“The Sting Of A Decline” In New York
Newsday reports from New York. “For the first time in eight years, the median price of a home in Suffolk County dipped compared with the same month last year. Suffolk County dropped 2.5 percent to $390,000 last month from $400,000 in October 2005. Nassau’s median home price, which dropped about 5.5 percent last month to $472,300, had already begun its decline. In August, its median price fell 1 percent, to $495,000, and in September, it fell 4 percent, to $480,000.”
“Along with decreasing prices, the housing inventory has increased, the data showed. It would take 12.4 months to sell the existing housing supply in Suffolk County last month. In Nassau, that figure was 10.6 months, and in Queens, it was 11.5 months.”
“Bethany Marten, a buyers agency in Baldwin, views the readjustment as a needed correction. ‘It’s no longer ‘My house is an endless source of cash for me, and every year I can expect my home to go up 10 to 20 percent.’We had a great party, and the party’s over.’”
The Northender. “The word on house prices has rung loud and clear in recent months: the bubble’s burst, the party’s over, the fat lady’s sung, Elvis has left the building. Long Island is feeling the sting of a decline. The disagreement centers around the causes, extent and duration of the decline.”
“The Long Island Board of Realtors puts average closing prices at approximately $595,000 for September 2006, down from $635,000 twelve months earlier. The median closing price fell from $500,000 to $480,000 for the same period.”
“‘Everything was fine until the media got involved,’ says (broker) Terry Sciubba. Joyce Styne, VP for Century21 (which has 16 offices throughout Long Island and Queens), agrees that the decline increased significantly when it became a media focus roughly two months ago. She mentions, however, that brokers had seen it coming over the summer.”
“‘Inventories have built up a lot and that’s a leading indicator, it’s not a trailing indicator. The first thing that happens is that the inventory of unsold homes decreases. The price decline is the second thing that happens,’ says Robert Campbell, a Professor of Real Estate and Finance at Hofstra University who jokes that he is not altogether popular with realtors.”
“‘When you can no longer assume that you’re going to have a capital gain, you start to look at fundamentals. What can I afford to pay? How much is this house really worth to me?’ Professor Campbell says.”
“Part of the problem is that option ARMs have put houses into the hands of many people, especially during peak market times, who later decide that they can’t afford them after all. Owners can feel compelled to sell, further increasing inventory and driving down prices.”
“A related danger, he says, is the large number of ‘piggyback’ home equity loans taken out in recent years. ‘Ten years ago, we didn’t have piggyback home equity loans. In 2001, 20 percent of new purchases included piggyback home equity loans. Last year, it was 42 percent,’ Professor Campbell says.”
“Terry Sciubba believes the worst will be over as soon as the media eases up. She tells the story of a client who recently accepted a bid of $1.4 million dollars on a house on High Farms Road in Old Brookville. ‘Newsday came out saying the prices had dropped ten percent.”
“‘My customer read the article, called me up the next day and dropped her price $140,000. Of course my seller would not sell, because her house was priced correctly. But that’s what going on, the news media has created this frenzy,’ Sciubba says.”
“‘Prices have come down a bit, but that’s okay because they needed to readjust. It’s not like a house that lists for 600,000 is ever going to be 200,000,’ she says.”
“The party is over, but there are still refreshments left,’ Styne says. Even if declines continue in the coming couple of years, most people…might also agree, however, that a Zen attitude will serve the investor well.”
The Long Island Business Press. “At the height of the residential real estate frenzy in 2004, Christine Boccio traded a six-figure software sales job for a gig that should have let her set her own hours and paycheck. But the career change to real estate agent wasn’t as smooth as she had hoped. Deals unraveled at the last minute, and sometimes Boccio earned only 10 percent of her former salary.”
“‘You get to a point where [you] need to make your move. It became impossible for me to survive,’ she said.”
“She’s not the only one getting out. Several weeks ago, Renee Weinberg posted an ad for a new clerical assistant to cover weekend open houses and order baby gifts for potential clients; three real estate agents applied, including one from her Long Beach office.”
“For the 12 months ending in September, the Island’s real estate industry lost 600 jobs – largely agents bringing the total still standing to slightly less than 17,750, according to economist Pearl Kamer.”
“‘We have more people, probably, than we need,’ said Bob Herrick, whose agent count has dropped from 80 to 60 in three years. ‘The booster rocket has run out of fuel and now it’s going to coast.’”
“Double-digit appreciation is over, and there are plenty of houses to go around. In September, regional inventory rose 52 percent above 2005 numbers. Now that buyers have plenty to choose from, they’re waiting, leading to a standoff between buyers and sellers. Sales suffer. ‘I know a lot of people were really having a tough time, and they were people who were agents for much longer than me,’ said Boccio.”
The Times Union. “Foreclosures have been rising this year in the Capital Region as overextended homeowners struggle to keep up with higher interest rates and rising property taxes. For the first nine months, 471 properties entered some stage of foreclosure in the five-county metropolitan area, more than quadruple the number a year ago.”
“At least one long-time real estate broker expects things to get worse. ‘This is just the start,’ said D. Wallace Bryce of Bryce Real Estate Inc. in Troy. ‘I’m getting more and more calls. People have to sell immediately. The guys on a shoestring, it’s going to be a washout.’”
“Bryce blames job loss, people who tapped into their home’s equity and now can’t keep up with payments, and property taxes that in Rensselaer County are expected to climb 25 percent next year.”
“People who bought at or near the top of the real estate cycle are the most vulnerable. As houses have grown more expensive, mortgage brokers came up with new types of loans to make the early years of a mortgage more affordable.”
“For the first time since November 2000, house prices in the Capital Region in September declined from the year before. The median price was down 4 percent, to $187,000, according to the Greater Capital Association of Realtors Inc. ‘Folks are overextended,’ said Anthony Gucciardo, an associate broker in Latham. He said those who bought more house than they could afford are now struggling.”
‘When you can no longer assume that you’re going to have a capital gain, you start to look at fundamentals,’ Professor Campbell says.’
Nice summary of an end to financial mania.
Glad this logic has finally returned to Main Street, but when will it finally sink in on Wall Street?
Here is an interesting article by Doug Nolan that is relevant to your question, GS.
http://www.safehaven.com/article-6278.htm
It’s funny to hear so many people still fixated on rates. Rates certainly got the insanity started, but what quickly took over was the expectation of 20% gains. That’s what made buying a $2 million house easy to accept; the belief that it’d be worth $3 million in a few years. When everyone wakes up and realizes that, best case, the $2 million home they’re looking at will be worth $2 million or so in a few years, then the sticker shock affect wins out.
“Terry Sciubba believes the worst will be over as soon as the media eases up. She tells the story of a client who recently accepted a bid of $1.4 million dollars on a house on High Farms Road in Old Brookville. ‘Newsday came out saying the prices had dropped ten percent.”
“‘My customer read the article, called me up the next day and dropped her price $140,000. Of course my seller would not sell, because her house was priced correctly.
Duh Terry if the house was “priced correctly” there would be a lot of other buyers waiting in line to buy this “correctly priced” house. Nassua Community College has an excellent Economics 101 course - something for you to consider.
Schadenfreude.
That’s all I can say. Greedy sellers. This is a normal cycle downturn. Don’t blame the messanger. The fact is home prices are dropping and the pace is accelerating.
The payments on $1.4 mill are going to hurt (or lost interest).
To think the real pain doesn’t start until 2Q 2007…
Neil
“She’s not the only one getting out. Several weeks ago, Renee Weinberg posted an ad for a new clerical assistant to cover weekend open houses and order baby gifts for potential clients; three real estate agents applied, including one from her Long Beach office.”
Wow from 6% commission to maybe 8 bucks and hour. That’s got to suck.
6% of nothing is nothing.
8 bucks an hour is better than nothing.
Absolutely ajh, absolutely.
I was simply saying that the change has got to hurt.
Yup.
Gonna take a lotta lotta 8 buck hours to make that BMW lease payment.
That $8.00 buck an hour job is a pay increase for most agents. They sell a million’s dollar worth or homes and net $20,000 after all their expenses.
Meanwhile the Wall Street bums and crooks received 30 billion of bonus for this year.
“‘Everything was fine until the media got involved,’ says (broker) Terry Sciubba. Joyce Styne, VP for Century21 (which has 16 offices throughout Long Island and Queens), agrees that the decline increased significantly when it became a media focus roughly two months ago. She mentions, however, that brokers had seen it coming over the summer.”
Am I the only one who sees some conflict in these statements. Sure, the media plays a role, but this person is really trying to deflect all blame away from the RE industry itself.
Americans are obsessed with getting something from nothing - “free money’- and the RE bubble enabled large numbers of people to make more money than they ever could have dreamed. I hope they socked some away, because after the party comes the inevitable hangover. 2007 is going to be a VERY interesting year.
Wonder what the brokers who “saw it coming” were telling the buyers at the time?
auger-inn- The real estate industry could of objected to the inflated listings by sellers and advised their clients to submit a offer that was reasonable . The lenders could of refused to lend so much on a property that had increased 20% in 3 months .Just because the sellers kept pushing up the prices and stupid buyers and speculators went along with it doesn’t mean the industry had to go along with it .
Everybody was just riding that stupid wave and now it’s wipe out time .
That’s the way I’m calling it as well HW. How is the market in your neck of the woods?
anger-inn …My home market in Ca. went dead about 2 or 3 months ago . Prior to that the sellers were reducing 5 to 10% from 2005 market peak .We didn’t get hit as hard in this tract because it’s a over 55 tract and we didn’t get alot of speculators because they were going to the new home 55 and over tracts .The inventory of homes on the market is low in comparsion to alot of tracts I have seen ,so I might luck out and not lose as much as I could of, but we will see . I predict a 20% decline for this tract when its all said and done ,but it could go higher than that . Also ,alot of people paid cash or put big down-payments in this tract ,so that helps .
I made a point of buying in a 12 year old tract because I didn’t like the looks of the new construction or the speculator ratios . ( I didn’t know about this blog at the time ,wish I did ).
If I had it to do all over again ,I would of rented for 2 to 5 years before buying ,but it helps that I bought for long term with a low fixed rate, huge down payment .
I did sell my house at market peak in 2005 only out of luck that I happened to want to retire and move down . I considered Arizona ,but when looked at the increases in that short of time , I backed off .
My point is that I qualify for the loan I’m on at 50% loan to value ,so I don’t have to worry about being in the foreclosure lines . Even when I was younger I never put myself at risk with a investment buy and knew I could afford the place if the market turned .
Hope I didn’t bore you with all this detail .
What an astute observation. I am impressed with everything you said. While I was reading it I was wondering what percent of the population think like you. I think that percent may be a big key to how fast this bubble blows. If a lot of people think like you -demand will dry up dramatically and the cylce drops quickly. If not the excess inventory will get us to the same place but slower.
HW. Nope, it was what I was asking for! Thanks!
I think it will be a 2 or 3 wave hold down as well, for the surfers out there.
Survivable but challenging.
Hey SunsetBeachguy,
Does that mean the A$$thumping waves keep churning you until the set rolls through?
I am a landlubber, but have a fascination with big waves. Around Cape Horn the old sea captains called them “Trinities”, or something like that, when the 40-60 ft rogue wave sets would roll through in sets of three. The first was usually not the killer, but set you up for last two, which often were.
Ever hear of the Warreter? That’s the way I envision this.
strange that these brokers are not keeping their mouth shut and quickly buy up all these tremendously undervalued properties before the media finds out they are wrong about the bubble …
These brokers must have made so much money in the past years that they have no idea what to spend it on, so yes … a bit of conflict in the statements.
‘Everything was fine until the media got involved,’
LOL.
…And I would have gotten away with it if it weren’t for you meddling kids!
Isn’t that what pedophile Folly said about his email to the congressional pages. “Everything was fine until the media got involved”
Chris, Great Scooby Doo ending.
Correction Terry: the media were involved all the way up the bubble too, but you didn’t seem to mind. But now that the market has turned it’s the media’s fault?
The interesting thing is that I’m not hearing them complain that the media is wrong, just that it’s “become involved.” In other words, meida just ought to shut up and let me control the flow of information, and hopefully my next shopper won’t otherwise be informed about what is happening in the market.
If they want to blame the media attention on the way down then they have to give it “credit” for it’s coverage massively reinforcing the bubble action on the way up. Works both ways folks. Nothing new under the sun.
Yes, when people who are not accountable for what is right are confronted by a situation they do not like they try to spin it.
Terry should focus on the bursting bubble, but instead she tries to redirect the blame and spin the focus of the situation.
Typical behavior for someone with her ethics and values, and lack of personal responsibility.
Terry “skunk ape” Sciubba would like it the old way, where we looked to Realtwhores for all our market info. It is silly to blame the media. With the internet and blogs like this, the truth will get out anyway and anyone who wants can learn about markets faster than a teenage tryst in the back of a buick.
From the Times Union article: “What our third-quarter research appears to be showing is that the first wave of adjustable-rate mortgages is having a negative impact on the number of homes going into foreclosure,” James J. Saccacio, RealtyTrac chief executive officer, said in a prepared statement. “With the volume of loans — more than $1 trillion of them due to adjust over the next 15 months — this is a trend that definitely bears watching.”
Darn straight, Skippy. We’ll be keeping an eye on that trend as it blows up and spills into the broader economy. The housing crash is going to be so friggin ugly.
I do believe that here on this blog we discussed the ramifications of this trend some time ago.
Many, many times.
Yes, we have many many times but it so much more intriguing watching it happen in real-time. It’s edge of the seat thrilling. It’s a mind blowing thrill ride with unexpected twist and turns.
Everybody on this blog had the chance to discuss the ramifications of this trend at least once, and now the MSM finally is getting around to their chance.
“‘Prices have come down a bit, but that’s okay because they needed to readjust. It’s not like a house that lists for 600,000 is ever going to be 200,000,’ she says.”
It’s never going down because…? This is another quote to remember.
It’s just this type of stupid comment that really gets my blood boiling. As if this women has a clue, I continue to be amazed at the amount of ignorance out there. I would respond to her by saying, you know what sweetie you are right it may end up at $100,000.00. I would guess she has no concept of money and history.
It’s funny how the realtors are slamming the MSM, and yet 90% of the quotes in every article still come from realtors. If the MSM really had it in for real estate, they’d stop quoting realtors as “experts” and instead get quotes from people who actually understand supply and demand, manias, etc., and who are not 100% biased in the first place. Imagine, realtors, if the MSM actually did that just how ugly the articles would be?
“‘Prices have come down a bit, but that’s okay because they needed to readjust. It’s not like a house that lists for 600,000 is ever going to be 200,000,’ she says.”
—Its going to be whatever the market will bear. I love how these pudnuckers think value is determined by anything other than what someone else is willing to pay for something. Things that “add value” really are just efforts to “increase desirability.”
In the rising market, the winners were the ones willing to buy at a bit higher price to get the jump on others. Now the winners are the sellers who are recognizant of the situation and willing to set price under local comps. The rest just get to sit and proclaim with self-righteous hubris that their property is “worth the price” or “priced right.”
I have given a lot of thought to how far prices can drop. I think the floor will be when it is cheaper to buy than rent. The buy/rent disconnect in many areas (Irvine, California is my favorite) has never been greater. The good news is this won’t be like the dot-coms where the floor was zero - zero earnings - near zero revenue - zero stock price. My guess on Long Island is about 30% drop off 2005 highs. My guess on Port St. Lucie or Naples Florida - 60% off 2005s. But…..the ugly part is when the owner has less equity than the drop and the markets lose their liquidity (people can’t sell because they would owe more than they get). They the real problems begin.
Hi Bubble follower, can you elaborate on why Irvine is your favorite? I hope you’re right, since I sold in ‘05 and hope to purchase again in ‘08. And I knew prices were stupid a long time ago, not at all based on fundamentals…check out my posts on http://www.irvinehousingblog.com
My concern about Irvine not crashing the way logic says it should is partially related to the extremely high percentage of foreign money here. Most people buying into the new Irvine developments are Asian (Chinese, Korean, Indian, etc.) I don’t have any hard data to support that claim, just based on my own observation from my hobby of checking out all the new neighborhoods whenever I get a chance…I do not know enough about global economics to know if these sky-high prices are more reasonable to them then they are to Americans…just curious, thanks!
I think the floor will be when it is cheaper to buy than rent.
Yes, but rent will be a downward moving target, so calculating a bottom now is pure speculation. Not that we don’t enjoy speculating!
“‘Everything was fine until the media got involved,’ says (broker) Terry Sciubba.
Just another dunce!
This Terry Sciubba should be arrested by the moron police, or perhaps just tied to a tree and flogged. How on earth do these clowns get through life.
‘The booster rocket has run out of fuel and now it’s going to coast.’”
Sorry Charlie, when rockets run out of fuel they crash back to earth…maybe his way of subconciously telling the truth?
Feel that re-entry burn. LOL
He must have meant roast.
“Everything was fine until the media got involved….”
Right — It had nothing to do with prices, taxes, insurance, price to income, price to rent, ARM resets, loose lending practices, siphoning future buyers, speculation, and other irrelevant BS.
“Everything was fine until the FBI got involved.”
-Casey Serin in a Fall 2007 interview
It had nothing to do with the NAR’s and the CAR’s irrelevant BS.
Also it had nothing to do with the “market makers” and bogus seminars and the media supporting a mania because of the advertising dollars .
It had nothing to do with Fannie Mae’s all-out effort to turn all US citizens into homeowners, or the $500K housing capital gains exclusion, or the protracted period of negative real Fed Funds rates used to get the bubble party rolling again in the early 2000s.
That about covers all the points in a nutshell - good work
“Terry Sciubba believes the worst will be over as soon as the media eases up.”
Gosh darn, don’t you know it, Terry?? As soon as the media quits their nasty campaign, I just know that buyers will start buying again!
And then there will be world peace, puppies for everyone, and a unicorn sighting.
Oh goody, I’ll take two puppies please!
LOL, you really should go into comedy writing Catherine .
We don’t want buyers knowing the truth. We sure don’t want them acting in their own best interest. Better buyers get screwed and take a financial beating. This way realtors can make money off of their misery. SCREW REALTORS and their unscrupulous way of doing business. I say we install a 2% cap on commission for realtors. This would cleanse a good deal of them. What’s up with that made-up word realtor anyway?
Great weekend piece Ben! I’m just sitting back watching the unwinding and waiting to see the Nov. tax defaults and the after the new year blues that should really start the ball picking up speed on the downside.
“Terry Sciubba believes the worst will be over as soon as the media eases up. She tells the story of a client who recently accepted a bid of $1.4 million dollars on a house on High Farms Road in Old Brookville. ‘Newsday came out saying the prices had dropped ten percent.”
“‘My customer read the article, called me up the next day and dropped her price $140,000. Of course my seller would not sell, because her house was priced correctly. But that’s what going on, the news media has created this frenzy,’ Sciubba says
Priced correctly? Says who? You? I can’t wait for the moment when the veil is lifted from the eyes of these dolts and they glimpse the magnitude of the downdraft the RE industry will sustain.
These agents have an answer for everything. First it was RE will go up every year some %. Then RE was just taking a breather. Now it is just a small correction because RE went up too fast and the media got involved.
What is going to be the line they spew when this sucker drops another 20% next year?
They will say that the speculators drove the market up ,(as if they didn’t know that was happening ), and the market has now bottomed out and now it’s a good time to buy . They will try to avoid discussions about the foreclosures resulting from to much debt and unqualified buyers /stupid loans .
One of the many questions I have is whether there will be an attempt by the federal gov’t to hide/shelter the foreclosures. Will they allow tens of thousands of foreclosures to hit the market or will they set up a program to mitigate this (of course they’ll call it the “truth in housing act” or some other such name (think patriot act or military commissions act, etc) so that folks don’t catch on to what they are doing.
They very well could try to control the inventory explosion of foreclosures on the books . Perhaps if it’s to extreme the lenders might go into the rental business ,or they might refinance FB’s to delay forclosure until wages catch up or inflation . During the Great Depression lenders tried to work with people because nobody could afford to buy the foreclosed property anyway . Sometimes lenders worked out a rental agreement with a borrower until they could start making the mortgage payments again during Depression.
The govt certainly hides cancelled new home orders — counts them as new home sales, in fact…
“The market bottomed out in 2007, and prices now are more attractive for buyers than they have been in years. There has never been a better time to buy.”
Ok, one more try….
There is Terri Sciubba’s pic on the webpage for Sherlock Homes Realty Corp. Their motto is “We take the mystery out of real estate.”
Hmmm. If Terry S could have talked her seller into accepting a 10% discount from the asking price, Terry would be sitting on 90% of her original commission.
Instead, she would rather insist that the house was priced correctly because of her brilliance, and earn 100% of zero. Nice going, Terry.
Better to admit you were wrong and make some money, then insist you were right and go broke slowly. This is why Zillow and ZipRealty and discount brokers exist - so nitwits like Terry will die a slow death.
Says Terry, “Pay no attention to that man behind the curtain.” Buy Buy. LOL
In response to all this negative press lately, realtors across the country should:
1. Immediately stop advertising in any print media.
2. Write threatening letters to editors of newspaper business sections warning that there is to be no more real estate-related news printed until further notice.
There, that ought to do it.
Here is Terry Sciubba’s pic on the web page of Sherlock Homes Realty Corp. Their motto is “We take the mystery out of real estate.”
http://www.gosherlockhomes.com/sea_cliff/agent_page.asp?agentID=1528
Damn that media for reporting the truth. Why if they only didn’t report what happened in New Orleans or Iraq everything would be great.
If you tell people that housing is declining they might actually demand to pay what it is really worth.
MSM financial journalist’s reflection on the messages served up for months on this blog:
“I pull in resolution, and begin to doubt the equivocation of the fiend that lies like truth.”
“The word on house prices has rung loud and clear in recent months: the bubble’s burst, the party’s over, the fat lady’s sung, Elvis has left the building. Long Island is feeling the sting of a decline. The disagreement centers around the causes, extent and duration of the decline.”
Don’t you hate when the MSM sugar coats their stories?
You’re paying me by the word? Wait, let me pull out my copy of “Bartlett’s Familar Cliches.”
Yeah, nobody is going to pay your crazy prices for houses anymore. What, they don’t want to lower their price? Fine, let it rot.
It’s not about the monthly payment anymore, it’s about the price stupid!
“the housing market will experience a slow depreciation of 2 percent or 3 percent each year for the next five to six years. She views the readjustment as a needed correction.”
This is so stupid. You can’t have this type of scenario. This starts a snowball effect. If you think your house is going to decrease in value 2 - 3 percent each year for 5 or 6 years you probaby won’t buy in the first place. This will accelerate the level of decline and make the 2 to 3 percent fall look like a happy memory.
Nobody has addressed the fact that we are talking about Long Island. What the heck is so special about Long Island? The commute to New York can be very difficult. There are tons of Yankee rednecks. It is suburban hell. Why do these people think that they should have such a premium? And they all do! Trust me on this one. I’ve gotten the, “it’s down a little but it won’t go down any further because it’s different here” from everybody I know that owns in Long Island. Long Island, Brooklyn, Queens, Bronx, Jersey are all going down big. And once they do they pull the over-supplied Manhattan market with them.
This is so easy to see from where I’m sitting. Just take the PATH to Pavonia Newport and look at the overbuilding in Jersey City. Jersey City? There is nothing to do there and they want to charge like you are on the Upper West Side. “But you are close to Manhattan.” Unless you are in Manhattan it is a pain to get to Manhattan during off hours. Subways and trains don’t run as frequently. They often don’t run express. This whole thing is a joke. The media is not causing the fall. The fallacy that everybody within 50 miles of New York City is filthy rich is fueling this decline. And will continue to fuel it.
“the housing market will experience a slow depreciation of 2 percent or 3 percent each year for the next five to six years. She views the readjustment as a needed correction.”
Could she have meant this to be interpreted in nominal terms? Because some of us who post here think there may be quite a bit of inflation over the next five or six years, if the Fed decides to stay the course of reflating the housing bubble, against what should be their own better judgment. Of course, the loss in real terms would be much larger than 2-3 percent a year in that case.
I think that the FED will try to inflate their way out and in that case nominal prices might as well continue climbing for some time; it just doesn’t mean much without a reliable reference. But I guess we will find out pretty soon; the FED has been stepping up their open market operations tremendously over the last two months, and in Europe the ECB and the banks are starting to sound a little bit nervous as well, and the euro is (again) closing in on the upper target that is acceptable to all those dumb euro-politicians. Who is going to blink first?
Doug Noland’s words of caution bear repeating here:
‘A major problem with the current monetary boom - the “Moneyness of Credit Bubble” - is the enormous and widening gulf between the markets perception of safety and liquidity and the acute vulnerability of the actual underlying Credits. Runaway booms invariably destroy the “money” - in whatever form it takes - whose inflationary expansion was responsible for fueling the Bubble. This lesson should have been learned from the late-twenties experience, or various other fiascos as far back as John Law. When current perceptions change - when trillions of instruments are reclassified and revalued as risky instruments as opposed to today’s coveted “money” - Dr. Bernanke will learn why a central bank’s monetary focus must be in restraining “money” and Credit excesses during the boom. And the longer this destabilizing period of transforming risky Credits into perceived “money” is allowed to run unchecked, the more impotent his little “mop-up” operations will appear in the face of widespread financial and economic dislocation - on a global scale.’
The essence of Greenspan’s conundrum:
“the enormous and widening gulf between the markets’ perception of safety and liquidity and the acute vulnerability of the actual underlying Credits”
They won’t try it because they know perfectly well it won’t work for a number of reasons:
Wages won’t keep up with inflation due to global competition. Income left after expenses will decrease, putting even more downward pressure on housing prices.
If the Fed gives the signal that it is promoting inflation, bond holders will want an inflation premium, leading to higher mortgage rates.
And the nightmare scenario - foreign creditors dump their US$ debt and the US$ loses its status as a reserve currency. US will no longer be able to borrow in US$.
You think the Fed is going to put all this on the line to save the a**ses of some nobodies? Uh-uh.
I tend to agree with yogurt. I just don’t see how the Fed can inflate their way out of this, for the reasons cited above. Then again, I really don’t *want* the Fed to inflate their way out of this (since in my household we are prolific savers), so perhaps this is wishful thinking.
The bottom line for me is I don’t see average wages shooting up any time soon (thank you, global arbitrage). But clearly the Fed is keeping the money supply spigot pretty loose. If this continues, I guess that means stagflation? If so, what might stagflation mean for the housing bubble?
Those nobodies are the Dems’ base, and Dems are in control of the House and Senate now. Good thing that nobodies don’t vote or make campaign contributions…
So much of the housing stock on Long Island is very old, very outdated, wasn’t built well to begin with. A 60 year old little poorly insulated cape or ranch with a 1 car garage on a quarter acre lot is not an appealing lifestyle but on Long Island you have to have a six figure income to buy it. How long could that last?
“the housing market will experience a slow depreciation of 2 percent or 3 percent each year for the next five to six years. She views the readjustment as a needed correction.”
That’s exactly what Thornburg (who seems to be regarded on this blog and elsewhere as a smart, tell-it-like-it-is economist) is predicting. I guess it only sounds ridiculous when it comes from a realtor.
Anybody know how to calculate the combined effect of nominal price depreciation plus inflation?
Question: at 3% depreciation and 3% inflation, how long would it take for an asset to lose half its value?
Can you estimate it by adding the two percentages and using the rule of 72? Like:
72/(3+3) =12 years
72 / (3+3) = 12 years.
That approximation is good enough for blogging purposes. If you want the exact calculation, then it comes as the solution to
1/1.03^(2n) = 1/2, so
n = ln(2)/ln(1.03)/2 = 11.7 years.
Thanks, GS.
(If resorting to logarithms is the alternative, I think I’ll stick with the rule of 72!)
(If resorting to logarithms is the alternative, I think I’ll stick with the rule of 72!)
that and some heavy drinking
Heavy drinking is only in order if the calculation above applies to your own home.
And by the way, the rule of 72 is a strikingly accurate rule of thumb across a wide range of rates of percentage increase or decline.
I don’t think many people on this blog agree with Thornburg on his decline predictions. I think they agree with the fact that he is now predicting declines but I think there has been a lot of disagreement with the actual numbers. The people on this blog have demonstrated that they think his 2 to 3 percent decline predictions are way too low. I don’t think it has anything to do with a realtor saying it here. I think you might want to go back and look at the reaction people have had to Thornburg.
How long have you been posting here?
Thornberg was in a tough place - he just left working for the State of California to start his consulting biz. He would give a speech - everything he said pointing to the cycle (or sine curve) dropping and his conclusion would be prices would be flat for 6 years. A flat line - like when the heart monitor shows the body is dead. I think the conclusion used to be based on his position. I think now that he is in consulting he realizes cycles are not flat. On a positive note - he speaks incredibly well - an impressive man.
“Thornberg was in a tough place”
In other words, he used to lie to keep his job, is that what you’re saying?
It’s ridiculous regardless of who says it. Orderly price declines are possible only when prices are supported by fundamentals - i.e. it’s not cheaper to rent than buy. Otherwise there is no reason for any “investor” to hold, and no reason for anyone to buy, as Campbell said.
dwr,
You generalize too much and certainly don’t speak for me or the tens of thousands that read here every day. Thornburg is all over the map; one day southern California is 30% over valued and the next it will be tiny decreases followed by a flat period. I can’t even keep up with his flip-flops, much less agree or disagree with him.
I certainly don’t read every post on your blog Ben, but I can’t recall ever seeing you take a position one way or the other with respect to Thornburg.
There’s been a huge amount of cashing out and moving south, going on the last few years, on Long Island. The sellers leave behind some dope that bought their house with a toxic mortgage or an immigrant that bought their house and has twelve renters living with them. Lately, I’m hearing more and more stories of these buyers now strugling to pay the mortgage. The next couple years are going to be real painful here. The desperation is starting to bubble to the surface.
“‘Inventories have built up a lot and that’s a leading indicator, it’s not a trailing indicator. The first thing that happens is that the inventory of unsold homes decreases. The price decline is the second thing that happens,’ says Robert Campbell, a Professor of Real Estate and Finance at Hofstra University who jokes that he is not altogether popular with realtors.”
Realtors (TM) have an inherent distrust of anyone who is not a pathological liar.
LOL. good one Getstucco . Its so true that the hype and spin of the mania became truth and anything that pops those illusions of that easy money making is viewed as a evil conspiracy.The 40 mil ad campaign by the NAR is the evil conspiracy to keep the party going and keep realtors employed .
OT: Good read by Bill Bonner
http://www.lewrockwell.com/bonner/bonner309.html
Thanks wmbz, that was a good article.
Outstanding article wmbz ,thanks .
Brilliant!
Ok, one more try.
There is Terri Sciubba’s pic on her webpage for Sherlock Homes Realty Corp. Their motto is “We take the mystery out of real estate.”
href=”http://www.gosherlockhomes.com/sea_cliff/agent_page.asp?agentID=1528″>
“‘Prices have come down a bit, but that’s okay because they needed to readjust. It’s not like a house that lists for 600,000 is ever going to be 200,000,’ she says.”
Hey, thanks for letting me know your customer’s secret bottom line. I’ll bid 210,000 on your 600,000 listing.
Is it all the end of the era of gambling?
Will the wipeout of the real estate market (essentially gambling, even moreso when you figure in that 6% of our gdp is equity loans) bring to an end, the demise of gambling?
I’m 44 and have seen a meteoric rise in the gambling industry, since I was a kid, to the point that we’ve made heroes out of palookas that play poker, role models, of a fashion, I guess.
I can see why it built up, as well as the amazing amount of prisons that have sprung up, (we incarcerate around 600, per 100k of our citizenry, Canada, Europe, Australasia are around 125, per 100k of their citizenry) as being the clever Americans that we are, those 2 businesses in particular were picked, as no cheap foreign labor country is going to steal away your business, are they?
7,000 folks a month make vegas their new home, as it’s one of the last bastions of solid middle class jobs in our country…
“may you live in interesting times”
Financial speculation, gambling, urbanization - sounds like 1730s England. Next phase: the gin craze!
How about we release a few hundred of those unfortunate prisoners into your neighborhood?
Why do you suppose we incarcerate 5 times as many of our citizenry, compared to everybody else in the 1st world?
Whoops, hadn’t taken a look in awhile @ the numbers…
We are now The World’s Leaders in incarceration~
738 per 100K
http://www.kcl.ac.uk//depsta/rel/icps/worldbrief/highest_to_lowest_rates.php
You vote(I assume), your elected representatives write laws, some are passed some are not. Those laws are eventually violated by someone and they are incarcerated. That is the way THIS country works, our system has nothing to do with other so called first world countries…it is our system.
Vote for peole that agree with you and hope your ideas win the day. Your only other option would be a one way plane ticket to the “first world” country of your choice.
I understand you were just making a point, but this is not an amnesty international blog, this is about the housing bubble.
Have a nice day
“The party is over, but there are still refreshments left,’ Styne says. Even if declines continue in the coming couple of years, most people…might also agree, however, that a Zen attitude will serve the investor well.”
Fist Magnet
Can someone explain in more detail what a “ZEN” attitude is .
Translation: The investor needs to adopt the attitude that the reason he invested should cease to be a consideration in his appreciation and enjoyment of the investment.
Thanks . I guess that’s would be having a ZEN attitude at being forced into being a Landlord ,when you really just wanted to make a quick buck on the GF’s dime .
“‘Everything was fine until the media got involved,’ says (broker) Terry Sciubba. Joyce Styne, VP for Century21 (which has 16 offices throughout Long Island and Queens), agrees that the decline increased significantly when it became a media focus roughly two months ago. She mentions, however, that brokers had seen it coming over the summer.”
Shh! Hey Media, stop telling the FBs the fact that ARMs are going to force a lot of foreclosures! Make the FBs get further down the quicksand before they could bail out! You gotta support the poor disenfranchised RE shill / broker, lender!
Throw all of the realtor, MB, FB, GF, etc criminals in some kind of tent jail out in the middle of some godforsaken isolated placed where they would cook if they tried to escape (Amboy Crater in the Mohave Desert or Death Valley, or in the Southwest Desert) would be good.
Hey folks I think we are all forgeting that the financial industry (which is important in New York) is experiencing record profits. I am sure that that will help keep the boom going. Its something like $36 billion in bonuses. No recession here folks keep moving along….. I can just hear the realtors talk this up now. But seriously, that has to have some impact somewhere?
The new condo homes at HAMLET ESTATES AT JERICHO is GREATLY OVERVALUED. No buyers for the last 1/2 a year. Finally, incentives are kicking in.
Nassau prices are finally coming down. More to follow I’m sure. Less to do with interest rates now. The investor psychology has certainly shifted.
Hang the brokers. They loved it when the media spoke positively of the housing market in the last few years. Now, they have the audacity to be upset when the media sentiment has shifted? Ugh…hello? The media simply reports the facts. Let’s be less self-serving please.
yes, Long Island are greatly overpriced, with outdated hoes that are probably 40-50% overvalued. Just wait until real estates rise to historical norms.
“Reversion to the mean” people…reversion to the mean!