Welcome To The Roller Coaster Of California Real Estate
The LA Times reports from California. “Housing construction in California dropped sharply last month, led by a steep decline in single-family homes. In October, the number of permits declined 29% compared with a year ago, the California Building Industry Assn. said. Builders are backing off constructing new homes until they can sell existing inventories.”
“That prompted a 47% plunge in single-family permits, the trade group said.”
The Sacramento Bee. “It’s little more than a giant hole in the ground, but already the 53-story Towers hotel and condominium project is $70 million over its original $500 million budget. Meanwhile, sales of the Towers’ condos are slow, and developer John Saca has switched general contractors.”
“One thing is clear: Saca admits the Towers, at Third Street and Capitol Mall, is being pinched between a weak housing market and rising prices for materials.”
“Besides funding challenges, Saca also said the condo market has gone soft with the rest of the housing market, and the Tower’s sales are ’slowing down.’ He also has a condo competitor, Craig Nassi, who has plans to build the Aura tower two blocks east on Capitol Mall and Sixth Street.”
The Desert Sun. “Last month sales of previously owned homes and condominiums plummeted compared with a year ago across the Coachella Valley. Sales of existing single-family homes dropped 24 percent last month and existing condominium closings fell 54 percent compared with October 2005, according to DataQuick.”
“Overall, sales of new and resale single-family homes and condos in the valley declined 17.8 percent last month compared with October 2005. The dip in sales comes as more valley homeowners are putting their residences on the market.”
“Across the valley, there were 8,076 homes on the market in October and almost 8,600 by mid-November, said Greg Berkemer, executive VP of the California Desert Association of Realtors. That compares with 5,384 home listings in November 2005 and 2,800 listings in November 2004.”
“Fred Bell, executive director of the Desert Chapter of the Building Industry Association, said cautiously optimistic home builders will continue to aggressively manage their cash and reduce inventory. ‘I think we’re still in a challenging market,’ Bell said. ‘Conventional wisdom is that we’re going to remain in a challenging market for the next 24 months.’”
The Record Net. “A total of 179 building permits for single-family homes were pulled in San Joaquin County in October, down 43.4 percent from 316 in September, and down 49.7 percent from 356 in October 2005.”
“The question in potential buyers’ minds is, said Tom Doucette, president of Frontiers Community Builders, will the market continue to get softer? ‘The problem is uncertainty about the direction of pricing: Is it at or near the bottom?’ Doucette said. ‘That’s creating some hesitation. People want to buy at the best time.’”
“Alan Nevin, chief economist for the California Building Industry Association, said that new-home construction in California is expected to continue cooling off till the end of the year. He predicted that 2006 will end on the lower end of his 170,000-180,000 permit projection made earlier this year.”
“‘The primary decline is in the single-family sector, where half of the decline is in the Riverside/San Bernardino, Sacramento and San Diego areas,’ he said.” “Even with the decline, total production this year is expected to be the sixth-highest since 1989.”
The North County Times. “Hoping to avoid flooding the market with a glut of new homes, builders in San Diego and Riverside counties started construction on half as many single-family houses in October as they did in the same month a year earlier.”
“‘It is very much driven by their need to try to clean up their balance sheets by year’s end,’ said Borre Winckel, executive director of the Riverside County chapter of the Building Industry Association of Southern California.”
“Winckel said builders remember all too well the bloated inventory they were stuck with during the 1990s after a period of overbuilding, and they want to avoid getting into a similar predicament. ‘They don’t want history to repeat itself,’ he said.”
“Economist Alan Nevin cautioned against concluding that the sharply lower numbers for 2006 signal a housing market headed into the tank. ‘It is not a crisis situation,’ said Nevin, whose association represents the state’s 6,700 home builders and related businesses.”
“Robert Campbell, a San Diego economist who closely tracks the market, disagreed that a rebound is around the corner. ‘This is clearly a normal cyclical downturn,’ Campbell said. ‘Welcome to the roller coaster ride of real estate. It goes up and it goes down, and now we’re going down. This is going to be a very slow, painful downturn.’”
“Economist Christopher Thornberg said construction won’t rebound for some time because the leveling off of home values will squeeze homeowners’ ability to buy bigger, more expensive houses. ‘You’re not going to be earning capital gains in this market for a long time to come,’ Thornberg said.”"
“‘There’s never been a housing bubble in California that has shaken itself out that quickly,’ he said, noting the market declined for several years in the 1990s before rebounding. ‘And this is absolutely the biggest housing bubble, price-wise, that we have ever had in California. This is not going to disappear overnight. Demand for (new) housing is going to be weak for a while.’”
“Housing construction in California dropped sharply last month, led by a steep decline in single-family homes. In October, the number of permits declined 29% compared with a year ago, the California Building Industry Assn. said. Builders are backing off constructing new homes until they can sell existing inventories. That prompted a 47% plunge in single-family permits, the trade group said.”
Is this the news that led to the analyst upgrade of the HBs?
Permits down 50% YOY in Bakersfield. The funny thing is the PDF report states “the bubble has burst, now what happens”… What do you think happens you moron - people lose their jobs, and the cycle reverses as hard on the downside as on the upside!
“What do you think happens you moron - people lose their jobs, and the cycle reverses as hard on the downside as on the upside!”
Good one Crispy. LOL (TM)
I sure wish the HB would have kept building more and more.
Put out more inventory ignoring declining sales.
“..47% plunge in single-family permits, the trade group said.”
That is bullish indicator if I have ever seen one. Now I understand why Bank of America upgraded the HB’s. Glad they didn’t keep that kind of information to themselves.
Sounds like “PUMP AND DUMP TO ME!” just wait for the sell off should be interesting.
No, that didn’t lead to the HB stocks going through the roof today. It was the publication of the new book, “How I Lost All of My F$cking Credibility and Made a Complete A$$hole of Myself”, authored by Daniel Oppenheim of Banc of America Securities. That is what caused the HB boom. The one guy that still had a shred of credibility has now sold his soul and jumped in bed with Lereah, Appleton-Young and all the rest of the dorch-bags. May his pathetic little soul rot in Hades with the rest of them. I hope you choke on a ham sandwich tonight Mr. Oppenheim.
Duuhhh.
Sorry, when I put this up, there were “0 comments”, and I thought every one of the quoted experts now admitting there is bad news deserved this comment: Duuhhh.
“It’s little more than a giant hole in the ground, but already the 53-story Towers hotel and condominium project is $70 million over its original $500 million budget… “John Saca has switched general contractors.”
Mr Saca. Tell new contractor to keep digging till you reach China. Then you can negotiate for more “stupid” money from direct source!
If Chinese tell you it is “Money Pit”, tell them no… From your end, it is “Money Fountain”!
See… Easy! Problems Solved!
Group project: Track these projects and see how close to the bottom we can buy it as an apartment building.
“permits declined 29% compared with a year ago”
But But But — Everone wants to live here, right?
All those deep pocket Euro’s and Asians are streaming over the
boarder to buy, right?
What happened to the “tight supply” as CAR was crowing about, right?
“‘Welcome to the roller coaster ride of real estate. It goes up and it goes down, and now we’re going down. This is going to be a very slow, painful downturn.’”
LOL! Down we go folks! And you thoght the earthquakes were bad!
You havent seen anything yet!
California Screaming is a fun ride, IMO…
EVERYBODY SING…
Oops my shorts are brown, and my face is grey,
Cause I just took a dump, in a 50 percent way,
Got to mail the keys, got to move today,
California Screaming, as I drive awayyyyyyy…
California screaming…….on such a winters day.
Where is Rainman to rewrite the song for us when we need him?!?!? ;-D
You gotta love Robert Campbell… er at least I do. ;-D
Reality: quite a few Chinese are moving back to China, due to its growth and the opportunities available there.
Not enough to make a big change in the housing market, but possibly enough to balance “all those rich Asians moving to California”.
There is also a migration of Chinese from the East Coast to the West Coast. I know of a few retired Chinese/Taiwanese who immigrated to the States in the late 60’s/early 70’s and who have been in Pensacola for thirty plus years are moving to Los Angeles because their children are working for American companies in China. There are better flight connections between China and Los Angeles than between China and Pensacola.
c’mon. There can’t be that many retired Asians in Pensicola.
I know the opposite: Folks of Asian roots, moving out of Cali to Houston due to living costs. They hate the concrete and heat, miss the Cali weather but love the Texas cost of living.
As for Asians moving back to Asia. Two years ago, I audited a wafer fab in Taiwan. The majority of their management were experienced ex-pats who’d gone back home: Reverse brain drain.
I met with a close childhood friend at a highschool reunion this past summer who is an American Chinese and he is the one that informed me of the trend.
You are correct that there are not that many Asians in Pensacola however the older generation which as first generation immigrants have pretty good connections within the American Asian community. In my friend’s case although his father was an engineer at Monsanto he was also part owner in a Chinese restaraunt in P’cola which employed family members and Chinese friends of the owners and helped maintain connections in the immigrant network. My buddy said many of his father’s friends had moved to California after retiring because LA has has a large Chinese community and many of their children are now working in China. The trend evidently was fairly widespread among his father’s retired friends not only in P’cola but in nearby areas (Alabama, Georgia, North Carolina, i.e. East Coast.
“All those deep pocket Euro’s and Asians are streaming over the border to buy, right?”
So THAT’S the reason why the dollar is being allowed to weaken. It will make our properties even cheaper to Asians and Euros, inducing them to buy some of our excess inventory.
“Hoping to avoid flooding the market with a glut of new homes, builders in San Diego and Riverside counties started construction on half as many single-family houses in October as they did in the same month a year earlier. ‘It is very much driven by their need to try to clean up their balance sheets by year’s end,’ said Borre Winckel, executive director of the Riverside County chapter of the Building Industry Association of Southern California.”
I hope they have hired some crooked accountants and set up some offshore corporations to help with this game of smoke and mirrors.
“balance sheets by year’s end”
Pulte’s year end is Nov 30, 2006 Today!! So is KB Homes. Betcha Winckel makes his year end’s statement, not knowing the year end for some really major players is today.
Press release by end of Dec 25th … just enough time for Santa to print off some pink slips.
“Economist Christopher Thornberg said construction won’t rebound for some time because the leveling off of home values will squeeze homeowners’ ability to buy bigger, more expensive houses. ‘You’re not going to be earning capital gains in this market for a long time to come,’ Thornberg said.””
“‘There’s never been a housing bubble in California that has shaken itself out that quickly,’ he said, noting the market declined for several years in the 1990s before rebounding. ‘And this is absolutely the biggest housing bubble, price-wise, that we have ever had in California. This is not going to disappear overnight. Demand for (new) housing is going to be weak for a while.’”
Yep… typically the downturn end when mortgage payment hit 25% of income. We’re at 50.5% (oops, typo in another threat at 55%… mea culpa).
I’m sticking with my prediction of 30% to 60% price drops in California.
My thoughts on income? Bearish too. Maybe I should say employment… but take home pay in construction, mortgage lending, and other housing related sectors are going down, fast.
‘They don’t want history to repeat itself,’ he said.”
Too late by two years. Hang on folks. This time its going to be faster. 2007 will be interesting. I stick by 2Q 2007 being the schwerpunk (point of critical decision) in the CA housing market.
Sound the dive alarm, we’re going down.
Neil
schwerpunk= sucker punch?
Schwerpunkt = center of gravity
screwedfuckedgf= the name of buyers that buy next year
pharphegnugen, or however they spelled that volkswagen commercial a few years back.
So first we’ve got whoever that Shakespeare scholar is who keeps quoting “MacBeth,” and now we’ve got Clausewitzeans?
“‘There’s never been a housing bubble in California that has shaken itself out that quickly,’ he said, noting the market declined for several years in the 1990s before rebounding. ‘And this is absolutely the biggest housing bubble, price-wise, that we have ever had in California. This is not going to disappear overnight. Demand for (new) housing is going to be weak for a while.’”
Thanks for backing me up on that one, Chris…
And “they” say that housing never goes down unless there is a recession. Well the last several months have kinda dashed that logic too. And, it looks like we may be in a recession in the next couple of months as well.
Over 50 % of Americans think we are still in a recession and never recovered from 2001. Over 50% of Americans are earning less now than in 2000.
Good thing they have their home equity gains to fall back on.
(Poof!)
You crack me up stucco !!
Another 40% are earning less when adjusted for inflation
Yeh but were safe frum teorristrs!
Yeh but were safe frum teorristrs!
87.56% of all statistics are made up.
5 out of 6 people who make up statistics are lying.
Incomes down since 2000? I can top that! USA Today ran an article a week or so ago on college graduates and debt. Starting incomes today for college grads are less than they were 30 YEARS AGO (adjusted for inflation)!!!!!!!!! I have more real-estate-connected clients now than I can shake a stick at. (strike, shake, it’s pretty close). Some are still under the delusion that spring is the salvation.
About students and debt, people need to be more judicious about their spending on education in this country. For example, crusading twentysomethings need not rack up tens upon tens of thousands of dollars in student loans at a private college just to become a public school elementary school teacher. There’s more to that story than the figures suggest - such as the unrealistic expectations people have of a college education and our new global economy’s inability to provide everyone with the salaries they think they deserve. This housing bust is only one chapter of a much bigger story - albeit a fascinating and very dramatic chapter!
Housing declined in numerous areas in the 1985-1995 timeframe… Austin went down 1985-90 with solid job growth. The oil bust didn’t hurt Austin so much (directly), it was the 200 builders that came from Houston and Dallas to cash in on the high tech boom and the mania that developed in Austin. By 1985, 30% of the housing stock in Austin was investment (including secretaries at IBM owning multiple houses). Went down nominally 25%, but more like 40% in the ‘burbs…by 1989 (before any recession was in play).
Right you are Army No VA-
The same was true during 1985-95 in SF Bay Area with ‘88 being the peak. The recession started 2 years after the peak.
On the one hand, builders are willing to vastly undercut resellers for business, so that should prop up demand for new houses. On the other hand, how many first time buyers could afford the reduced prices if lending standards are tightened due to an MBS/CDS market burnt by foreclosures?
“On the one hand, builders are willing to vastly undercut resellers for business, so that should prop up demand for new houses.”
Uh, no — that may help new houses keep selling, but demand tends to drop when prices are falling. Nobody wants to try and catch a falling knife.
So the law of supply and demand has been wrong all these many years?
No, but the endogenous response of the position of the demand curve to price dynamics has been poorly understood.
Manias have the effect of creating a pile-on effect, where the demand curve shifts further to the right than dictated by fundamental demand thanks to speculators piling in to the market to capture gains during the bubble runup.
Conversely, during a bust, the demand curve shifts further to the left and supply shifts further to the right than fundamentals alone would dictate, as the prospect of catching a falling knife sends would-be buyers to the sidelines, and flippers quickly move from the demand side of the market to the supply side as they try to get out the exit door ahead of the rest of the herd. Of course, when demand quickly shifts to the left and supply quickly shifts to the right, you get a quick drop in market value which initially shows up as an inventory correction, as nobody has convinced the sellers yet that the bottom has fallen out of prices.
So in short, the static Marshallian supply and demand analysis which you learned in your undergraduate econ class is a bit too simple to explain boom-and-bust dynamics.
The new home builders are getting more business right now than the re-sale home sales . The incentives , low downs and paying used RE agents to sell new homes instead have helped builder unload more than the used home buyers .The builders will clear out their inventory first while the used home sellers bleed .There was just way to many homes build recently .
Good points GetStucco . The demand curve went really high during the mania creating false shortages because of speculation demand as well as unqualified/low down buyer demand that got loans.It wasn’t a normal supply and demand situation at all because supply and demand in housing is usually based on the buyers being end-user long term buyers . Now there is such a short supply of the type of buyers everyone is now looking for with the speculators leaving the buying market .
Yes, thanks for the enlightening discourse professor GS. I’m going to save that one. Next time some know-it-all insists real estate prices never come down, I’ll bedazzle them with “Obviously, the endogenous response of the position of the demand curve to price dynamics is poorly understood by you.”
also gotta factor in all of the “I’m going to upgrade my living standard by selling my house for big profit and buy a bigger one for an even Bigger gain - my golly, I am just sooo clever!” type of buyers who are now living in too much house with a cobwebbed ‘for sale’ sign in the front yard and are scraching their heads. I know several of these guys - young couples, actually - they have too much pride to dump their houses and downsize and are all thinking that if they wait till spring everything will work out just fine. My theory: This spring there will be so many new listings on MLS along with those that already have been not selling that this game will be taken to a whole new level. Panic level, that is…
“I’m going to upgrade my living standard by selling my house for big profit and buy a bigger one for an even Bigger gain - my golly, I am just sooo clever!”
That would be a part of the aforementioned “pile-on effect.”
I have a brother-in-law like that. He has a house in Bend, OR that he can’t sell. He knows what the market is like in Bend right now, he knows he’s losing money every month, he’s sitting on at least $100K in “equity” from when he bought the house, but he just can’t pull the trigger and lower the price until it sells. He’s going to pay his $2K mortgage through the winter and hope for the turnaround in the Spring. I can’t say anything to him because he already knows everything I would say, but something (pride? hope?) keeps him from taking the hit now. So he’s going to bleed through the winter and take a bigger hit in the Spring.
““‘There’s never been a housing bubble in California that has shaken itself out that quickly,’ he said, noting the market declined for several years in the 1990s before rebounding. ‘
In late 90’s the California Economy and RE were the last to recover compared to other states.
Therefore maybe this time around the bottom may set earlier in other states. It goes without saying California companies are today hiring more outside the state then inside.
‘There’s never been a housing bubble in California that has shaken itself out that quickly,’”
… wait, so there IS / HAS BEEN a housing bubble in California?
To top that it was a year ago when the experts said… you need job loses to see prices decline. Not to mention THEIR IS NO BUBBLE… man were they wrong.
It also goes without saying that these california companies are california companies. That means the place is still generating jobs.
In the 80’s, manufacturing which was centered in the midwest/east were hit the worse and CA relied on increased defense spending. In the 90’s defense contractors lead the decline in CA and we were hit harder. We had less of a bubble in the 90’s than now but we had a large, defense based economic setback which hammered jobs and housing demand in the 90’s.
This time I don’t see why CA jobs are any more threatened than elsewhere and the bubble is not at all limited to CA. It’s nationwide.
Real Estate Industry (and all the associated jobs, etc.)
From what I saw in LA during the last downturn was the housing market and the job recession happening concurrently (perhaps housing slowed even sooner than the defense industry layoffs). I don’t think the decimation of the defense industry was the sole reason for the housing bust. My parents were in RE at the time, and I distinctly remember the bubble euphoria around 1989 (”buy now or be priced out **forever**” “they aren’t making any more land” “stop throwing your money away on rent” etc.) Also, buyers were racing around from one house to the next, with multiple offers & bidding wars galore. Next thing you know, the market stalled. I think it would have happened irrespective of the defense industry slowdown. The job losses just exacerbated the housing bust, IMHO.
“My parents were in RE at the time, and I distinctly remember the bubble euphoria around 1989″
Interesting point. My parents were also somewhat in RE at the time, though in a “posh” county in the SF Bay Area. I vividly remember when the market stalled — in a wealthy county, no less, where prices supposedly never went down. Except, they did. And there was no defense industry in the Bay Area to blame for the market crash.
My parents, p.s., almost went bankrupt. They were “flippers” as a side business (my dad worked a regular professional job) before that was even a term. Let’s just say my college fund got hammered (me and Sallie Mae became the best of friends)…When I see what’s happening in the Bay Area market today, I just shake my head. It’s so much worse than the late 80s/early 90s, and that was bad enough.
Agreed lalaland - my parents were in both commercial and residential real estate in the midwest through the mid-late 70s thru the 80s and got absolutely hammered by high interest rates and lost their a$$. This time is going to be much worse - i.e., the perfect storm of tightening of lending standards, job loss, market psychology, et al.
“Economist Christopher Thornberg said construction won’t rebound for some time because the leveling off of home values will squeeze homeowners’ ability to buy bigger, more expensive houses. ‘You’re not going to be earning capital gains in this market for a long time to come,’ Thornberg said.””
“‘There’s never been a housing bubble in California that has shaken itself out that quickly,’ he said, noting the market declined for several years in the 1990s before rebounding. ‘And this is absolutely the biggest housing bubble, price-wise, that we have ever had in California. This is not going to disappear overnight. Demand for (new) housing is going to be weak for a while.’”
Finally a voice of sanity from the RE industry!
Soon it’ll be “They aren’t making more houses you know” instead of “They aren’t making any more land you know”.
Perhaps they’re not making anymore suckers!
Why so slow and drawn out? Why not swift and deep? There WAS a lot of specuvesting, wasn’t there?
“Why not swift and deep?”
Thank the interaction of messages floated by NAR and Wall Street cheerleaders with a clueless public for the slow and drawn out scenario which awaits.
Right , keep the public in the stupid zone ,never tell the public why everything happened the way it did . Oh, its a great time to buy or sell and 2007 will be great ,just a little correction, nothing to worry about . I’m telling you the people really believe the NAR/REagents analysis of the current slump in housing .
Housing is illiquid and sellers are holding out for prices that are too high. Volume drops and sellers hope, then pray, then cry, then cave. That process takes time to unwind. The Internet is accelerating things vs my experience in Austin in 1985-90. However, it will take a lot of time for all of the foreclosures to cycle through. There will be three or four years worth as a good number of people don’t have to sell, are upside down, and can make their payments. However, if they have to sell in 2008 or 2010, unless they have cash or paid it down, there will be an ongoing supply of foreclosures.
15 year loans or I/O with the discipline to pay it down are going to be the loans to refinance to. Homeowners that paid less than 30% down will need to think about paying their loan down or face foreclosure in 2007-2012 whenever they have to sell. Only a dramatic devaluation of the dollar and nominal wage gains can change this equation.
If the Govt grants amnesty to those that have been foreclosed upon, the bottom will come quicker (2008-09) as well as any kind of partial recovery. The amnesty may increase the size of the buyer pool, particularly if the belief spreads that we are indeed at a bottom. If no credit and tax amnesty, we may bottom out by 2009-10 but stay down for a long time. This because the supply of buyers will remain small relative to the supply of foreclosures/homes for sale.
Some lesser attractive areas will continue to sink for years (think of those $10K houses in Buffalo NY).
By 2010, the dire nature of our energy predicament will be very evident and will be forcing us all to reconsider notions of “normal”.
We’ll be rediscovering cities and mass transit. Losers will be large mcmansions in the extraburbs.
“Why not swift and deep?” Probably not only the NAR but also the MBS holders benefit from the long-drawn-out decline. Certainly I benefit from the long-drawn-out decline if my notes amortize at about the same rate that property values are declining.
One reason for the slow death is the (even now) widespread liquidity throughout the banking and lending system. Lending standards haven’t really been tightened much at all. The game will continue as long as the FB’s can roll over their pay-option ARM loans. I think there is still one more “death gasp” of refinancing to go through before exhaustion really sets in to the RE market.
The Bandwagon is picking up momentum…watch out! I wonder what the approximate date for the creation of the “time to buy housing again blog” by Ben Jones will be? 2010? Any guesses?
My guess: The “It’s ok to buy a House Again” blog will kick off in late 2008, early 2009. The “Everyone can buy a house again” blog will kick off in late 2009.
Trends tend to last longer than normal logic suggests. I know the last SoCal downturn was ~4 years. I expect this downturn which I have starting in November 2005 will last longer, maybe 6? Blogs will probably jump the gun a bit early. The bottom of cycle doesn’t mark the turn forward of the cycle, the turn forward is probably out in 2012 or so. This is all based on the upturn of the 1990-1991 bubble coming back in the 96-97 timeframe.
Think Japan - the first house uptick was 2005 after 15 yeras down. Why is it different here?
Because we allow non-US citizens to own property - now if the anti-immigration movement really gets underway due to massive economic pressures, it could happen (though not likely) .
15 years isn’t realistic in the US. The Japanese have always had a good savings rate and their economy is export-driven. With our negative savings rate and 70-80% consumer-driven/debt economy, look for a much more dramatic (and shorter) fallout. 2010 seems realistic to me, although things could drag out longer if we enter into the Greater Depression/WWIII, which is always a possibility.
Darth toll,
You are so right. It takes savings and a desire to avoid shame to avoid a rout.
The US has neither.
I don’t predict a depression… but its going to get ugly.
Hold on, the dive alarm has sounded. We’re going down.
Neil
I don’t predict a depression…
You will… you will.
Tj …I agree that we may very well have a depression .I still think that the correction will be hard and brutal next year especially when sellers see that there is a limited amount of buyers for this massive amount of inventory .
The 2007 sellers are people that really need to sell and they do not have very many options when they are carrying a loan they can’t afford . The speculator bagholders can only hold out so long before they have to sell ,and lets not forget all the people that might lose their job because its housing related .
I don’t think we can look to other real estate corrections in history to determine what will happen with this one ,but a close example of similar circumstances would be the Florida real estate crash of 1926 IMHO.
I do agree Florida 1926 is one appropriate market to compare to. Current Florida… is that bad. So if we’re talking local depressions (if there is such a thing), Michigan and Florida will be there.
But one market thsi might compare to is the speculative bubble in Houston during the oil boom. But one disconnect… then the rest of the national economy could pull it out.
We’re going to be rocked as we’ll also going to rock the rest of the world. Man will they be regretting buying our bonds…
Neil
In 1926, there were not that many people in Florida, and not all that much land had services to get to it and build there.
We could see a bust unfold now that is much worse than 1926.
What’s wrong with predicting a depression? Or, are we to believe the FED has tamed capital’s vicious cycles once and for all? American history didn’t start at 1945 - anything is possible.
“My guess: The “It’s ok to buy a House Again” blog will kick off in late 2008, early 2009. The “Everyone can buy a house again” blog will kick off in late 2009.”
That’s probably about right. The actual bottom will be reached sometime in 2007, but YOY reporting will mask it for quite some time, just as YOY reporting masked the 3Q2005 peak.
No chance - the first month over month uptick will be screamed from every RE office in the country and from every release from the NAR.
Course the first few upticks will be just statistical noise
First few upticks have already happened and been reported as bottoms. Which they aren’t.
Will be followed in 2025 by “tear some of those empty houses on the block down, grandpa! We’re not making any more kids”-blog.
Considering the baby boomers will start dumping/dying in prodigious numbers at that point… probably a nominal investment till 2020.
Agreed. Demographics bodes ill for housing past 2010, so just when most people think the worst is over the declines will stubbornly continue.
Bush, Clinton, Reagan, and those before them have all worked diligently to “solve” this “problem” demographic shortage, by doing everything but offering free bus trips to our fellow souls from around the world to enter illegally at the north and south ends of our borders. Plenty o’ people to buy and fill the houses, just not at any price even NEAR OLD US standards… Oh wait! The unchecked immigration will soon resolve that problem too.
Wages “globalized” to world market… can the US house price be far behind? This in addition to all the cyclical pressures blogged about here.
Of course, when that “globalization” occurs, I got a feeling the “typical” US house aint gonna look like it looks currently. More like a shack, or a divided up McMansion with one or two rooms for each family.
Well, yes and no. If housing gets cheap enough, people will buy more second houses and more people will live alone instead of with roommates. For instance, many people here in the Bay Area (including me!) have roommates to help us make payments (in my case, rent payment, but if you read craigslist you’ll see plenty of “I just bought a house and need 3 roommates to make my payments!” posts. Morons.) If housing becomes so affordable that people can pay $600/mo for a house here instead of $600/mo for a room in a house, there will be more houses rented or bought. That’s a factor that not many have considered…probably because it will take something catastrophic to get to that point.
“Considering the baby boomers will start dumping/dying in prodigious numbers at that point… probably a nominal investment till 2020.”
James, you’re probably right. This guy, Daniel Arnold, believes things are going to get much worse about 2010-2012.
I don’t buy the 2010 RE upswing because of excess housing inventory, demographics, globalism, obesity, poor family savings, etc., which leaves few opportunities when these elements are poised to exert an economic drag at the same time.
Some areas will fare better and recover sooner than others…some areas may not ever recover.
Areas that are more likely to fare badly for a long time or indefinitely -
1. Water scarcity or overpopulation vs water supply
2. Significant dependence upon natural gas for electricity generation.
3. Areas distant from employment unless telecommuting works for the skill base
4. Longer term - Lack of rail or river supply lines particularly those with limited local agriculture.
5. Tourist areas which depend upon cheap long distance travel will be likely economic losers.
6. Longer term - sea level issues may materialize in some coastal areas.
7. Massive localized immigration which drives out wealthier residents.
Army ..you bring up good points. I also like your prior post points up above .
Hmmm, let’s go down the list….
California - toast
Nevada - toast
Arizona, New Mexico - toast
Texas - toast
Wyoming looks pretty good though
CSUF indicator predicts slower economic growth in region
Southern California Leading Economic Indicator declines for the third time in four quarters.
The Orange County Register
Southern California could experience slower economic growth over the next three to six months, according to a model developed by a Cal State Fullerton economist.
Adrian Fleissig’s Southern California Leading Economic Indicator decreased by 0.09 percent in the third quarter of 2006 compared with the second quarter. It’s the third time in four quarters that the indicator has declined.
Civilian employment in the six-county Southern California region fell by 0.13 percent in the third quarter, Fleissig wrote. The indicator covers Orange, Los Angeles, San Bernardino, Riverside, Ventura and Imperial counties.
Mass layoffs are taking their toll on CA now too. This past weekend the OC Regeister print edition gave this a small paragraph, but when I searched the online version I could not find it. So here it is from the source.
“Among the states, California recorded the highest number of initial claims filed due to mass layoff events in October (25,931), followed by Kentucky (9,645), Pennsylvania (6,920), Michigan (6,432), and Illinois (5,508). These five states accounted for 54 percent of all mass layoff events and 55 percent of all initial claims for unemployment insurance. (See table 6.)”
http://tinyurl.com/sfoh4
O.C. auto sales continue slide..seems like Mercedes and Porsches are still selling well though
http://tinyurl.com/ya582e
Are they using Mercedes and Porsches as incentives to sell new homes in the OC these days?
This year it will be Mercedes C-class and next year it will get so ugly for the builders they will throw in Porsche 911 Turbos…lol
It’s all good for the builders so long as they can get the fraudulent appraisals needed to enable the buyer finance the full market price of their Porsche on the home loan.
What’s with the increase in hummer and Land Rover sales?!?
mamma mia!
Can you even be so gauche as to ask such a question?
Don’t you know that the H3 is the vehicle of choice for McMansion mommies to pick up their children from private school and then make the daily Starbucks run?
GET WITH THE PROGRAM, NEIL!!!!!!!!!
Seriously Neil. I’m embarassed to be on the same blog with you. Plus, the Hummer pretty much advertises that you possess impressive masculine qualities.
You wouldn’t believe how satisfying it is to show up at the Golf Club in your Humvee. The other members of my foursome drool with envy.
That, my friend, is called quality of life.
I thought the recent Hummer H3 ads (”Get your girl on”) were the worst ads ever made. In one, some vegetarian wuss sees “real men” buying red meat at the supermarket. To offset his own abject lack of manliness, he goes out and buys a Hummer. [Now he's a wuss that drives an oversized, underpowered, poorly designed and built Hummer -- I don't get it.] In the other one, some soccer mom is waiting in line at the slide with her daughter, when some rude cow and her brat cut in front of them. The miffed mommy buys a Hummer to reclaim something she feels she lost — I’ll be damned if I know how buying a Hummer is going to compensate for spinelessness, but there you have it. Terrible ads, but then again, the people who actually buy Hummers seem to have such warped mental pathologys that the ads might actually “speak to them” (retch).
…Having worked for decades parallel to law enforcement, I long ago concluded folk who hauled around handguns, by definition, must have small penises… I suspect the H3 mindset is identical. (shudder)
After serious review I have seen my error. How could I possibly question Hummer sales? I’ll have to get my game on and get one. But what color?
Neil
I have a hypothesis that all you need to know about the US construction industry (and by extension to a certain extent, the US economy as a whole) is the fleet sales numbers of the Ford F-150.
When business is booming, every top foreman and project manager will have a newer model white company truck among large, established contractors. When they look to scale back, the company fleet is one of the first places contractors look to cut costs (because leases are fairly inflexible, reductions in vehicles usually precedes reductions in personnel by about a year). In a slower labor market, a new company vehicle is no longer a perk that’s necessary to retain essential talent.
Hey they aren’t making any Mercedes or Porsches any more so, umm, buy them now. Or, how about, the value of cars will always go up until they reach a permanently high plateau. Umm. No. OK, because the Cayenne is such a great automobile? Oh, I know (from having grown up there). Orange County is full of people with SUCH GOOD TASTE that they recognize the true value of an overvalued car. That is the ticket.
OT H&R Block better double down on their tax preparation services this year…
“H&R Block Inc., the biggest U.S. tax preparer, said its second-quarter loss doubled to the widest in at least 17 years because of a slump at its mortgage unit, which the company is trying to sell.”
Full article
http://tinyurl.com/y4e8uf
They can’t sell that unit fast enough. I wonder if it will break their back!
Crispy (TM)
This comment is insane:
The mortgage unit may fetch about $1 billion, UBS AG analyst Kelly Flynn estimated in a research note on Nov. 7. The company’s shares had their biggest daily gain in almost a year after the possible sale was announced.
Weak demand for home lending won’t hurt the sale price of the mortgage unit, Ernst said, because all the would-be buyers “understand the cyclical nature of the housing market.”
Crispy (TM)
all the would-be buyers “understand the cyclical nature of the housing market.’’
Do they?
Weak demand for home lending won’t hurt the sale price of the mortgage unit, Ernst said, because all the would-be buyers “understand the cyclical nature of the housing market.’’
And there it is: The single stupidest comment I have seen from the REIC.
Posted this on another blog. Quite proud of it; so I thought I would repost here. Speaking to an idiot about how the prices are going to climb forever in Palm Beach:
I really think that some people here are a bit delusional about this market.
Let’s say your right, prices just keep going, and the median home costs 1 mil in 5 years. And now you need to get someone to come cut your lawn on your million dollar piece of paradise. Where does this person come from? NC? GA? Come on people, you have to see that it’s impossible to price people out of an entire REGION (S. FL is bigger then many states!). Yes, you can price people off the ocean. There are NO cheap places to live on Palm Beach Island (actually, that’s not true, but just stay with me). So people live in WPB and commute over to work. No problem. Where do you expect these people to commute in from?
Police, fire, teachers, govt employees, nurses, mid level managers, waiters, barbers, etc… Where do you expect these people to come from? You can actually take it a bit further, because if prices continue its going to price out all those below 150K/yr. Look around you. Everyone who does not make 100K+ cannot afford to live here right now. They are on borrowed time (assuming housing stabilizes and price/rent ratios return to normal, pretty much a fundamanetal arguement in everyone’s “price is going to continue to climb” argument). So, imainge all those “have nots” are just gone.
Gonna be great down here, huh? I will particularly enjoy taking the trash to a dump (that has no one working there but the executive board) in the back of my Escalade every other day. Or snaking out my own toliet. Or putting an addition on my house without the help of the “have not” handman that was priced out long ago.
Do you realize how stupid this is?? You cannot price out those who provide the services! Either you have massive wage inflation, or housing comes back into line with reality.
It’s almost as stupid as the “priced out forever” comment I used to hear from RE people. Wake up and think about what you’re saying!
Exactly- people just don’t seem to take holistic look at their local economy. It’s always all about them.
Nice one Michael Fink! Yet those of us that comment here are nothing but heartless jerks because we root for a bubble pop.
Heartless jerks. I just want a nice home for 200K in the OC. Is that so hard. Geez! Even if I made Bill Gates money, I wouldn’t pay 750K for a PoS on 4K sq. Ft. of land. OHHHHH, I own 3,000 sq. ft. home on .1 acre. Yeah, I’m impressed, NOT! Don’t forget, I’ll take a HOA with that as well. NOT!
“Even if I made Bill Gates money, I wouldn’t pay 750K for a PoS on 4K sq. Ft. of land.
That is because you actually use your critical thinking skills, Dan. Unlike the vast majority of Americans.
I have a feeling that many will wind up despising their 3K sq ft stucco boxes and the fascist HOAs.
“That is because you actually use your critical thinking skills, Dan. Unlike the vast majority of Americans. I have a feeling that many will wind up despising their 3K sq ft stucco boxes and the fascist HOAs.”
Good point. Well said. I’m so sick of seeing rows and rows of ugly, over-priced MacMansions–built so close together it’s a joke. Don’t take that golf club outside–as you’ll risk groin-injuring your neighbor on the backswing. Back yard? Well, sure, as long as you only have a hibachi and a chijuahua.
DOC
Those who have paid only $50K seem more ready to accept their 400 sqft tin cans and their HOA. Bickering does go on, but with some sense that they’re all in 1 boat.
“Gonna be great down here, huh? I will particularly enjoy taking the trash to a dump (that has no one working there but the executive board) in the back of my Escalade every other day. Or snaking out my own toliet. Or putting an addition on my house without the help of the “have not” handman that was priced out long ago.”
Too funny - this OT, but we do all this without outside help already. (minus the Escalade). I apologize for personally dragging down the economy
“Or snaking out my own toliet.”
Mind you, chances are the guy who snakes out your toilet will try to charge $500 for the service. Which, nine times out of ten, the manual-labor-clueless BoBos who called him will pay. He probably makes more than they do.
We saw a lot of that in Maine summers 2003-2005 when flippers bought the last of the run-down fishing cottages and were paying locals $25-$50 per hour to do the real work. Locals had to move inland to avoid new tax assessments.
If it wasn’t for your plumber you’d have nowhere to go!
That is the joke.
The Dr. calls a plumber for a clogged pipe.
Plumber comes out and clears the drain in 15 minutes and presents a $400 bill.
The Dr. freaks out and says I don’t even make that much, the plumber says I know I used to be a Dr.
lol…i like that one sunset
Michael Fink… yes you can price them out (of housing and even having any level of quality of life) BUT you will still have penty of them around (workers)…it’s just that instead of being middle class workers, they are now poor (i.e. just like you can see the Flavelas filled with poverty from one window in your luxury hotel on Copa Cobana beach and the rich folks when you look out the other window…the same thing in ALLlatin american countries). That is what is happening in Miami-Dade / Broward and is the very root of why Congressman Tancredo’s statements about Miami being a third world country are DEAD ON ACCURATE! The people in abject poverty will continue to increase and will still be around and available to cut lawns, pick-up trash, etc. THEY CAN”T AFFORD TO LEAVE and they need to eat! You think the people living in poverty in Miami enjoy it? They can’t afford a bus ticket out nor have the education nor motivation to do anything but survive. I thing the only reason we haven’t had a revolution or mass riots is because the poor are placated just enough to keep quit in order to keep recieving their welfare payments, etc. You are right about the teachers, police, etc. (i.e. middle class) departing. That is why Miami (already) like any third world country has such crappy schools that will continue to get worse. If someone has the means to get through college and earn a degree in education, they probably can figure a way to leave South Florida (assuming pay doesn’t get a LOT better for them soon…but it won’t due to all the corruption). The rich don’t care because their kids don’t go to public school. That leaves private school for all the wealthy and top part of the middle class and the declining public schools for the rest. South Florida is awash in private schools, which further heightens the disparty between the haves and have nots. Same with Police, unless you pay them enough to have a decent quality of life, they either leave or start looking for ways to augment their low salaries (i.e. corrption). Do you blame them? I have lived all over the U.S. and in South America and what is happening in Miami is very scary. I dread the thought that this type of third world culture and value system could eventually spread across the entire U.S. like a virus. I am a conservative capitalist, but our system is completely out of wack and needs to be reigned in. The top elite in the country are continuing to get richer, the middle class are being squeezed out, and the working poor are increasing. The system needs to be fixed to ensure the top level of our socio-economic society isn’t ripping the rest of us off…we need laws to limit outsourcing jobs abroad, tariffs on imported goods, upper limits on executive (CEO) compensation, oversight of Board of Director actions, etc. Unfortunately I don’t think much will happen to improve anything because the foxes are guarding the hen house. Our great nation is doomed to edge closer to second, then third world status due to our lack of policy for enforcing a common language, culture, and borders. At some point the house of cards will fall and there will be great social upheaval or even a revolution (say in about 60-70 years). I could go on and on but I won’t. No I’m not a fanatic only a deep thinking realist who is continually amazed that some people can’t see reality even when it is right in front of them.
I say riots/revolution happens in a much shorter time frame 15-20 years). Americans don’t want to live in Third World conditions.
‘Welcome to the roller coaster ride of real estate. It goes up and it goes down, and now we’re going down. This is going to be a very slow, painful downturn.’”
——————————————————————————–
I’ve never ridden a roller coaster down SLOW before! I’m betting on an abrupt crash. Don’t forget, the scope of this latest national RE run up has been unprecedented in our history!
The internet and instant communication will drive this market down hard. Main Street Meida and CNBC are spinning into a typhoon. Anybody with any money left is too smart to depend on OLD MEDIA for their investment decisions, and is there anybody left whot trusts what their Realtor says? Going down!!!
Good point Chillin. When information was relatively “controlled” declines in illiquid assets like RE could be very slow.
With information more readily at hand today, “price discovery” isn’t the arduous task it was before. Prices won’t collapse ala stocks but they’ll fall much more quickly than ever before, much more quickly than the pre-internet early 90s.
OT: Had to get this in, but forgot to post. Based on the article 2 back, do realize with a negative savings rate just how bad it has to be. Think of all the billionaires in this country and what they have to be putting away. Then you realize that probably maybe 1 or 2 in every 100 people you see actually have any savings, let alone balanced household financial portfolio. The magnitude of this debt is enormous and scary.
You know you are living in scary times when religions are warning about the moral hazard problem of living with a high debt burden…
http://deseretnews.com/dn/view/0,1249,585037988,00.html
GS, those are some astounding numbers from the last time I’ve seen those types of numbers. Personal debt is 18K+ and credit card debt is 12K. “Holy personal debt Batman!” I think my earlier post about “Tipping Point” has only been borne out. Thank you GS for providing this timely article!
But Dan, did you notice the date? (Jan 17, 2004…) I am afraid the situation has not improved at all in two year’s time.
I did go back and notice that date. I can only imagine what those numbers are now. Frightening!
Hi GS,
Note that the leader of the Mormon church (Hinckley) asked members last year during the general conference to avoid debt.
BM
The best advice I ever heard about debt was from a conference talk:
“Them that understands interest gets it; them that don’t understand interest pays it.”
That’s a very interesting article and it illustrates the differences between professing a religion and living it.
The worldwide leaders of the LDS church have taught for years that debt should be avoided like a plague and that the only reasonable debt to be incurred would be for a MODEST home.
When I’m in Utahr visiting family I’m astonished by the level of conspicuous consumption. My recollection of the last timedown things actually were far worse in UT than CA, and many “equity pioneers” moved back to CA when things got bad in search of work.
The Mormons have plenty of company in this regard. Many traditional Christian sects have been overrun with all this “Prosperity Gospel”/Prayer of Jabez crap.
I’ve noticed that too, HARM. It seems like all the Mega-churches and most successful preachers [like that relentlessly upbeat Joel Ostreet (sic) guy] are based on telling the sheeple what they want to hear, and if you make them feel good enough, they’ll reward you at the offering plate. Quaint spiritual notions like obedience to the will of God, living an austere life, personal sacrifice, and doing the right thing even when it costs you are conspicuously absent.
Two more words that congregations do not want to hear from their preachers: obesity and glutony.
You guys are absolutely right, in my old hood in SouthEast San Diego (Eastlake) there is a very popular and successful church (ministry?) that preaches that there is nothing wrong with making a lot of money (as long as you tithe your 10% of course!). I knew the housing bubble was getting out of hand a few years ago when one of the pastors at the church was heading up a group of speculators to buy pre-sell houses in Las Vegas to flip! Amazing.
When I visited Utah for education three years ago, the Deseret News noted that Utah had the highest BK rate in the nation… they suspected this was due to keeping up appearances.
OT - but it is about Utah -
talk about keeping up appearances:
Does anybody remember, Elizabeth Smart, kidnapped from her house…when she was recovered, the first thing her mom and aunts did was take her to get a manicure and pedicure…how effing weird is that?
“…they suspected this was due to keeping up appearances.”
And that, folks, is the highest of all values never mentioned by the LDS General Authorities (who need a ton of dough to reach their pinnacle of spiritual success), but practiced by all good mormons I have ever met. You could liken it to a form of Bokononism.
“All of the true things that I am about to tell you are shameless lies.”
- Kurt Vonnegut, Jr. -
http://en.wikipedia.org/wiki/Bokononism
Good point , dude. Good financial stewardship was a big theme in my Lutheran education. Conspicuous consumption and Christianity just don’t square, but some folks can rationalize just about anything nowadays. I suppose that’s the same tub of goo that the concept of a “just” war came out of?
Jan 2004! You had to dig deep for that one. LOL!
Utah ranks 2nd only to Idaho in annual housing price increases, according to OFHEO. I believe that we’re catching the tail end of the specu-market and we’re lagging on the slowdown because the media is still hypeing Utah as affordable. I’m sure it has been very affordable to the people spewing equity from their flips in other markets, but the hopes of an average person buying a decent starter home here are quickly squished. On a brighter note, prices where I live actually fell for a change. Hopefully that’s the start of something great.
Kind of funny that UT gets mentioned…my rich friend was talking about buying some houses there and renting them out…told him about the bubble, specuvestors, etc. and that was the last I heard about UT from him.
Another victory for Ben’s blog!
My wife and I were on a monthlong roadtrip circling the 4 corners region and we thought Utah, Southern Utah, in particular, seemed like a nice place to live, as long as you didn’t need to make a living, that is.
Western Colorado and northern New Mexico struck us as being a Southwestern Aplalachia, of sorts. We were driving through Farmington, NM and counted 28 pawn shops, in one 3 mile stretch.
OFHEO only tracks resales below $417,000, the FHA loan limit.
This misses almost all trnasactions in NY and CAL.
Totally useless.
Wow! For some reason, I had thought that the numbers for personal and cc debt were about 1/3 of what the article states - and that had me scared about our country’s finances.
If the numbers are indeed that high, I don’t see any way of creative financing to give us a last push of liquidity - we are at the edge of the cliff now.
The US Dollar plunged again today. It is a clear sign that the Bernanke Republic is falling apart. We will be facing a currency collapse ala Argentina and Zimbabwe.
The combination of running the printing presses at 110% capacity and trillions of dollars being dumped by Asia will make things fall apart twice as fast. All of this will lead to hyperinflation. That is why America’s billionaires are moving their fortunes out of this country. They will follow their assets on a yacht, leaving the starving masses behind to fight the invasion from the south.
“All of this will lead to hyperinflation.”
Jerry, I have more faith in our Federal Reserve Bank than you do. They will have to raise interest rates soon or else face the loss of dollar hegemony, same as in 1979 when Volcker took over. Too bad the housing market will drop a lot faster after this happens…
GS I am not so sure the FED can go much higher without seriously crippling the economy. Remember what happened w/Volcker. People with the ARMs are going to suffer when the adjust to 15-20% if that is what it will take to keep the dollar afloat. Couple that with all the other personal debt and HELOCs and I think you will see a serious meltdown in the economy. Also, I don’t think you will be able sell all those fools who bought on the idea that their ARM is going to go up by 5% for 2-5 years in a row. Serious numbers of people are gonna be leaving keys on the counter.
The “new” conundrum! They created this mess and now they are DAMMED if they DO and DAMMED if they DON’T!
Ordinarily I agree with you Dan, but dollar hegemony / reserve currency status is what is at stake here. Without that, the whole country is screwed for certain. No, they will protect the USD at all costs…screw the FBs.
Well then the interesting scenario will be how high does the FED go? If you guys are right on this it will be very interesting, indeed.
JWM, I’m with you on this - dollar hegemony/reserve currency status must take precedence for the Fed. Once lost, they could probably never regain that status. The economy, on the other hand, can always recover at some point. Besides, the economy is going to hurt regardless of what the Fed does. If it lowered rates, the dollar would crash and liquidity would freeze up because no one would buy our debt anymore. What would that do the US economy? No, the economy is going to suffer regardless of what the Fed does, so they will do whatever they can to keep their power, which means that they must protect the dollar.
“Once lost, they could probably never regain that status.”
No big deal — the UK survived the ordeal, and now the Pound Sterling is set to “lap” the $US (see post below).
If they want to protect the USD, then they must raise the rates at the next Fed meeting before it goes into full meltdown. If there is no rate increase, then we all know which path they are choosing.
At that point, I guess it will be too late to buy gold…
No, no, no, gold at $650 is a bargain. In inflation-adjusted numbers it would have to reach $2000 or so to equal it’s 1980’s peak.
Now am I right in saying that the Fed will always protect monetary policy first. So if the dollar weakens too much they will raise rates in order to protect it.
I think in Hong Kong rates were as high as 40% just eight years ago and property went south in a hurry.
Lower rates, raise rates, leave’em alone… doesn’t really matter, because the US still suffers a depression and a currency collapse. The only thing that can potentially change is the order in which these events occur.
Moving my personal money out of USD about 4% per week. Of course I must stop soon as I can’t/won’t liquidate mortgages. (Those who would buy prefer to steal.)
az — you aren’t a Chinese central banker, are you???
ha ha. no, just buying Australian govt bonds. Which may be stupid, since their housing bubble is worse than ours. However they do have raw materials that the Chinese like to import.
I can pretty well assure you that they were saying the same things in 1979 that you just said.
“”Boy the way Chicago played,
Hits that topped the charts were made,
Guys like us we had it made,
Those were the days.
And you knew who you were then,
Girls were girls and men were men,
And we could sure use a Fed chair like Paul Volcker again…”
Funny. I met Volcker a few years back but only now appreciate my meeting. If I had the chance again I’d love to hear his opinions first hand. Paul O’Neill, on the other hand, was an interesting fellow as Sec Tres. He was cool enough to sign a dollar for me
BM — Don’t you suspect that Mariner Eccles is turning over in his grave about now, while the dollar is being left to waste?
Keep whistling past the graveyard, team PPT…
——————————————————————————————
Dollar hits lowest point in 14 years as it plummets towards 50p
· Frantic trading as fears of US housing meltdown grow
· Britons will head across Atlantic for bargains
Ashley Seager, economics correspondent
Friday December 1, 2006
The Guardian
The dollar continued its seemingly unstoppable decline on the foreign exchanges yesterday, hitting a 14-year low at just below $1.97 to the pound as analysts predicted the two-dollar pound mark may soon be breached.
The dollar was last this low against the pound in September 1992, when Britain was forced out of the European Exchange Rate Mechanism, the euro’s forerunner.
The news is likely to further boost airline bookings from bargain-hungry Britons rushing off to the United States for a pre-Christmas shopping bonanza.
http://business.guardian.co.uk/story/0,,1961438,00.html?gusrc=rss&feed=1
Watch out! The dollar is probably bottoming soon and going to turn around for awhile. Bearish sentiment is at an extreme, similar to the environment at the 2004 bottom when the dollar turned around and burned even the big man himself, Warren Buffet.
What will make it bottom if the PPT is busily inflating away the debt through stock market intervention?
I think you make a big assumption there is PPT intervention. PPT was created to inject liquidity into the banking system in the case of a market crisis, not to manipulate the stock market. If the PPT were manipulating the market, then they would have to manipulate all the world’s markets, because of the arbitraging between markets would sink ANY agency smaller than the entire world. In other words, the PPT is a phantom in bad trader’s heads.
Not an assumption — just an inference. And I don’t actually claim there is some guy behind the curtain pulling levers; PPT is just a figurative description of a concerted effort to inflate the dollar through higher stock prices. If you can’t see that in the data, I suggest you are a moron.
I see mania and delusion in the data, not manipulation. Same environment in 1968 and 2000. GS, you say that PPT is a figurative description but there is a concerted effort. OK, by whom? And once again, how do you handle the arbitrage problem? I don’t see your phantom in the data, I guess that makes me a moron…and a student of market mechanics.
OK, Wheatie, sorry to use the term “moron” so flippantly — it’s a bad habit of mine. But even MIT professors some times get too wrapped up in their theoretical analyses to entertain obvious explanations, like how a central bank might balance political pressures created by the plights of its various constituents.
With so many households dependent on the home equity and stock market wealth effects, and Wall Street making huge bonuses thanks to great results in the stock market, and so many Asian creditors falling all over themselves to lend the US money, where is the downside to goosing the stock market through a continuation of the Greenspan Put policy? I don’t know the technical details — all I know is that an ever rising stock market as the economy sinks into a recession suggests the possibility that some form of intervention (e.g., thinly veiled commitments to drop money out of helicopters if the market starts to slide) is helping to prop it up.
Jerry please say it ain’t so. I am waiting until Feb. 1 to move some serious money into metals. The last thing I need is $1k/oz. gold. Wait until March for that! However, I do agree this is not going to end well for the US. As for Michael, you are so right. You CANNOT price out teachers, doctors, police, etc. WHen this happens you will have a vacuum that casues all kinds of problems. However, as another said, people only think about their own personal economy, comforts, material goods, etc.
Gekko-
Please respond to this! The dollar is toast and where does that leave our economy and interest rates??
Don’t bother him, C&C — he is too busy counting up his nominal dollar gains in the stock market…
Long rates will skyrocket. The short rates depend on the Fed. We are facing either hyperinflation or the Greater Depression. I’m betting on hyperinflation. Brazil and Argentina made it thru currency collapse without too much pain. I think that is the route the Fed will take. Damn the savers, they have to protect the borrowers, since the US Government itself is the biggest borrower of all.
Well if you right Jerry, then I guess I better go all in on Platinum, Gold, and Silver because that will be the only safe haven, unless I guy some Pounds and Euros.
Pounds and Euros are very illusury “safe havens.” The UK and the Euro zone have huge problems of their own.
My pick is the Australian Dollar. They are more closely linked to the growing Asian economy than the declining West.
Right, I have been saying that for weeks and weeks. Easy to buy Australian govt bonds of any maturity right down the street at your friendly Merrill Lynch office. Honest, I am not a paid shill for ML.
It’d be tough for the world’s (former) reserve currency to hyperinflate without enormouus worldwide economic fallout. This is nothing like Brazil or Argentina. Besides hyperinflation doesn’t work against a backdrop of cascading cross-defaults and mammoth credit destruction. There isn’t actually enough currency to remotely cover all credit obligations and therefore the credit destruction involved will almost certainly equal deflationary depression (possibly followed by a lame attempt at hyperinflation.)
This is going to hit our trading partners hard.
French luxuary goods (wine, cheese, clothes, etc.) will go up a notch in price or they will take a hit in standard of living.
There isn’t actually enough currency to remotely cover all credit obligations and therefore the credit destruction involved will almost certainly equal deflationary depression
Yep…except I still say a bad recession.
Neil
French are doing their damnedest to close down vineyards. Grape harvests too bountiful worldwide. Too much competition from various nations making palatable wine. Dare I say Clownifornia.
GetStucco - I agree that raising the interest rates to extreme levels would be the best thing to do, and is probably the only chance at keeping ppl buying the dollar. But, helicopter Ben went on and on about his study of the depression and his fear of monetary contraction.
I hope for the Volcker scenario, but I fear that the “we have ways to force liquidity into the economy” hyperinflation scenario will be the option Bernanke chooses.
I must also add that I am not against raising rates, GS. I agree with you on that one that it would be great for savers like us. However, I just don’t think he can do.
Geez guys, I remember getting 11-12% on MMF way back when at least twice in my lifetime. The sky did not fall nor did cats & dogs start living together. Yes people lost jobs and yes we had a recession and a lot of people had to dispose of their toys, 2nd & 3rd cars etc. There is a TON of waste to be wrung out here and I have the faith that despite much whining from the people in debt that we will raise interest rates and inflict the pain we have to.
Did the U.S. gov’t owe 4 trillion to foreign investors at the time? Just wondering how that debt is going to get serviced when rates get jacked?
There is $22 trillion in debt outstanding in the United States, but only $4 trillion is owed by the federal government. By contrast, $7 trillion is owed on home mortgages; another $7 trillion by businesses.
The federal budget deficit fell to $248 billion for fiscal 2006, the smallest in four years, and less than 2 percent of GDP. The 2005 deficit was only 2.6 percent of GDP, lower than it was every single year from 1980 to 1994
In a globalized financial market, where demand and supply come from all over, that’s less than 1 percent of total debt.
During the Reagan years, debt rose, but interest rates fell. During the Clinton years, debt fell, but interest rates stayed the same. During the Bush-42 years, debt rose, but interest rates fell.
From 1787 to the Roaring ’20s, federal government spending, as a percentage of GDP, never exceeded 4 percent, except in wartime, compared to today’s 20 percent.
The problem isn’t what the government owes its what it spends. Get that under control again and it won’t be long before were back to the “dilemna” of the late 1990s; so much debt was being retired so fast that there was a fear the Treasury “benchmark” would no longer stabilize money markets.
We’ll survive. It won’t be easy but we are in a far better place today than we were in 1980.
Our government debt, at about 50 percent of GDP, is far lower than that of Europe and Japan.
Exactly.
Agree completely with this from jag.
Helicopter Ben will morf in “benign Benny”
As you may know or not, Bernanke was instrumental in getting Japan to hyperinflate to save themselves during their crash, and thereafter. The likely scenarios going foward via the USdollar, and great hedge unwindings are downright scary. Reagardless, I believe PM’s are the safe play…Not paper, nor derivative pure physical value…..or was that Greenspans’ ultimate goal as his last legacy?
One thing to keep in mind is that virtually every other country on Earth is printing money and increasing liquidity like mad. If you look at the statistics, the U.S. rate of money growth comparatively speaking isn’t even really that bad. I’m not so sure that hyperinflation is imminent. More likely it will be a slow, grinding loss of purchasing power for all fiat currencies. Buy gold, silver, oil futures, and water company stock.
Grant — good observation! I have likened present-day monetary policy to “Beggar thy neighbor’s currency.” (Other posters here have substituted “bugger” for “beggar”…)
I asked my, uh, ‘friend’, who works in the mortgage business in Cali, if most people getting new loans are now using 15 or 30 yr fixed rate financing - now that the word is out that toxic loans are hazerdous to their wealth.
She laughed, and said based on what she is seeing, the 30 yr fixed rate loan is extinct. “The norm is STILL adj rate 80/20s” she says.
Looks to me like there are still plenty of suckers, even at this point, which will just make this thing worse than I thought. I give it two or three years before the REAL collapse.
Most of them are probably fraudulent kickback transactions where the borrower pays zero down and doesn’t care about the rates.
On the other hand, what this shows is that most people, even if they really had some income, couldn’t make these prices work. Once again, for the slow, if the price is toooooo highhhhhhhh, you have to lower it. Oh sorry I forgot, you want us to pay all debts, fund the new mansion, and your retirement. Too bad! Aint’s gonna happen with this guy. You wanted all the SeeDoos, Harleys, Beemers, SUVs, Queen Mary around the world trip, well now you are going to pay for by the sweat of your own brow. If this was your position a year ago, you should have cashed in with the gettin was good. But no, just 1 more year, baby. We’ll make a killin! Yeah, now you and the missus are working 100 hours a week between the 2 of you. You never see one another. You have a garage sale every week. The lawn is a disaster. The kids are going nutso because you are never around and they are flunking 1st grade. Great country we live in! All the while the REIC says everything is roses. THE HELL IT IS!
Nope, sorry. The Trillion $ Train is coming in 2Q07. First stop San Diego. Next Stop, OC.
Great visual. However, I think that train already started in Colorado, then stopped in Florida, and the next stop is SD.
if the first stop is in sd, what will it look like and will rents ever stop rising? why can’t landlords stop being so greedy. 2800.00 for a condo is getting scary.
Find yourself a smaller condo in a worse hood.
I hope the train derails in OC.
I hear the train has a bunch of toxic cargo on it too.
From REUTERS, Nov.29, 2006.
BMW says U.S. housing slump a risk for auto industry.
Link address is http://today.reuters.com/news/articleinvesting.aspx?view=CN&storyID=2006-11-30T024954Z_01_N29418558_RTRIDST_0_BMW-OUTLOOK.XML&rpc=66&type=qcna
There has been a tremendous jump in default notices in the 93552 zip. So far this month 51 as per foreclosure.com. In the 3 years I’ve been tracking this the highest previous monthly total was 22. That breaks the record by 122%.
Does anybody else mine this type of data for their local zip? Has anyone else started seeing significant upward trends?
My buddy has been watching Maui for a while - 4 months ago, you’d be lucky to find a couple properties in any stage of foreclosure. Now, I’m seeing 34 auctions, 17 pre-foreclosures, 23 bank owned…
Also Ventura County, CA - way more pre-foreclosures than resale+new homes. And more listed under bank-owned than under resale.
Where do those stats come from and how do I access them?
And, are they free? ‘Cause I’m cheap.
foreclosure.com gives you some stuff for free, and you could pay for more detail
I checked the old Fontucky haunt where I used to live and it wasn’t nice. When I looked about 2 weeks ago the number of homes in any stage was over 800. That is mindboggling. Furthermore, 3, yes 3 homes, on the street I used to live on, which only has about 20 homes in all, where in tax lien situations. Ouch! This is really gonna hurt!
1930s Atlanta, 30306….holding solid at around 25 total foreclosure.com listings including bankruptcy. The one SFH foreclosure is overpriced! There are better deals.
The PPT is running out of ammunition so they have come up with Plan B–who to blame when the market meltdown happens..
U.S. warns financial institutions of al-Qaida threat: report
By Katherine Hunt
Last Update: 6:35 PM ET Nov 30, 2006
SAN FRANCISCO (MarketWatch) — The U.S. government has warned private financial services of a cyber threat from al-Qaida, according to a media report late Thursday. The threat concerns a possible attack on U.S. online stock trading and banking Web sites, Reuters reported on its Web site.
I think the terrorists found the real weak spot of western society, which is not human lives, but money.
They don’t even have to really attack any online trading. Just sending a video-message with: “Look what we did to the dollar this week!”
So what the US govt is saying we found weakness in Linux/Unix systems that no other industry expert was able to locate. After all the Major Exchanges ? Financial Institutions are all using state-of the art Non_MS products.
Yea Right…. I guess the Govt is still using Microsoft Products.
The PPT isn’t going to be able to fix mess. Too much indebtedness by the government, munis, personal, and corporate. Hell, how much longer can GM and Ford keep breathing? I know I beat this dead horse, but I can’t help it. This country has been living for today and forgetting about the future for too long. Unfortunately, too long is back coming home looking for his payment!
Meant to say, the future is back home looking for payment. What was I thinking? Can’t you tell, the debt thing really gets me going.
I kind of liked the way you said it the first time. That famous Chinese financier, Too Long.
This will make you all feel better. My favorite line: “your clothes will go out of style several times before this decline is over”
http://www.itulip.com/forums/showthread.php?t=661
Nice Reality Check there, TxChick!
——————————————————————————
Nationally, the median price of an existing home declined 3.5 percent in October compared with the same month a year ago, even as the number of homes sold rose 0.5 percent, according to a report Tuesday from the National Association of Realtors.
The price decline was the largest measured since record keeping began in 1968, and it was the first time median prices have declined for three months in a row.
The key phrase here is: anomaly. As our resident real estate expert Sean O’Toole pointed out back in early September:
Yesterday, in one central valley county of California, $1.2M in 1st mortgages were sold back to the bank, and $200k in 2nd mortgages were completely wiped out. That is a typical day lately.
The most amazing part is that despite the staggering losses involved, and the downstream implications there is NO ONE accurately and timely tracking these losses. The fact that there was a foreclosure, and that the property went back to the bank will show up in time, but the junior lien losses are completely untracked until some far away day when the lender is finally required to report them.
This issue, together with things like the neg am as earnings that jeffolie mentioned, will be blamed in hindsight for no one having saw what was coming. The real problem is the lack of desire to even look.
Back in January 2005 we warned: “Housing bubbles don’t collapse suddenly. They go through a long series of self-reinforcing deflationary stages that typically last five to seven years.”
Good point on the junior lien losses. They are going to be a very big event. The many 80/20 purchases in the last year to 2 years, have seen already close to 20% equity loss. This is because of the 10% value drop from 2nd quarter prices in coastal SoCalif. Add the 7% selling costs, and prices are still dropping.
“… and prices are still dropping.”
And it is taking place off the MSM radar screen. Such is the raw material of financial dislocations, which appear to drop like a meteor out of the clear blue sky only because they are ignored until it is no longer possible to do so.
But how can this take place off the MSM radar? I thought the MSM was the cause of the trouble.
What makes me puke is this negative am thing. Okay interest only I get somewhat, provided the house held the market line. At least you pay the interest and could in a sense be considered a renter with ownership priviledges (SFH, maybe put in your own pool, add the room for mom and/or dad, heck, even sell for a modest profit). But how the hell can you go negative? How could any banker offer this thing from the get-go? Heck, that’s like lending a guy $100 and telling him that he owes you $150 next week and that doesn’t include interest. I think I might be getting at something here. Maybe the banks did plan all this. As someone pointed out yesterday, they are going after those with equity harder than the negative equity. At any rate, if I am a lender I eventually want the money paid back, not more debt from the debtor. However, I think this is the new model. This may just be the final phase of capitalism as we see it unfold in our lifetime. Look, we have had 0% interest on goods, no interest for 2 years, neg am mortgage, what’s left? The perpetual debtor! Five points for the bankers. See, my dad and I used to wonder about all the cars for sale and who would buy them. Well the only way to push them, like housing last year and now is to offer cheap (but really costly in the long run)loans and other “freebies” to sweeten the pot. Well, i think we have maxed out (no pun intended) those options. There is nothing left, so what do the money changers/banksters do? That’s right keep everyone enslaved for life. Gov’t is also happy because, yes, you got that right, as well, no one to cause trouble. ANother five points to the bankers. Oh, the 60s you say. Those days of mass marches are over, except for the down trodden and debt-free, which aren’t many of us. Everyone is too busy paying for the car, home, etc. to care enough to stop and really see what is going on. Once again, I thought the point was to pay off debts. The again we live in a society that services debt, like a car needs servicing. Not only that we don’t pay off debts, we retire them. What the hell does that mean, really? At some time does the debt just go away or collect a pension? A debt is to be paid off, plain and simple!
Have you read any J. G. Ballard? His rather depressing short story “The Subliminal Man” comes to mind after reading your post - it is based in a future where consumerism is taken to its absolute end.
I think of that story when stoplights flash white light at me too. What the hell is that anyway? Are they subliminally trying to get me to refi?
But nothing goes to the absolute end in the real world. Everything is part of some great cycle. So it goes with debt. During the 1930s, lots of sorry chaps learned about the downside of the excesses of the roaring 20s. Now it is time for many to learn a similar lesson. Life goes on, though…
OCDan, your posts are invariably excellent and right on target. One request, though: White space!
Agree. I actually skipped reading OCDan’s last post because it looked as though we senior citizens would have a hard time keeping track of which line we were looking at.
“At any rate, if I am a lender I eventually want the money paid back, not more debt from the debtor. However, I think this is the new model.”
OCDan — did you see the new Casino Royale yet? I expect lots of lenders (including Asian central bankers) will soon be appropriating one of the best lines of the movie:
“In our organization it is more important to know who you can trust.”
Hah! I saw it last Saturday at the Edwards in Mira Mesa…thought the exact same thing when Mr White muttered that line after offing Le Chiffre.
OcDan,
Luv ya, but ya gotta learn to make paragraphs. You are a super great poster but it reads easier when you make paragraphs.
Friend of mine lost a house toward the beginning of all this madness, around 2002, and was totally surprised to learn that she owed more on her mortgage than she had started out with. She just had no idea about any of this. She wanted the house, thought she could afford the payments (and she could, for about a year), and didn’t worry about all those annoying provisions in the loan doc’s.
Help!
Currently moving (tomorrow.) Didn’t know landlord was a Casey Serin. I haven’t been able to get in touch with her for the last week. I may be screwed out of my deposit.
I’m prepared, legally, to deal with all of that.
My question is: how much trouble can I get in for changing the locks? I know no one out there can address this issue specific to my jurisdiction, but generally, would the fine for doing this exceed 2000?
I think she is going to try and move someone in on my heals and try and screw me out of my deposit. There is no property management company and she bought (I have no found out) 4 houses last year.
Any advice would be appreciated.
You need some friends in the Underworld. Or REIC, same thing?
Believe it or not, my next door neighbor is of that world. He makes the neighborhood safe.
What he will do I don’t know, but they have been wary of my landlord from the beginning. I found out after I moved in that she was trying to turn the house into a boarding house.
Advice to all renters, don’t rent unless from a PM company. I thought I was doing so, and that little detail was presented to me two days before I closed on my house and moved in here. I suspect many more renters may encounter this type of situation….
REIC and the Underwold the same thing? Maybe BUT the Underworld keeps the neighborhood safe, That much at least based on my experience of living in NYC for 11 years before moving to DC. Some learn the hard way. That would be me.
Nova
Went to the gas station a few weeks ago and was asked by a young lady for directions. I took out my gps (which is paid for) and started entering the address which she was looking for. She was almost in tears so I had to ask what was wrong. She told me of the apartment which she gave the owner first and security on (owner lived on 1st). She went back to the apartment a couple days later to start moving in and found a forclosure notice on the door. She knocked on the owners door and she asked about the notice. He actually asked her if she could give him another 2 months in advance so he could get out of the forclosure!!!! I guess if you are a renter you also are responsible for the mortgage payment.
I know this doesn’t help novasold but I just had to post it.
You should have told her to talk to legal aid. She can recover against him and whoever owns the place will be subject to her lease.
No problem Calm.
I mainly posted about my own stupidity b/c I think we are going to see a lot more of this kind of scam.
It’s 5:19 a.m. here in NoVa and I’m showing up at her house at 6a.m. I know where she lives.
Tony Soprano next door agreed to show up with me the next time.
HAHAHA
ohmigod too funny, Nova.
You’re right about the “organization” keeping the ‘hood safe, though. When the mob populated S. Philly, it was the safest neighborhood in the city.
Unless they had a war, but they kept that amongst themselves.
Unless there is a specific prohibition in your lease you should be able to change locks without problem, but what keeps the landlord from simply paying to have them re-keyed. You really only cause her an inconvenience.
If you really want to cause problems stuff fish eggs (bait) into the curtain rods or in the duct work. The place will stink to high heaven for weeks.
Ahh, yes…the old “Prawn in the lining of the curtains” trick…LOL
Hah!! I love it!! I might actually do it
Where are you located? CA has very favorable renters rights, and the courts generally favor renters as opposed to landlords on disputes like this. (I have friends who had a nightmare tennat who viloate at least 8 terms of the rental agreement; they witheld the security deposit, only to later lose in court).
I don’t see why there’d be a fine for changing the locks. While a tennant you have possessory control over the place. Maybe there’s a term in your lease preventing this, but I’d doubt there’s a city/state fine on the books that you’d have to worry about.
What are the tenants rights if the lender forcloses?
I’m in Northern Virginia. Generally a red state but Fairfax County where I am is turning blue so it may have become a renter’s state.
I put a call into my friend who runs a PM company. Will let you all know how this turns out.
This adds a whole new wrinkle to the RE bubble.
I’ve known landlords who tried to take deposits for incorrect reasons (normal wear and tear) and were taken to small claims court by their former tenants-usually the former tenant gets the deposit due and penalties. Don’t pay to change locks….just use the system. Naturally verify this with a free rental attorney.
In SF, the landlord has to pay back the depost with interest.
•If you are a tenant in San Francisco, the landlord must pay you interest per year on your deposit after September 1, 1983. The interest amount was initially a flat rate and has since been indexed. The rates are:
9/1/1983 to 8/3/2002—5%
8/4/2002 to 2/28/2003—3.4%
3/1/2003 to 2/28/2004—1.2%
3/1/2004 to 2/28/2005—1.2%
3/1/2005 to 2/28/2006—1.7%
3/1/2006 to 2/28/2007—3.7%
Rent control:
Effective March 1, 2006 through February 28, 2007, the annual allowable rent increase amount is 1.7%.
March 1, 2005 - February 28, 2006 1.2%
March 1, 2004 - February 28, 2005 0.6%
March 1, 2003 - February 28, 2004 0.8%
March 1, 2002 - February 28, 2003 2.7%
March 1, 2001 - February 28. 2002 2.8%
March 1, 2000 - February 28, 2001 2.9%
March 1, 1999 - February 29, 2000 1.7%
So good luck overpaying for a home and then renting.
Affordability Days, anyone?
Another one bites the dust:
http://bakersfieldbubble.blogspot.com
Not much of a price reduction on that one, despite the motivated circumstances.
Housing Price Index graphs for all metropolitan areas in the United States. Updated today:
http://www.housedata.info