me preempt one answer which is likely to be forthcoming, which is that the 80% loan has priority in default. I realize this, but I am talking about a different problem, which is adverse selection created when you give people 100% funding to buy a house. The class of borrowers you thusly select tends to be of the type who can barely fog a mirror, particularly once better credit quality borrowers catch on to all the fraudulent reasons for the bubble price runup.
Haven’t loan underwriters ever heard of adverse selection? Or is it someone else’s problem, as the paper was easily sold off given the conundrum / absence of risk premiums?
All good responses here. Getstucco, your “adverse selection” is a key observation, to me. If I were a primary lender, I’m going to be much more worried about a person who uses an undisclosed piggyback of 20% than I am about a person who is upfront about putting 10% or even 5% down. The no-down stuff shows absolutely no commitment on the part of the borrower to repay. Granted, that might have made me a very unsuccessful primary lender, too, in recent times.
Keep in mind that the 1st is backstopped by the presense of the 2nd. Adverse selection or not, not that many homes will drop by 20% in the time it takes for most of the zero down betters to figure out that they don’t need to pay the mortgage any longer or at least most lenders were and still are happy to take that bet. Seconds were always at a higher rate (which has gone much higher more recently).
Good explanation, bluto. The risk to the lender is not just that of default, but also of not being able to recover the full loan amount. However, we have already seen evidence presented here that the 80% lenders are going to experience losses in some markets (e.g., failed Bressi Ranch auction gave us a hint that the value of those homes may be as much as 33% off what the sellers thought; granted we don’t know how the wishing price compares to the purchase price…).
I thought many lenders did both the 1st and the piggyback themselves? Maybe just my lender?
I think in general lenders were betting on real estate going up . The lender in first position figured they were in a no lose position . The second TD holder figured the higer interest rate they charged made up for the risk and in a up market they had min. risk. Avoiding PMI does save the borrower money but it created to many buyers going on loans they would of never been approved on in prior real estate cycles . In fact, in prior underwriting cycles the first trust deed holder would want to approve the second trust deed holders loan .Many times a seller would take back a purchase money second and take the risk on a buyer with a limited down payment rather than lenders doing it .I have never seen lenders so willing to take risk in return for a little more yield .
I called a Real Estate agent last week to ask about this property (http://tinyurl.com/yn5d8u) listed at 368K. I told him it too much. Yesterday he calls back — Price Reduced 30K.
Explain to him about the price that when you said “too much” you meant “too many DIGITS.” This house according to zillow was worth $99k in Nov 2000.
I can beat that. I live in Pacific beach, San Diego and about 2 weeks ago I sent an email concerning a 2 bedroom condo about 1.5 blocks from where I live that I saw on craigslist. (Currently renting a 2 bedroom condo for $1300 about 3-4 blocks from the beach.) They were asking 850k for roughly the same type of condo I’m renting for $1300! When I got an email stating the price of 850k I sent an email back saying only “Your price is unrealistic”. 15 minutes later they send another email back with a price of 530k.
In 15 minutes the price went from 850k to 530k. BTW 530k is still a stupid price to pay. Considering the place probably sold for 150-200k 6 years ago.
Ha! That’s classic. That guy is the poster boy for the housing bubble…
Actually it was a woman that responded to the email I sent, and yes she was a dunce.
Wow. Just wow.
Just out of curiosity, how many people on this blog live in PB? I’ve seen a few references….
I live by these lovely condo conversions: http://tinyurl.com/yzravp
I don’t think they have sold any of them.
I live by Garnet and Dawes.
I’m actually not to motivated to buy right now, my girlfriend seemd to want to catch the “lower end” of prices before they go up. But as we casually look, the prices keep dipping. Actually, we get a laugh, more then anything else, when the real estate agent calls, always interesting to see their “one liners”. Even funnier the messages he leaves. I may just call him and offer 100K less, just to see what happens.
Way too much. The Modesto “market” is at a standstill. Two work buddies are having a hard time getting anybody to look at their home. If the house is vacant, then you know they need out, and haven’t seen a looker (let alone a likely buyer) in months. Lowball, because if you had to sell, you would quickly be upside-down otherwise. I know both of my buddies would entertain a much lower offer, as their basis in the property is low, and they want out while they can. Modesto is just starting to get scary.
Yes, Modesto is at a standstill. I’ve noticed though that all the predictions focus on the surrounding cities, though,, such as Merced, Stockton and SAC. There is no way the job market here can support all these houses.
Yesterday’s ‘Colorado’ thread had a very good discussion on possible outcomes of the housing bust - especially inflation versus deflation scenarios and the of Fed either inflating the money supply or protecting the dollar.
Such a topic is much too heavy to respond to immediately, but after contemplating it overnight, I would like to offer the following comments and see if it merits more discussion.
It seems as though I have heard inflation and deflation defined as the increase or decrease, respectively, in credit – as opposed to in prices or in the supply of money. I don’t think anyone can argue that we have not seen a massive increase in credit to date, a credit bubble with the housing bubble being its side effect. And there is much press about how the world is awash in money and so the money available just keeps searching for a home in productive assets. But all the available assets are being overpriced in bubbles.
Then it would seem that the logical result of the situation that we are now in would be a soon to happen contraction of credit and corresponding deflation. This contraction in credit could be a combination of (1) banks and other lenders tightening their lending standards (after all, loans are only good if the borrowers can repay them), and perhaps more importantly, (2) consumers and other borrowers are just simply maxed out on their need for or possible uses of credit.
The second possibility, that borrowers are maxed out on their credit needs, is intriguing. If this is so or becomes so, then I think we have the Japan deflation scenario here in the US. No matter what the Fed does with the money supply (Ben can drop money out of his helicopter all day long), if people don’t want it and cannot put the excess money to good use, then we will deflate. Once the mentality sinks in that residential real estate is a sinking asset, no more borrowing against it, the dominos of consumer spending will fall in response. Similarly on the commercial side of real estate as the second phase – no consumer spending to support commercial development, therefore no commercial borrowing, and so on a so forth. USA 2007-2010 equals Japan 1990’s.
My attempt at forecasting the economic future - comments appreciated.
“Once the mentality sinks in that residential real estate is a sinking asset, no more borrowing against it, the dominos of consumer spending will fall in response.”
Didn’t I just read the UK got their bubble price appreciation cranked up again? What are they doing right over there that our economic leaders are missing?
UK house price inflation easing
“A survey from housing information business, released earlier this week, showed that the proportion of postcode districts that had witnessed an increase in prices had fallen sharply from 29.8 per cent in September to 24.6 per cent this month.”
http://www.ft.com/cms/s/b92d38cc-681f-11db-90ac-0000779e2340.html
“What are they doing right over there that our economic leaders are missing?”
Well, when they were having their tiny dip a few years ago, they solved it by massive immigration(at least 600.000, probably much more than a million) from Poland and other new member states of Europe. All those people have to sleep somewhere. Even with several in one appartment, that makes a lot of housing and pressure on housing in the few dense hotspots.
But the party seems over. Because massive immigration puts also high pressure on social security, the Blair government is not planning to do the same trick with the Roumanians and the Bulgarians who will become European citizens the 1st of January 2007. The government already declared that they will not be able to come to live in the UK.
I think it’s GAME OVER …soon.
I don’t think this explanation is correct. Many other EU countries had surging house prices this summer; and those countries have declining or even negative immigration numbers. And prices in Poland and Bulgaria are surging just as well. I think the latest UK home price data is just a bit of easing that is noise compared to the general trend. Most EU countries have not had even ONE month of declining home prices in the last 5 years or so (and some not even in the last 15 years).
I think the explanation is very simple: the money supply in the EU is surging (currently significantly higher than in the US!) because both the UK and ECB have rates that are WAY too low relative to inflation. They are giving money away for free and then some.
How are property prices fairing outside major European Metro areas? My understanding is that some countries like Italy prices are high in Rome, Milan and Naples, but the rest of Country is not.
by now at least some 75% of Europe has a very severe housing bubble, price gains over the last 10 years are often bigger than in the average US state. There are a few exceptions like Germany (nearly flat for 15 years) and rural/remote or otherwise unattractive areas of other countries like Spain and Italy. I don’t know details about Italy, but if home prices are not yet bubblelicious, the region is probably very unattractive to the average EU speculator (which is a severe warning, as the equity locusts are already devouring the countryside of former Balkan countries, Turkey etc.).
Interesting points, civil, and i’m way over my head here, but i’ll offer two things.
I thought one of the criticisms of the Japanese central bank is that they didn’t lower rates quickly enough in the early 1990’s in response to stagnating economy. Maybe our central bank is too “activist”, but i don’t think they are afraid to act (which of course doesn’t mean that their action is the right action).
And also, the Japanese government was also criticized for not cleaning up the banking mess, as we did during the early 1990’s with the RTC. The entire banking system was incapacitated for quite a while as a result.
I think how the government responds to the unwinding bubble/bad economy, both in terms of where they set rates and how they deal with the hangover from the credit bubble, will determine whether or not we are the next japan.
People on this board have argued that the fed is in a corner, can’t raise or lower rates without crushing the economy or stoking inflation, respectively, and that any move they make from here on it is going to be a disaster.
posted ” And also, the Japanese government was also criticized for not cleaning up the banking mess, as we did during the early 1990’s with the RTC. The entire banking system was incapacitated for quite a while as a result. ”
That is to say the least. The dumb head in ass jap culture is to blame. They get what thay sow…. all cowards, they can not call a dog a dog? At nearly 20 years of crap and still think some zombie banks are good……. I hope you saved enough face to cover your ass.
The Japs are total dumb Fu@ks…. they slaughtered an entier generation to drink mightly from the kool-aid! One have of Jap banks should have been closed. Send Mr. Steadmem over ASAP.
Global housing bubbles are the result of massive debt and credit expansion. Call it peak debt. The boyz are now trying to indenture the Chinese, Indians and any other third world players they can in order to perpetuate the debt/credit expansion. More debt slaves are needed to continue servicing the compound interest formula. When velocity of money hits the wall, i.e. people can’t afford or are unwilling to service any more debt at any interest rate, even zero (see Japan), you could have a debt implosion. The balance sheets of banks, hedge funds, and pension funds start leaking when foreclosures eat away bits of the MBS pool and corporate bonds start defaulting.
As someone who followed the situation in Japan in the ’90s closely, your deflation forecast is the scenario that seems most likely to me as well. I think the Fed’s inflation worries are, not surprisingly, short-sighted, and fail, once again, to take a long-range view of the economic predictors. As they say, time will tell.
How about inflation first (like whats happening right now) THEN DEFLATION as people cannot service their debts and/or credit dries up.
Susan posts As someone who followed the situation in Japan in the ’90s closely”
Hi Susan, It is your buddy AE…. I do take issue we will not fall into the “Jap Trap”…. Oh sorry if I made a boo boo by saying Jap!
The point being, thank God we are not Dumb Japs… We will solve our problems much quicker, we are much more quick on or feet! We do not have 3,000 years of bagage and dumb ass thinking to foul up an answer to problems.
“Economic Downward Spiral” from Jim Sinclair, http://jsmineset.com
Jim’s Formula:
1. First interest rates rise affecting the drivers of the US economy, housing, but before that auto production goes from bull to a bear markets.
2. This impacts many other industries and the jobs report. An economy is either rising at a rising rate or business activity is falling at an increasing rate. That is economic law 101. There is no such thing in any market as a Plateau of Prosperity or Cinderella - Goldilocks situations.
3. We have witnessed the Dow rise on economic news indicating deceleration of activity. This continues until major corporations announced poor earnings, making the Dow fall faster than it rose, moving it deeply into the red.
4. The formula economically is inherent in #2 which is lower economic activity equals lower profits.
5. Lower profits leads to lower Federal Tax revenues.
6. Lower Federal tax revenues in the face of increased Federal spending causes geometric, not arithmetic, rises in the US 7. Federal Budget deficit. This is also true for cities & States as it is for the Federal government.
7. The increased US Federal Budget deficit in the face of a US Trade Deficit increases the US Current Account Deficit.
8. The US Current Account Balance is the speedometer of the money exiting the US into world markets (deficit).
9. It is this deficit that must be met by incoming investment in the US in any form. It could be anything from businesses, equities to Treasury instruments. We are already seeing a fall off in the situation of developing nations carrying the spending habits of industrial nations; a contradiction in terms.
10. If the investment by non US entities fails to meet the exiting dollars by all means, then the US must turn within to finance the shortfall.
11. Assuming the US turns inside to finance all maturities, interest rates will rise with the long term rates moving fastest regardless of prevailing business conditions.
12. This will further contract business activity and start a downward spiral of unparalleled dimension because the size of US debt already issued is of unparalleled dimension.
Therefore as you get to #12 you are automatically right back at #1. This is an economic downward spiral.
I heard all this “slow business” as negative to gold talk in the 70s. It was totally wrong then. It will be exactly the same now.”
“(2) consumers and other borrowers are just simply maxed out on their need for or possible uses of credit.”
I find this hard to believe. Until there’s a plasma in every living room and an Escalade in every driveway, there will always be uses for credit. And after that, the price of toys will just expand to fill the credit available. If you have 8K to spend on a Viking stove, lo and behold, suddenly Viking stoves cost 8K.
sure, never underestimate the spending powers of the US consumer; especially when politics is helping them as best they can to keep going deeper into debt.
Agreed. This xmas shooping season will be watched by all.
Agree, my husband calls this the - “Christmas of discontentment”.
I think he’s right.
“The second possibility, that borrowers are maxed out on their credit needs, is intriguing. If this is so or becomes so, then I think we have the Japan deflation scenario here in the US.”
If people are maxed out on credit, and I do believe that is the case for many, I think there is a possible way out.
A combination of:
1. a tightening of lending standards
2. political & social leadership creating a positive environment for increased savings
3. corporate America sharing their financial success with all their workers proportionally- FDR convinced the wealthy to return their hoarded gold to circulation (to subsequently be revalued) as a precursor to other maneuvers that moved us out last Depression. I’m wondering if what we need this time is similar in nature. Convince the top 5% to untighten their grip just a bit so the rest of the economy can breathe.
4. Return of the budget price point. Just like housing, manufacturers, vacation providers, and clothiers alike all started skewing product lines to the high end. Everybody deserved the best and low end options were soon eliminated. It’s time to go back. Toyota knows it. They introduced the Yaris — a cheap, basic car for $11k+. This price point didn’t exist before. We need entire markets to follow their lead and return budget options to their mix.
“political & social leadership”
LOL - you just cost me a keyboard…
I agree these are good solutions, but at the moment 1, 2 and 3 seem extremely unlikely to me (both in the US and on a worldwide basis). I can see 4 happening in certain niche markets but it is SO un-American that I cannot imagine it will have any significant impact on the credit bubble. So all this will probably come long after the credit bubble has deflated.
” corporate America sharing their financial success with all their workers proportionally..”
LOL You’ve got to be kidding!
A snow balls chance!
From the UK:
Home loans on offer at 5 times salary level
By Sharlene Goff, Deputy Personal Finance Editor
Published: October 31 2006 22:10 | Last updated: October 31 2006 22:10
“Homebuyers are being offered unprecedented borrowing power by banks and building societies, which are now marketing mainstream mortgages of up to five times joint salary levels as they attempt to win first-time buyers.”
“Melanie Bien, associate director at independent mortgage broker, Savills Private Finance, said of Abbey’s move: “It is unprecedented for a mortgage lender to offer this much on a joint basis. It seems lenders are going all out to enable first-time buyers to borrow as much as they can.”
Mortgage brokers say other lenders are set to follow suit for fear of being left behind.Income multiples of four times or more are now becoming commonplace.”
“…lenders are set to follow suit for fear of being left behind…”
I think this quote says clearly what the world economy is based up on!
Oops! Forgot the link.
http://www.ft.com/cms/s/f681eae0-692a-11db-b4c2-0000779e2340.html
well, in Netherlands 10x income has been fairly normal for several years already … it used to be 3x income around 1990, we have come a long way.
P.S.: 5 times, is that 5 times verified income or 5 times liar (stated) income? In some EU countries is seems that verified income does no longer exist for mortgage applications …
…”In some cases Abbey will now lend couples five times each of their salaries without requiring confirmation of earnings.”
…” Many lenders are also calculating how much they will lend on how affordable the repayments are, which in some exceptional cases equates to income multiples of up to seven times salary.”
that’s probably ‘exceptional’ like in 90% of cases?
I remember a BBC documentary from two years ago about the London area where most home buyers got 3.5x stated income which was usually 8-10x real income or even more.
house debtors think that prices will escalate slighty. The proverbial high plateau in the vast empty cranium of a specu-vestor.
Sorry if repost. http://tinyurl.com/y5scdl
The OC Register ran a blurb over the weekend that said here in SoCal, like 40% were expecting a >10% decline, 30% >0%
In the article Ben posted on Durango, CO, it mentions a company that will auction off 75 Denver homes in November. Took a look & they also have one in Key West, FL in about 2 weeks.
Anyone local that might be able to let us know how these go? With the roaring success of the last FL auction posted here, as well as the Bressi Ranch one in inSaneDiego, it might be real interesting…..Like watching a 20 car pileup in SSSLLLLOOOOWWW motion.
Tell Us What You Really Think?
http://wallstreetexaminer.com/blogs/winter/
Have you switched servers? Excellent!
My work was blocking xanga.
Pretty scary, when loan-loss reserves are headed in the opposite direction as % of assets in MBS.
More high priced wisdom from The Donald and Robert Robert Kiyosaki.
See PAUL B. FARRELL column (http://www.marketwatch.com)
“Sorry folks, everything I’ve been saying about investing is wrong. At least that’s the message in Donald Trump and Robert Kiyosaki’s new book, “Why We Want You To Be Rich:” “If you believe that working hard, saving money, investing for the long-term in mutual funds and diversifying is good advice then this book may not be for you.”
Didn’t even have to pay $500 for a seminar to hear this!
I agree about the mutual funds part.
Other than that, where’s al Quaeda when you need them.
Didn’t they sponsor Casey’s trip to a training camp in Phoenix where he studied how to undermine the US Economy under the master Sheik Ayatollah Kiyosaki?
Don’t completely mock mutual funds… at least index funds serve a purpose? Then again, any fund with a load or 12B-1, please mock them to your hearts content… and TIPS funds and stuff… I like having tips exposure but don’t want the hassle of managing my own TIPs portion of my portfolio (nor do I really have the cash to structure one)… Now Money Markets…. Shame on them, except for liquidity, I cannot find a single Money Market that I can’t do a better job than.
LOL. EXACTLY!
From Bloomberg.com:
The Institute for Supply Management’s factory index fell to 51.2, lower than forecast, from September’s 52.9. A reading higher than 50 signals expansion. A measure of prices paid for raw materials dropped to the lowest level in more than four years.
Manufacturers are producing less as the auto and housing industries slow, providing little momentum for the economy at the start of the fourth quarter. Companies may be reluctant to spend more on equipment as the expansion shows signs of strain, economists said.
Link: http://tinyurl.com/ymkq56
Uh-oh — more deceleration (”Manufacturing decelerates”)
http://www.marketwatch.com
p. C1 WSJ
Ahead Of the Tape
– Today’s Market Forecast –
By Justin Lahart
Slowdown Lowdown
# Investors will be served a smorgasbord of economic news today, and it might be hard to swallow.
Wall Street is back to worrying about a serious economic slowdown. Third-quarter gross domestic product grew at a meager annual rate of 1.6%. Joe Carson, an AllianceBernstein economist, says growth was probably closer to zero, because he believes statisticians overestimated production in the ailing auto industry.
Many investors are counting on a bounce in the current quarter. But there’s reason to be skeptical. The housing market and auto industry are struggling and could cut into economic growth. Reports on manufacturing, car sales, construction spending and housing today will help investors gauge whether that’s happening.
The Institute for Supply Management’s purchasing managers’ index of manufacturing activity is the headliner. Economists estimate the index will come in at 53.5 for October, up slightly from September’s 52.9. That would indicate that the manufacturing sector is still expanding, but the estimates might be too high. A similar index for the Chicago area fell for the month. The national index and the Chicago index don’t always move hand-in-hand. Still, the Chicago report — out yesterday — included some worrying signs. Invetnories seemed to be rising in the area, and if manufacturers have too many of their wares moldering in warehouses, they’ll cut production and sell from what’s on their shelves.
Check out the bungey-jump action on this chart:
http://tinyurl.com/qxpu9
Did the ISM numbers come out at 10am?
Yes, as indicated by the TNX on the nose. The evidence is mounting. According to Barron’s, “the pending home sales index declined 1.1 percent in September to 108.9 after rebounding 4.5 percent in August.”
Also from Barron’s, “Policy makers are upbeat on the outlook for the housing correction but mortgage bankers’ data suggest the sector has yet to bottom. MBA’s purchase index slipped again in the Oct. 27 week, down 1.8 percent to 375.6. The index’s readings in October have been more than 10 points weaker than September, results that will likely lower estimates for the month’s home sales. The refinancing index also fell, down 4.5 percent to 1,709.2 with refinancing making up 45.0 percent of mortgage applications vs. 45.6 percent in the prior week. Lower mortgage rates in the week failed to boost mortgage applications. Thirty-year fixed loans averaged 6.24 percent in the week, down 12 basis points from the prior week.
Looks like stock market promoters are busy preparing an end of season Fall sale.
Even more fascinating: Compare the plunging TNX yield to the DJIA clinging to the flat line as though drawn by force of magnetic attraction…
http://tinyurl.com/yxcj4c
Mish had a great tidbit this morning which shows that the NAR is indeed cooking the numbers:
Here is a little “numbers gem” spotted by Calculated Risk.
Historically, the National Association of Realtors (NAR) used 11.43 as their Seasonal Adjustment for September. This year they used 11.73.
The NAR reported 6,180,000 SAAR.
Using 11.43 results in a SAAR of 6,020,000.
On that basis sales fell over 16% from 2005.
Here is the actual report: September Existing-Home Sales Ease, Setting State for Stable Market
For Alternate Headlines and additional information see Calculated Risk’s posts NAR: Sales Down, Prices Down and NAR Adjustment.
I’ve said for a while that we need to be looking at hard data, not the “seasonally adjusted” garbage.
-
Can the economy survive the housing bust?
Real estate downturns have a way of leading to recessions and stock market slumps. So far the damage has been limited, but the numbers keep getting worse, says Fortune’s Jon Birger.
By Jon Birger, Fortune senior writer
November 1 2006: 10:39 AM EST
(Fortune Magazine) — Tucked away in the briefcase of Liz Ann Sonders, chief investment strategist at Charles Schwab & Co., is a chart so scary she’s hesitant to show it to investors. It plots the National Association of Home Builders’ Housing Market index - a monthly measure of builder confidence - against the Standard & Poor’s 500 stock market index, with a one-year lag.
http://money.cnn.com/magazines/fortune/fortune_archive/2006/11/13/8393160/index.htm?postversion=2006110110
That “scary” chart is useless, though. They had two degrees of freedom in lining up the two sets of data — time lag (they picked a one year lag), and the y-axis scale (because the two data sets are in different units). And there are only two interesting inflection points in the data. Moreover the data clearly didn’t “line up” before 1995!
If you fish through enough charts, you can easily find zillions of false “correlations” like this.
You are clearly not a Bayesian. Because a Bayesian would allow that there are zillions of potential “false correlations,” but not instantly jump to the conclusion that this must therefore be one of them…
By “false” I meant “not statistically significant”.
You are clearly not a Bayesian. Bayesians don’t do significance testing.
I think we have different definitions of “Bayesian” then.
It is someone’s opinion about how a bunch of data points may mean something. You would have done it differently. Roger that.
No, every opinion is not equal. Good science eventually wins out over bad science, and this article contained bad science.
Then we may as well pitch out any empirical study based on time series analysis, because there is only one data point in each case, and hence never any significance.
Again you lost me, GS. There may be only one metric in a time series, but that has nothing to do with the number of data points (i.e. times at which the metric is measured).
I generally love your posts, but since we seem to be on different wavelengths here, I’m going to quit my end of the cluttering now.
Here’s that NAHB data going back to 1985. Liz Ann Sonders had a point to prove, which is why she only looked at the “correlation” with (lagged) stock prices going back to 1994.
http://photos1.blogger.com/hello/243/2888/640/NAHB072006.jpg
Notice there were two times when the data looked roughly like that of today — mid-1990, and early 1995. Neither of those times would have been good times to bet against stocks (for the medium term, like Sonders’ 1-year lag suggests).
I’m NOT saying stocks won’t fall from here. I have lots of put options myself, in fact. I’m just saying Sonders’ research is worthless.
I find the chart to be a bit weak also FutureVulture.
BIG gov and commercial aren’t going to replace res building folks))))\\ September, the 1.1 percent drop in private residential construction was the sixth consecutive decline of 1 percent or more. It pushed total spending in this area down to $312.7 billion at a seasonally adjusted annual rate.
The weakness in housing was partially offset by a small 0.1 percent rise in spending on nonresidential private building projects,
Spending on government building projects rose by a strong 0.9 percent to a record of $273.2 billion.
Mortgage applications down again. I thought the housing bulls said that this has bottomed out and wil rise again slowly just a few weeks ago. Oh I understand now they forgot to tell the American consumer.
From today’s CNNMoney article, “Can the economy survive the housing bust?”:
“…Should cash-out refinancings fall back to 2001 levels, he estimates, it would drain $300 billion from the economy - which would have roughly the same impact as a $60 jump in the price of a barrel of oil.”
Whoa.
from bubbleland echo park/silverlake in los angeles where prices have tripled in the last 5 years:
just received a postcard in the mail from an auctioneer offering a condo/”loft” unit in a development built in 2005 in silverlake - this is the first one auction i’ve seen in the neighborhood. it says in the fine print “there is no minimum bid but property will be sold subject to owner approval.”
i’ve wondered about this very quiet looking development ever since it went up in a couple of months (real quality stuff here)… has had for sale sign out front since it was built, saw a “for sale” sign in one of the windows the other day - perhaps this desperate condo owner….
What might this be portending??
————————————–
Booming Audit Firms Seek Shield From Suits
By DAVID REILLY
WSJ November 1, 2006; Page C1
Business is booming at the world’s biggest accounting firms, so their top lobbying priority may seem ironic: They want government protection from a big financial hit.
….
… the Big Four want to limit court damages that investors and others can seek from them for flawed audits of public companies. Without such a shield, the firms say, it’s only a matter of time before one of them is felled by a massive court award.
Their argument is being championed by an influential group recently formed to study the competitiveness of U.S. financial markets with the encouragement of Treasury Secretary Henry Paulson. The group is expected to recommend in coming weeks that the government enact new protections for auditors. A panel set up within the powerful U.S. Chamber of Commerce is sounding a similar theme. In Europe, the European Commission is studying the issue and is likely to recommend limitations on the damages accounting firms can face.
….
“I don’t see that auditors have a real need for any kind of special protections,” said Bill Kelley, general counsel at the Retirement Systems of Alabama, which has sued accounting firms following corporate blowups. “Auditors need to be held to a high standard. Those are the outsiders we rely on. It’s tough to have that responsibility, but that’s what they’re getting paid for.”
…
If anything, the risk from class-action lawsuits appears to be dwindling. The number of class actions that cite auditors as defendants declined to five last year from 14 in 2002, according to the Stanford Law School Securities Class Action Clearinghouse.
from the same article in WSJ:
The bigger threat to firms has stemmed not from civil litigation, but from alleged criminal actions related to their conduct. In addition to the Arthur Andersen case, KPMG LLP suffered a near-death experience last year due to its sale of improper tax shelters; federal prosecutors ultimately decided not to indict the firm, a move that likely would have put it out of business.
The Andersen and KPMG cases have led some lawyers to claim that the Big Four are already seen by government as too big to fail. “The fact is that the government couldn’t indict KPMG for policy reasons,” said Sean Coffey, a partner at New York law firm Bernstein Litowitz Berger & Grossmann LLP, who has sued several accounting firms. “These folks are effectively immune to being put out of business and now they’re trying to find ways to further inoculate themselves from accountability.”
If they can’t be held accountable for their findings, what is the point, or value, of their signature on the financial statements. Footnotes/ Management notes are where they can and should blurt out all the dirty laundry, and where most people look first.
What is a “hard money” lender, and why does someone use one?
Put on your Aluminum Foil Deflector Beanies. This might get your heart pounding:
UK Telegraph
By Ambrose Evans-Pritchard Last Updated: 12:09am GMT 30/10/2006
Monday view: Paulson re-activates secretive support team to prevent markets meltdown
http://tinyurl.com/yxr8gs
Mr Paulson has asked the team to examine “systemic risk posed by hedge funds and derivatives, and the government’s ability to respond to a financial crisis”.
“We need to be vigilant and make sure we are thinking through all of the various risks and that we are being very careful here. Do we have enough liquidity in the system?” he said, fretting about the secrecy of the world’s 8,000 unregulated hedge funds with $1.3trillion at their disposal.”
The article goes on to mention the proposed SEC changes on margin requirements for institutional investors:
“Mr Paulson is not the only one preparing for trouble. Days earlier, the SEC said it aims to slash margin requirements for institutions and hedge funds on stocks, options, and futures to as low as 15pc, down from a range of 25pc to 50pc.
The ostensible reason is to lure back hedge funds from London, but it is odd policy to license extra leverage just as the Dow hits an all-time high and the VIX ‘fear’ index nears an all-time low – signalling a worrying level of risk appetite. The normal practice across the world is to tighten margins to cool over-heated asset markets.”
Speaking of liquidity, the total cash/vault reserves in the Fed-regulated banking system is now down to $40 Billion. Deposits are over $5.5 Trillion. Do the math.
Is Ambrose Evans-Pritchard a credible source? Some have accused him of being a conspiracy theorist (and not in the present context).
If I’m reading the article correctly, he’s using a direct quote from Mr. Paulson. This also confirms other source articles I posted last week on both the SEC margin change and the PPT scheduling meetings every 6 weeks at his behest.
Evans-Pritchard was my favorite columnist for many years, until his work was no longer readily available here. He was a pit bull about Clinton issues such as Vince Foster, Ron Brown, Mena and the like, so became a darling of the Republicans. But then he found that the Republicans were up to their own dastardly deeds and he pursued Waco and other issues that got him banned from their BBQs. Any writer who can piss off both the Democrats and Republicans is my kind of reporter.
Amen! Democrats and Republicans are equally corrupt and incompetent. I can’t believe the number of lobotomized toolboxes, even in here, who engage in partisan mudslinging when BOTH PARTIES SUCK! Open your eyes, people. Voting for Republicrats got us into this mess — the key to real reform is voting for outsiders, or the rare men of character like Ron Paul, who can eventually force through real real and much-needed reforms.
The plot thickens now in the media. More reports of housing slow down and sales slump. The past few years I would, in brief moments, wonder how people were able to afford $500,000 houses routinely in California. Also, the increase in median national house prices was to me just the market place recognizing an undervalued asset all of a sudden and ‘bringing prices to a rightful’ amount. Then I started reading this blog and finding out many recent buyers were financed on hope and a prayer. What I have learned here on this blog is that homes are basically a depreciating asset in the worst case scenario or a wise use of money vs. renting if you want to stay in an area for many years or an extremely lucrative use of money if you have low interest rates and a bunch of people apt to be greater fools. I rent and was chided over recent years for not buying a house with the money I was paying for rent. At this point my impression is we will have a recession next year, if it is not happening right now as we face the last quarter of 2006. I wonder if this is common sense in my expectations or if I am too chicken little. Listening to government and talking head sound bytes on the radio would lead me to think all is well though. Any chance after next Tuesday the tune will change for forecasts on the economy, housing, etc. if Congress faces a paradigm shift?
Standard practice is to ignore the signs of a recession until the data shows it overwhelmingly (as in higher unemployment rates — a lagging indicator).
I’ve been lurking here for a while. Today I see several interesting articles about mortgage fraud in Canada on the CBC website.
http://www.cbc.ca/consumer/story/2006/11/01/mortgage-fraud.html
http://www.cbc.ca/canada/story/2005/10/19/mortgage_051019.html
http://www.cbc.ca/consumers/market/files/scams/real_estate/index.html
From the Tucson Citizen:
Two downtown housing projects taking reservations
These projects have been in the works for years, and it seems that the developers are just a bit behind the curve. Too bad about the Presidio Terrace; the original design of it was quite creative. Don’t see too many people chomping at the bit to waste a heap of cash on a glorified apartment these days, though.
Yet another type of fraud looming? An agent friend, forever trying to tempt me to buy her, sent me details today of a house closing in Viera, a new-toen area in Brevard County, southeast of Orlando. Asking price was $350K, closed selling price was $230K and the property was on the market just 6 weeks. No price reductions noted.
Now this can be viewed as a remarkable (at this point in time) reduction of 1/3 of the price in very short order, and I’m sure it was just that. But it got me to thinking about a new type of fraud that will be tempting in Florida — property tax fraud where a selling price is artificially low in the records and cash is brought to closing to cover the difference.
Interesting thought Chip and it’s certainly the opposite of most the fraud these days in terms of underestimating the sales price . The IRS would think that the seller was trying to avoid capital gains tax as well as a fraud on the property tax .
Chip–”tempt me to buy her”– GEEZ market must be slow. Is she cute, and can she cook?
Housing has only just begun to roll over. We have 5 to 7 years of down to go, just like every other housing bubble.
http://bigpicture.typepad.com/comments/2006/11/home_price_inde.html#comment-24705055
I love this new term — housing is ROLLING OVER! We’ve heard it all from “going up”, “new paradigm”, “soft landing”, “hard landing”, “plateauing”, “crashing”, etc.
But nothing beats ROLLING OVER. The only quesion is how many times?
“Despite all the negative data, the new meme circulating is that Housing is stabilizing;”
Guess whose lips gave birth to that new meme?
‘Pain From U.S. Housing Slump Is Likely To Linger, but Some Say Worst May Be Past
By James R. Hagerty
Wall Street Journal (subscription), NY - Oct 29, 2006
Just when the gloomier pundits were starting to enjoy the housing slump, optimists are piping up to declare it could be almost over.
Former Federal Reserve Chairman Alan Greenspan, whose interest-rate cuts helped create what he once called “froth” in house prices, said in a speech last week that he detected “early signs of stabilization” in the housing market. Some Wall Street economists also are saying the worst may be behind us.
Not so fast, replies Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd., a Valhalla, N.Y., research firm: “It’s going to get worse before it gets better.”‘
News from Ohio
The French economy magazine L’Expansion did a special issue in October on the American economy’s problems, with a special report on housing in Ohio. Here is a very interesting quote from a home builder (p. 49):
Robert Schottenstein is the general manager of M/I Homes, the 4th largest constructor of single-family homes in the US, and the largest in the Midwest. [...] His tan doesn’t hide his strained features: at the beginning of September, sales of homes at M/I Homes in Columbus Ohio were less than 50% of those of the previous year, and the profit margin of the company had fallen by 15%. “I had to lay off a third of our employees and we have reduced prices by almost 10%. Other reductions, at least 20%, are in the pipeline” he confesses, adding immediately that if would never confide that to a local journalist out of fear the make the market fall even futher.
never confide that to a local journalist –
Gotta love the ‘net!
Great catch BAR!
Picked this up from David’s Bubble Meter blog today:
“Fannie Mae outsourced their IT people today. It was a nice surprise”
No idea what that means.
As in, no idea what that portends.