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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
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That’s scary.
You got that right, especially this quote: “The low costs and ease of borrowing may lead some investors to view it as an alternative to other equity-based credit — such as loans backed by your home’s value — for short-term needs.
“With a slowdown in the home-equity area, there may be a small subset of homeowners — those with non-retirement brokerage accounts — turning to their margin accounts for loans instead of their homes, given the very good year the stock market has had,” says Kaufman. “
Very good year in the stock market ? You mean the manipulated stocl indexes ? Most stocks did nothing as usual. The indexes are a total fraud like the stock market. Meanwhile insiders of these same companies are selling and liquidating like crazy. 60 insider sales VERSUS 1 !!!!!!!!
Follow the insiders. They are rarely wrong. As for the morons buying on margin, they can burn in hell.
60 sales by insiders versus 1 buy ! It’s the highest ration ever seen.
Ratio. Darn typos !
First comes the ease and then the torture and pain.
In reality it’s a lot like cocaina. Bankers in reality are like drug pushers.
SUBPRIME LENDERS GONE TOO FAR
A Time Bomb Waiting to Explode
by Michael Dawson
TheTimeAndMoneyGroup.com
January 12, 2007
Remember when a 20% down payment was expected when purchasing a house. Sometimes with stellar credit and maybe a special situation, like a first-time home buyer, you could get in with a 10% down payment. I recall a few weeks after my wife and I purchased our first home - both cars broke down. Saving for your first home is one of the few times, from a financial perspective, that both husband and wife are clearly on the same page. Everything takes a back seat to saving for that down payment - shoe shopping, night out with the boys, everything. That’s exactly why both of our cars broke down. We had neglected maintaining the cars and everything else while saving for our down payment.
Obviously once a homeowner, whatever is necessary to keep the house - like making timely mortgage payments will be a priority. After all, significant sacrifices were made and no one would want to lose the home foolishly. So, the bankers have us where they want us. Committed customers who pay their obligations for the most part on time.
Well the greedy little bankers knew that they were missing out on a large opportunity with such tight restrictions. There is a large pool of people who do not have good credit, a secure job or money for a down payment. The bank’s bottom line could be significantly increased by loosen their lending requirements. After all, real estate is an appreciating asset. So, even if the number of foreclosures increase the bank would would still make good by selling the house.
Does the above sound like an exaggeration? It is and it isn’t. Banks have always loaned to people without pristine credit histories. However the marketing of such loans, known as subprime loans, increased significantly around in the mid-90s. According to the Mortgage Bankers Association, subprime loans represented 14% of the total mortgage market by 2003. In the period 1994 to 2003, subprime loan growth significantly outpaced prime loan growth with a 25% rate of growth according to a report in USA Today (Subprime loan market grows despite troubles, December, 2004). These loans helped drive US home ownership to its all-time peak in the fourth quarter of 2004.
Well guess what - the chickens are coming home to roost. By late in 2006, the rate of subprime loan delinquencies of over 60 days was up to nearly 8% according to UBS. The Center for Responsible Lending (CRL) projects that nearly 20% of subprime loans made in the period 2005 to 2006 will fail. The New York Times stated that “about 2.2 million borrowers who took out sub-prime loans from 1998 to 2006 are likely to lose their homes”. One of my favorite commentators, Peter Schiff, believes the the NY Times estimate are too optimistic. He says:
“The secondary effects of the “1 out of 5” sub-prime default rate will be a chain reaction of rising interest rates and falling home prices engendering still more defaults, with the added foreclosures causing the cycle to repeat. In my opinion, when the cycle is fully played out we are more likely to see an 80% default rate rather than 20%”.
I knew that there were some crazy loan products available, but check this out:
“The sub-prime market was designed with a built-in time bomb. In testimony to the Senate Banking Committee in September, Michael Calhoun, the President of the Center for Responsible Lending (CRL), showed an example of the most typical sub-prime loan, known as a 2/28, with an “exploding ARM” (adjustable rate mortgage). Buyers can qualify for this type of loan if the original (”teaser”) monthly payment is not higher than 61% of their after-tax income. At the end of two years, even without a rise in interest rates, the payment will typically rise to 96% of the purchaser’s monthly income. No wonder then, that the study conservatively forecasts that one-third of families who received a sub-prime loan in 2005 and 2006 will ultimately lose their homes!”
What a joke - 96% of your income will go to servicing your mortgage. I hope that Johnny doesn’t need a new pair of shoes. These mortgages were designed to be refinanced assuming that homes continued appreciating. That ain’t happening now.
So, what does this mean to the average homeowner? I will let Mr. Schiff explain, “failures in the sub-prime loan market will put greater downward pressure on housing by increasing inventory and lowering prices.” In other words, the value of your house is going down and its not stopping for awhile.
To prevent this article form being a complete downer think of it this way. Your home is your domain your castle - it was not purchased as an investment. It was purchased for shelter and enjoyment. Any appreciation gained from selling it is an added bonus. Hey, I tried to end it on an upbeat
Scary, knowing that, SURPRISE!!!!!, rates are going up much much more higher than expected. A 18th increase is almost a certainty.
WASHINGTON (Reuters) — Average interest rates on 30-year mortgages crept upward in the latest week to 6.21% from 6.18%, according to a survey by finance company Freddie Mac on Thursday.
Rates on 15-year mortgage rates also rose, to 5.96% from 5.94%. And one-year adjustable rate mortgages averaged 5.44% compared to 5.42%.
A year ago, 30-year mortgages averaged 6.15%, 15-year mortgages 5.71%, and the one-year ARM 5.15%.
Even with the slight increase, Freddie Mac expects rates on 30-year mortgages to stay below 6.5% throughout 2007, said Frank Nothaft, Freddie Mac vice president and chief economist, in a statement.
It also expects home buyers to borrow fewer adjustable rate mortgages this year.
“The gain in employment in December exceeded the consensus forecast, and helped ease fears about the state of the economy. But stronger employment and higher wages put upward pressure on inflation, which, in turn, translates into higher interest rates,” Nothaft said.
Last week the Labor Department reported the United States added an unexpectedly large 167,000 non-farm jobs in December and average hourly earnings rose by 0.5% that month.
Freddie Mac said lenders charged an average of 0.4% in fees and points on 30- and 15-year mortgages, both unchanged from last week. They charged 0.5% on the one-year ARM, down from last week’s 0.6%.
The “5/1″ ARM, set at a fixed rate for five years and adjustable each following year, inched upward to 6.03% from 6.02%. Fees and points charged on the hybrid mortgage averaged 0.4%, the same as last week.
Freddie Mac is a mortgage finance company chartered by Congress that buys mortgages from lenders and packages them into securities to sell to investors or to hold in its own portfolio.
I just did the “How much debt do you have” vote and here are the results so far:
Not including mortgage, what is the current size of your personal debt?
32% = more than $32,000
15% = $10,000 - $20,000
14% = $5,000 - $10,000
15% = less than $5,000
23% = debt free
I’m kind of surprised by the 23% debt free (that’s my category!)
Maybe people qualify themselve’s as debt free if they believe they are in the black overall? By my standards debt free means nothing but the utilities are due at the end of each month. On the other hand maybe 32% of respondents are -32k net worth?
I’ve talked to people who have huge mortgages and still think they are debt free. I don’t know were they get that from. We don’t have a mortgage but we have two leased cars, so I guess that counts as debt although we pay off the credit card every month. So I guess we don’t qualify for the debt free crowd.
Come, on! Be realistic. You’re like my dad.
I pay off my credit card each month. Even if I were to laid off, I could easily pay it off with my liquid savings.
So technically, while I’m in “debt”, realistically, by just about any standards I’m debt-free.
This is hair-splitting territory!
Your a banker’s dream, technically that is.
No, if you have a lease on a car, or even a house, you are not debt free because you have commited to paying a certain amount by a certain time. If I decided to pay off the remainder of my lease in one chunk payment (although I think that cannot be done), I would be debt free.
Rent and utilities…does that count?
Compare to mortgage paid-off but have $6,000/year in property taxes. Is anyone debt-free?
But if you add the debt per capita of all governments have accumulated in your name, the exercice would be more interesting. I am sure the picture would change radically.
How about a topic on the media blitz to sway public opinion in the new year?
‘The National Association of Realtors is launching a $40 million advertising campaign to encourage Americans to buy houses amid the ongoing housing slump.’
‘The Realtors’ campaign includes $26 million in television advertising, about double what the group spent in 2006. Television ads will begin running Jan. 15, while new radio ads will begin to air Jan. 29.’
‘NAR President Pat Vredevoogd Combs said Tuesday at a press conference that now is a good time for consumers to buy a home, given low interest rates and high inventories. “You can walk into a marketplace and have a choice what you buy,” Combs said. ‘
so puffy Combs- how many are you buying?
word up
even puff daddy rents in the hamptons
Is it really a good time to buy a house? What are the implications of the blitz in light of the recent report on subprime defaults?
Recall that the former president of the NAR was quoted saying ‘next year might be a better time to buy’, and then that bit was scrubbed from the associations web site!
“Home prices are dancing on a rotten, collapsing floor of subprime debt.”
Very poetic. I can just imagine the scene.
Call it “The mortar and bricks death dance”.
Well I’ve been saying that if the landing seems soft it’s because the floorboards are rotten.
Did some of the $40m go to bribing MSM outlets to propagate the “soft landing” meme? And how can we check?
In case you don’t know what a meme is:
http://en.wikipedia.org/wiki/Meme
And in the case of the NAR’s meme, you may want to also familiarize yourself with the following:
http://en.wikipedia.org/wiki/Propaganda
http://www.snopes.com/
Is Suzanne, I researched this a meme on this board?
Good topic suggestion: Housing bubble blog memes
- Suzanne researched this.
- You will have to feed the squirrels.
- You can even get stucco (boy, can you get stucco).
- Home prices are slowly sinking in a sea of froth (well, I guess I just made that one up…)
etc.
- Box full of stupid
- GF (greater fool)
- FB (F**ked borrower)
- Kool-aid drinkers
While not all of these might be classified as memes nor originated on this board, I certainly think they are part of the lexicon.
And then there are these memes…
- Real estate always goes up.
- Renting is throwing away money.
- There has never been a better time to buy a home.
- As long as your monthly payment is low, you are better off buying a home than renting.
- The housing market appears to be bottoming out into a soft landing, and is expected to resume strong appreciation some time in late 2007.
How about being “land-locked”?
“The Realtors said the new ads will run more than 8,750 times on national television and radio between January and November. They’ll run more than 25,000 times on local radio stations”.
I wonder if they are buying higher media weight levels in the more troubled markets.
I’d also like to see their PR budget aimed at influencing the MSM. They also have that evr present guerilla PR budget called “we’ll pull our ad dollars from your outlet if we see any bad stories”.
I’m sure they use the “Good Time to Buy” ad budget as a carrot and a stick for the media. Publishers will be pressuring editors no doubt.
Great question Wes Chester! — this is exactly how we can see NAR’s underpants — The markets where they’re advertising most aggressively = the worst bubble markets. Anyone out there know how we can find out which local stations they’ll buy on? Wonder if there’s some industry site/mag that covers this sort of thing.
One thing that disgusts me about NYC coverage of late is this new (as of about 6-8 mos) style of “reporting” wherein realtors release vague but rosy market reports to the likes of bloomberg or ny daily news, with absolutely no backup data on their appraisal-firm/realtor websites — so no one can find out how severely the data have been spun. This tells me more than enough about the industry’s pressure on the media.
The local bi-weekly paper has had an eighth of a page NAR ad every week since the national campaign was started. IMO, they are spending a lot more than $40 million nationally.
By the way, $40 million is not a lot of money as national ad budgets go these days. Just spend a small amount of time at the following site and you’ll get a general sense of what as budgets are:
http://www.adweek.com/aw/accounts_review/air_list.jsp
$40 million isn’t squat — unless you can use it to get an additional $40 million of friendly editorial reports from the MSM.
Instead of wasting all that money on lazy, gluttonous marketers, why don’t the real estate reptiles just encourage much lower asking prices for the extremely overvalued homes. Prices of ALL homes everywhere in the U.S. ABSOLUTELY MUST be forced down by AT LEAST HALF of what they are now, in order to be worth anyone’s time to bother to so much as LOOK at them. Next, the real estate con artists could discourage potential buyers from doing business with sub-prime lenders (sub prime lenders should be forced into extinction), instead of encouraging buyers to buy homes they really can’t afford — all for that quick, easy UNEARNED (no actual WORK involved) commission. But, since anyone who chooses to be a real estate “investor”, a real estate sales “person”, or a subprime mortgage “lender” is a combination extortionist/pimp/prostitute by nature — I doubt that’s EVER going to happen. They contribute NOTHING to our society — they only RUIN IT by leeching it dry. Do any of those gluttonous LAZY parasites ever give a thought to actually WORKING for a living???
I’m pretty positive they don’t lose a minute’s sleep over their crimes against humanity. Surely “people” like them with such loose morals, must be incapable of feeling remorse for causing thousands of families to become homeless. What does that say about our society when WORKING people (who actually contribute wealth TO our society through their labor) are broke and homeless — all BECAUSE lazy shiftless bums like real estate “investors” and mortgage “lenders” (who rob wealth AWAY from our entire society) are rich???
It says our society is the very definition of “dysfunctional”.
The only way all the inferior money-lickers will get their priorities straight is if we are lucky enough to have a second full-blown Great Depression.
Most things the media pushes - I do the opposite. Being a contrarian is my own revenge for having to sell for a loss in the previous real estate bust (mid 1990s). I’ve seen a lot of hype in my 47 years and just get more skeptical and cantankerous.
Anyone out there know how we can find out which local stations they’ll buy on? Wonder if there’s some industry site/mag that covers this sort of thing.
In advance of the media schedules, it’s hard to get information. Occasionally it is conceivable you could find a press release in a local market talking about the coming wave of advertising. Such a report might address the media weight levels that have been purchased. They would do this to “energize” the selling force (the agents) in that market. The idea is the agents will work harder with their bayonets if they know they are getting air support.
After the schedules run, with I believe a lag of a few weeks, syndicated providers document what ran. The two companies are called TNS and Nielsen.
I’m not sure how accurate they are for radio (TV rating point levels are reported very accurately) but the numbers would at least be of directional value.
Rating point swings witnessed from market to market would be very telling. If you saw that in Charlotte they were buying 400 rating points but 2000 in Sand Diego and Miami-Ft. Lauderdale, that would tell you where they were scared.
Ad agencies buy this data and are probably quite restricted in who they can disseminate this to.
If a blog like this were organized into a dues paying association like the American Association of Home Buyers, one of the things you might do would be to invest in these data.
I’m having a hard time understanding how realtors get away with “calling” a major market. My understanding of a RE broker is that they are there to facilitate a (sometimes) complicated transaction and to advise accordingly. This is a legitimate service (for many buyers/sellers).
But when a RE broker advises buying, selling or taking something off the market there’s a problem; since they are intimately involved in “their” market (and they should have a “better” understanding of it) they could easily have a conflict of interest in the advice they provide, no?
Even if it doesn’t involve a particular property they are hired to work; suppose I own or want to own more property in an area, what stops me from telling people to NOT sell, knowing (if they wait) the price will fall further (to my benefit)?
What if the majority of NAR members own property they’d like to off-load now? By suggesting this is a “great time to buy” and then selling into it, they could hose thousands.
Why doesn’t someone suggest that when the NAR says “buy” they prohibit their members from SELLING for the next, say, three months? Of course, realtors wouldn’t be prohibited from BUYING THEMSELVES……..
Last, a final idea; why not have legislation that requires seperate identification and publication of ALL licensed RE broker purchases and sales? Illuminating those transactions should give the general public a) a sense for what “experts” really feel about the local real estate market place and b) expose confict of interest deals.
Should be a no brainer, no?
sure would be a no brainer in a free market
Salesmen don’t have a conflict of interest. Their interest is quite clear: MAKE THE SALE. See? No conflict. People who listen to salesmen as if they are independent adivsors with a fiduciary obligation will often end up in deep doodoo.
“In order to talk this GF into buying that overpriced dump, I may have to lie so much that I get sent to jail .”
Related question: At the end of the day, will the NAR’s propaganda campaign blunt or exacerbate the housing crash’s severity?
One might argue that the risk of a hard landing can be reduced by “managing” expectations to the positive.
But if the expectations management campaign also features disinformation, in the form of either ignoring or fabricating statistics, the whole effort could blow up when credible contradictory evidence comes to light. The potential problem stems from expectations shock — the sudden realization by vast numbers of individuals that they have been collectively suckered and deceived by the NAR could be devastating.
“the sudden realization by vast numbers of individuals that they have been collectively suckered and deceived by the NAR could be devastating”
This is, IMHO, the likely outcome. Shortsighted NAR believes its better to risk any and all of their credibility in the HOPE of energizing transactions. If they had a brain they’d approach the matter with some truth; “We don’t know if this is the time to buy or sell….every RE transaction being very ‘local’, personal, etc but if you want to BEST protect your interest in RE, why not check with a local professional for ’sound’ advice, first?”
You send the message the market is undergoing “change” without being stuck with a prediction that can easily come back to haunt you, while giving the public a reason to seek out their members services.
I guess this is too professional for the NAR though.
Nahh.. I don’t think that it will have much effect. Just like congressmen, even if buyers decide that they distrust the industry, they’ll decide that they like THEIR realtor.
Our local newspaper ran an NAR half page ad in the supplemental housing pull-out this Saturday. Same old stuff, now is the time to buy, great investment over the long term, etc. One of my wife’s co-workers, who is looking at houses, brought it in to work to show around as proof that the housing market will continue to boom.
“The Spectrum” ran a story yesterday about the future of Washington County. It seems that we just had our yearly conference on the state of the county. The meeting was made up mostly of individuals who have a major stake in the continued growth of St George. Real estate agents, developers, school administrators and local politicians to name a few. Most admit that last year was slow for home sales. However, the belief seems to be that this year the residential and commercial market will take off since it now appears that the market has now stabilized. I read the article twice and coundn’t find one logical reason given by the attendees to support their views of a healthy market.
The woman who cuts my hair moved to a new shop. It is part of three large retail complexes next to a major street taking up about 8 acres. Her shop is the only one occupied in her complex. It is also built in an area that was always considered less that desirable because the entire region sits on “blue clay”. This is notoriously unstable ground that has a tendency to move around causing considerable damage to whatever is built on top of it. All the surrounding hills, more blue clay, show signs of residential and commercial development also. Almost directly accross the street is the neighborhood, built on a flood plane about 8 years ago, where the Santa Clara river took out homes during the big rainstorms we got hit with a couple of years ago.
Steadykat,
My wife and I were in St George for a few days a few months ago and when the free real estate guidebooks are larger than your local yellow pages, they just might have overbuilt a bit…
There are people who are easily swayed by the media/advertising - regardless of what they’re selling. And there are those who are far more skeptical (me, everyone on this blog). Unfortunately, I think the majority are the former so I could see how an NAR advertising blitz could form more lines for kool-aid.
Many of us here have told stories about friends/relatives/acquaintances touting the “bottom is in, 2007 is going up” meme (thanks, GS).
Unfortunately, the sheeple DO believe what the “experts” say — certainly more than they trust a bunch of “jealous, bitter renters” who spend all day on a housing bubble blog.
The only way the NAR campaign will fail is if sales continue to plummet (and the YOY changes will become more benign as we move forward, IMHO), and prices decline significantly.
What bothers me about the campaign is the “lots of choices” line. It’s not for lack of choices that many of us are bubble-sitting. It’s lack of a GOOD PRICE.
As for low interest rates…been there, done that. Personally, I’ll welcome high interest rates with open arms. Get the unqualified FBs out of the market because money would be scarce.
Second homes and their relatonship/predictive value with primary residences.
1. Do second homes get jettisoned first in a downturn?
2. What kind of declines do we see in second homes versus the primary residences in the markets where the second home owners may be concentrated. For example, if NYC is where most Jersey Shore second home buyers live, what are the % declines in NYC and the Jersey Shore? Are they related? Can we expect the second home market declines to be larger?
3. If Second homes get jettissoned first, are they reliable predictors of crashed in primary residence price drops? Are they reliable “canaries in the coal mine”?
The NYTimes thinks this is a great time to take a quarter million and buy a second home…
http://www.nytimes.com/2007/01/12/realestate/greathomes/12buying.html?pagewanted=1&_r=1
I can put a second home in up north of Bangor - that would be 1,500 square feet with two baths for about $100,000 using local labor. The construction would be good. The land, which is dirt cheap, relatively speaking, might add $20,000 if I wanted 15 acres.
Because we are very bonded to the area, we plan to do this. It will be a place the whole family, extended family and friends can use. A great family gathering place. A poor man’s version of the Kennedy compound on Cape Cod or the Bush compound on Walker’s Point.
But if we were not so tied to the area, I’d rather have a large motel budget so we could go where we please and not have any ownership headaches.
Appreciation in value would truly not be a consideration. I want to see if I can find a practical way to set it up so it stays in the family and can’t ever be sold.
So even if values dropped and stayed flat up there for the next 20 years, it would not matter. And unlike Portland, which is likely to see continued appreciation over time, up north houses can stay flat for 20 years. I’ve heard stories of homes being on the market for five years.
“unlike Portland, which is likely to see continued appreciation over time,”
Provide evidence my friend.
Maine
Due to it’s cold winter climate Maine’s population will continue to grow slowly and just like it’s population growth, Maine’s real estate market will do the same. In one of the nation’s most visually appealing states appreciation in the housing market will continue to be about the long haul.
Maine is a state of slow growth, where residents have great pride in one of the most beautiful states in the nation. As the seasons change, the Maine real estate market is under going a change into a full blown buyers market.
There’s something magical about a place where the state’s residents call themselves by a wacky name – “Maine-iacs”. Bangor, Maine has been voted as one of the top ten places in the Nation to live. More people than ever are discovering Maine and Bangor is bracing to become the state’s second largest city with new businesses moving to town.
Bangor’s median home price hit $184,000 before the market slowed and the prices began to head downward. Maine hasn’t gone through the major ups and downs of other markets nationally, and as a consequence the median price in Bangor is a still relatively high $180,000. Bangor will appreciate a projected 3.8% in 2007.
Not all places in Maine are headed downward by any means. In fact Bar Harbor, a town that has attracted a second home market and Ellsworth are holding their own. Bar Harbor may even experience more than 5.5% appreciation this year.
Portland, which is the state’s largest city, has a median price of $249,000 with an expected appreciation for 2007 of 3.1%. It’s median price is actually near its average of $212,000.
Despite it’s “wicked” cold winter months as Maine-iacs love to say about the place they call home the market is really not falling much.
The inventory of homes is increasing, and sales are slowing down in many communities, but the real estate market is moving at its own slow little Maine-like beat. Homes in Lewiston are still selling rather quickly, just not fast by urban standards. The median house price in Lewiston is $152,000 with forecasted appreciation for 2007 of 4.2%.
Despite the slowing trend in housing sales in Maine, the state’s future looks bright. Not many places in the country offer a trip to the ocean and the mountains on the same day. The Atlantic ocean is near the mountains in Maine.
Portland has seen housing growth due to more businesses moving in, improving economic conditions, and many moving to Maine to retire. The inventory of available homes and condos is plentiful.
Maine-iacs like it just fine the way Maine is, but like everywhere else change is certain.
http://www.housingpredictor.com/maine.html
my suggestion is where everyone can keep their downpayment money while waiting for prices to come down
It would depend on your time horizon. When do you think it will be time to buy?
If you said 2010, for argument’s sake, I would probably be 50% CD’s and 50% stocks index funds, with healthy international exposure. But what do I know.
International stock prices are correlated with US stock prices, but with a higher beta. So unless you agree with the former-poster-who-shall-not-be-named that US stocks always go up, at least in the long run, then international stock exposure might be worse for your downpayment money than safe currencies and/or precious metals.
Well, I suppose my risk tolerance over a 3-4 year time horizon would allow me to take a chance on some stocks. But I have decent assets and a good predictable revenue stream so I can better withstand temporary drops in portfolio value. Longterm, this should produce higher yields.
If this was your only money, you’d perhaps want to be more cautious. Of course with inflation, it can be evn more dangerous to be outside of the market in low yielding safe investments like CD’s.
If stocks crashed, would that depress RE prices, offering a bit of consolation?
This is not something I know much about.
I have come to think of international stock/index funds as hedging my inherent heavy exposure to dollar devaluation. In the long term, the European nannystates have a greater demographic problem with babyboomer retirement than the U.S., but in the short-medium term getting some savings out of dollars has worked out very well for me.
Start looking to your local credit unions for CD rates. Just got a new flier from one of mine for: 24mo,6.22% APY, 36mo, 6.33% APY. The reason I point this out is that everyone is expecting BB to lower rates later this year. If that were to be true then these rates look pretty good.
My credit union offers 5.5% APR max, regardless of amount or duration. Any conjecture as to why?
T-bills, municipal bonds in my state, and series I Savings bonds. Each $1000 Series I savings bond I bought in October of 2001 is worth $1340 now. Federal income tax is deferred. You put money in CDs or T-bills and you will be taxed on the interest every year. When you cash in your Savings bonds you will be taxed once, and only at the Federal level.
Your strategy works so long as the $US holds up (which I expect it to…). But what about insurance? I don’t see how CDs or T-bills provide it…
gold and platinum bullion coins. That’s my insurance.
Thanks!
I took a more conservative approach last year.
A mix of bonds, large cap, and international funds……
While the market returned about 16% last year, mine was just shy of 14%. I like to play it safe, diversify, and shoot for three times the CD rate as a return. I’m going to pay cash for the next house so interest rates and lending policies don’t matter to me.
For those who are on the sidelines, tracking sliding prices and realizing returns on their cash, it should be interesting to see the final “savings” on their eventual purchase……could be GAWDY numbers and make for some “stake in the heart” dinner party chit chat…..LOL
Is the international central banking cartel in tightening mode, with Nash reversion forcing their hands, whether they like it or not? Because it seems like some of the Fed’s leading competitors are taking away the punch bowl, even as Wall Street’s cargo cult clings to its fervent belief that helicopter drops are on the way later this year. Will the Fed be forced into playing the Cournot follower to its Stackelberg-leader rivals?
http://en.wikipedia.org/wiki/Stackelberg_competition
From today’s WSJ, p. C16:
Surprise from the Bank
Most Fed-watchers expect a rate cut this year. But if the Bank of England is any indication, they will be disappointed. For the second time in a year, Britain’s central bank surprised the markets with an increase in its overnight interest rate. Why? The British economy is healthy and inflation is too high. Sound familiar?
Economists have consistently underestimated how seriously the Bank of England takes the risk of inflation. True, markets were beginning to expect an increase in February. But the market worried too much about the threat of a U.S. slowdown and put too much credence in the idea that the U.K. economy is too fragile to bear a hike.
Easy money is the last thing Britain needs. The bank is supposed to follow the conumer price index, which is rising at a 2.7% rate. But the retail price index (RPI), which includes mortgage interest expense, is a more accurate measure of prices. It is rising at an alarming 3.9% rate. What’s more, house prices were up a tenth in 2006. Bank loans grew 15%. The conclusion: Britain suffers from a liquidity glut.
Given the inflationary pressures, 5.25% hardly looks high at all. Measured against the RPI, real interest rates are still only 1.35%. The latest hike is unlikely to be the last for the current cycle.
The Bank of England isn’t alone. The European Central Bank kept interest rates steady on Thursday, but eurozone growth is strong and liquidity is abundant. A rate boost is likely in March, with more to come. Japan will also continue to creep toward financial normalcy. That means higher rates.
And the U.S.? Unless that long-expected slowdown hits soon and hard, the Federal Reserve may have to follow the British example.
– Dwight Cass and Edward Hadas
P.S. To the poster above who wonders where to save your downpayment money: Try to get some currency exposure to countries which take the risk of inflation seriously (as evidenced by central bank actions to stem the risk).
The bond market smells smoke…
http://www.bloomberg.com/markets/rates/
BTW, PV_Tom, long-term mortgage rates adjust up with T-bond yields with a lag of maybe 1 week…
Yesterday a poster accused the NAR and CAR of “price fixing.” I am not sure this is a fair characterization, but I would like to hear the arguments pro and con.
How about combining the 2 enitities and pawning it off as a stock car gig, all those left turns and such…
NarCar
January 11, 2007 10:58 AM ET
Bies says U.S. lenders should tighten standards
WASHINGTON (Reuters) - Federal Reserve Governor Susan Bies said on Thursday looser underwriting standards were partly responsible for recent rises in late mortgage payments and that lenders should tighten risk management practices.
…
“Many industry observers believe the poor performance of more recently originated subprime loans is due primarily to looser underwriting standards, including limited or no verification of borrower income and high loan-to-value transactions,” Bies said. She added that lenders need to be “specially diligent” when making such loans.
——————————————————————————–
Ya think???
http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&Date=20070111&ID=6335528
BTW, specially is actually a word in the English language (news to me…)
http://www.m-w.com/dictionary/specially
“Especially” is the version used almost universally these days. One of the cases where 2 different spellings are both valid.
I’ve seen others, not counting the -or/-our and z/s differences between US and UK spelling, but offhand I can’t …
Actually, I can think of a phrase rather than a word exhibiting the same characteristics. I’ve seen many posters here use “could care less” to express exactly the same concept that “couldn’t care less” is used for here in Australia.
I think in that example, the Australians clearly have it right. That’s the way I use it.
Saying “I could care less” isn’t very informative. If you could care less, then why don’t you care less? But saying you CAN’T care less, means you’ve reached bottom in your level of care.
Looking back on the Real Estate Industry and considering the ongoing and upcoming carnage, are you happy with your decision not join the mania in some way (becoming a realtor, flipper, speculator, mortgage broker, and so on) OR does a tiny part of you think you could have exited before the bust?
My idea for a weekend topic is how do we educate the youth in this country on how they can drive home values down all by themselves. I mean, we all describe it as a ponzi scheme requiring new investors at the bottom to secure the house of cards. As such, if the new investors stayed away, the foundation crumbles. With retirees needing to downsize, they must sell to younger people. If the younger refuse to buy, prices come down. We’re graduating a ton of Harvard MBA’s yearly, they should be figuring this out by themselves but what can we do to help them spread the word?
I wish it were that simple.
I’ve been trying to educate adults about this, to no avail. Amazing how some people just lack common sense where finances are concerned (and I certainly am not highly educated regarding finances, either). When **I** can see how foolish the average person is regarding money, we are in a heap of trouble.
house haters-think how screwed the buyers on that hivTV show are now- all 2005 stuff- would make a great youTube
Yes and no answer to that one BUT, I’m old enough and wise enough not to dwell on doing something which might have made me quick money but ended up costing me a lot more money.
Do I regret not being a flipper? Maybe. For the years, 01, 02, 03 and part of 04. For years 05, 06, 07, and for 08, 09 and possibly 2010, I’m as happy as a pig in sh*t that I didn’t get involved. Apply all those years to the other occupations mentioned.
My only real regret was I wish I hadn’t sold 2 properties my wife and I owned in 03 because I was convinced the craziness couldn’t continue without a crash within 12 months. Just shows you what I know! The only saving grace being we had owned one house since 1975 and the condo since 1985 so we still made out okay.
Also, being older and wiser and having seen this kind of madness several times over 70 years, I have learned that, “What goes around - Comes around”. 99.9% of the time anyway. So, when this kind of stupidity (and I must say I have not seen stupidity to this degree ever before including the tech boom period) arrives on the scene, I know the course it will take and I know a lot of people are going to end up in a world of financial and emotional hurt sometime down the line.
I might sound like an old fart but I’ve discovered that it’s always best to keep on a steady course because, if not, ending up on the rocks is usually the outcome.
Again, possibly and older cynical look at life, I have discovered that when these “booms” arrive, there is usually something behind it. Btw, I’m NOT a conspiracy guy. However, when the smoke clears one usually gets to see the “hidden agenda”. Sometimes it’s fairly benign and sometimes it isn’t. Usually, it’s either government manipulation whereby they can manipluate the masses (like Bush did with the Iraq war and WMD) or big money seizing an opportunity to make bigger money. In the case of the tech boom it was the Wall Street brokers, a.k.a The Financial Gangsters.
In the free money case, the government used Greenspan to lower rates. For basically 2 reasons but there were other issues which fitted the scenario quite nicely. And Pleeeeze don’t respond by telling me the Fed has nothing to do with government and is independant.
In the case of the tech boom, Wall Street saw the tech revolution opportunity and employed a legion of corrupt and crooked analysts to sell and promote the story. Again, once the smoke cleared, we discovered that the analysts were selling mostly crap in a fancy box. Example: Take a look at what the analysts said about JDSU 6 years ago and see where JDSU is today. Just one of many stocks the Financial Gangsters of Wall Street promoted and sent out their analysts to promote/sell to the masses like the NAR and realtors promote and sell property.
In my opinion, the government is using this boom to get more and more people into property so the value can be used later (sucked out) to support a Social Security and Medicare system which has not got a chance in hell of supporting itself in the coming years.
Yes, there will be collateral damage in this boom but that will fade and they factored that into their plans. Ever wondered why we haven’t heard hardly a word from government about this madness? And it IS total madness. However, for those who think you will be able to buy property for 10 cents on the dollar - forget it. Isn’t going to happen. Prices might drop to 2001 or 2000 levels. A lot of people will get hurt. Never the less, more people will be in their cash cow homes, struggle to pay the bills for a few years and then, in my opinion, it’s off to the races again BUT at a normal pace with property increasing a couple of % points each year. Thus, government will have achieved what it set out to do. More people will own property in 30 years. The banks might own it now but the majority of people are responsible and will work hard to maintain their financial responsibilities even if it means sacrifice but as far as the government is concerned, home owners will be free and clear by the time it matters (to the government). That is, in the next 30 years when they reach retirement. Just in time to get those reverse mortgages which will be needed for those hip replacements, cancer drugs, nursing care, etc, which the Social Security system or Medicare could never possibly afford as it will be not unusual for more to reach 90 + years old as new drugs stave off heart attacks (the big killer of humans) and many of the cancers.
As always, in these kind of situations, the first thing that should come to mind is, “WHY? Why is this happening?” Then start to look behind the hype and words for the “hidden agenda.” 9 times out of 10 there will be one.
Well stated!
In my opinion, the government is using this boom to get more and more people into property so the value can be used later (sucked out) to support a Social Security and Medicare system which has not got a chance in hell of supporting itself in the coming years.
———————–
BINGO!!! Although I believe the housing/credit bubble was set off to counter the tech bubble, there is good reason to believe “reverse mortgages” will become the de rigueur pension/social security/retirement plan of the future.
If this is the case, we bubble-sitters will likely be in a world of hurt. They will want to keep prices up, perhaps by encouraging inflation (already happening, as far as I’m concerned), more “homeowner” tax credits & public incentives, enabling suicide loans to continue (with slightly higher standards, so they don’t look like they are encouraging recklessness), or????
I’m definitely concerned when we are seeing formerly bearish economists become suddenly soft. Is there something we don’t know? Sometimes, there’s a little too much gloating around here (guilty, myself), and we might not be seeing what’s under our noses until it’s too late.
Always best to check ourselves, in the event we are wrong.
Are New York’s sky-high real estate transaction costs, including taxes on both the buyer and seller, and its nosy co-op boards a good thing, because they saved us from the flippers?
They didn’t save the boros, where single-family homes are still the most predominant owner-occupied dwellings (co-ops and condos are much more prevalent in manhattan). Search terms like “all cash” and “no money down” on craigslist in nyc - tho not as many properties as there used to be, funny deals abound in the boros — flipping and otherwise.
In addition, the boros are teeming with investors who use one building to collateralize deals on others — hence, yer fallin dominoes. If we were all so smart, the blight of the 70s-80s never would have happened.
Define “saved”.
“However, when the smoke clears one usually gets to see the “hidden agenda””
Mike, I am probably 30 years your junior, but I’ve noticed that during my time on this planet, one doesn’t have to use “hidden agendas” to explain bubbles. Where you might place the blame on high level manipulation by the powers that be, I lay blame on the everyday person. Sure, maybe things were set up by the higher-ups, but once things were set in motion, all you needed was greed, fear, and arrogance among the ‘little people’ to escalate things to the current level.
Arroyogrande
True but you have to have some sympathy. Most people are bombarded each and every day with the, “If you’re rich and powerful (mostly a celebrity) you have everything in the world.” Just look at all the crap on tv telling you how much Bimbo Spears paid for her house or how much some basketball player is going to make this year, etc. It never stops and it never stops a lot of people thinking they are “missing out.” I forget the exact amount of time it was but research discovered that the average American in literally bombarded with ads to buy this or buy that, for several hours each day. Very hard for most people not to ignore the gold waiting for them at the end of a rainbow (boom) which will lead to a long life in a sunshine bathed paradise.
We are all different. Some smart - some not so smart but we ALL want to live (what most are lead to think) will be a better life and, for most, that better life is based on how much money you have. That’s why the lottery and places like Las Vegas are so successful. It isn’t really even a case of “something for nothing.” It’s a case of, “If I win the lotto or win the jackpot in Las Vegas or flip enough houses and get enough in the bank I’m safe from hardships and I can enjoy life.”
It’s basically “conditioning”. There are no Big Brother screens on every corner telling you to “OBEY” but the conditioning is very subtle. The sad part is most do not see it or refuse to accept that it happens.
You are very wise, Mike. Probably due to your respectable maturity.
We must remember that greed, a need to conform (herding instinct), desire to hoard, and need to feel secure are very primitive human (animal) traits. One only needs to manipulate the environment a bit to get the vast majority of people to act or think in a particular way. With the advent of mass media, it’s easier than ever before.
I’m guessing a lot of the posters here didn’t follow fads or fashion in high school, made calculating (as opposed to emotional) decisions regarding their actions and don’t watch much “prime time” TV. Very contrarian, and very much in the minority, unfortunately.
This is good
http://www.itulip.com/forums/showthread.php?t=814
A member of the Fed’s Board of Governors is coming to Tucson next Thursday. Details at:
http://www.azstarnet.com/business/164208
Her presentation may just be worth a listen…
“Economic Outlook and Developments in Mortgage Markets — Berger Auditorium, McClelland Hall, University of Arizona, 1130 E. Helen St. The Eller College of Management’s Distinguished Speaker Series presents Susan Bies, member of the Board of Governors of the Federal Reserve System. The lecture and reception following are free and open to the public. Arrive early. Space is limited. 5:15 p.m. 621-9400.”
Is she going to warn about the perils of subprime borrowing?
http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&Date=20070111&ID=6335528
I’m tempted to go and raise the following questions during the Q&A period:
1. Isn’t it a little late to be concerned about subprime lending now? 2. Why didn’t the Fed take the punchbowl away three years ago?
I double-dog-dare you!
While you are on a roll, go to your local Catholic church and ask the priest whether he is a perpetrator in the sex abuse scandal…
And before the chorus of accusations comes in that I am posting off topic, let me point out that the Fed and the Roman Catholic church are inextricably bound by their shared institutional challenges of maintaining a code of silence in the face of a highly intrusive modern media. I don’t mean to insinuate that the secrets they keep are whatsover similar, though.
http://www.williamgreider.com/books/secrets/
http://www.boston.com/globe/spotlight/abuse/
Front Page Yahoo…Excuse me while I eat my own womit. This s*it is really sick. You really want to ask! wear you a chearleader in HS? and Did you see the 1972 1982 1991 real estate downturns?
What Makes a Market Bubble-Proof?
By Kendra Todd, winner of “The Apprentice 3″
Bubble-proof
What makes these real estate markets perennially healthy?» More
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Bring back the weekly Haiku.
Darkness ruled too long.
Sweeping clean the greedy,
Dawn breaks slowly.
“Suzanne researched this.”
She-demon wife proclaims.
Foreclosure awaits.
Are the building materials being used today really that crappy as many people on this blog say? Or do they just look cheap but will end up lasting a long time? For example, vinyl siding used on so much of the new construction here in Ohio is the ugliest exterior building material that I know of. When the sunlight hits it just right you can see all of the bends and warps. The large two-story homes made with this stuff remind me of gigantic trailers. This stuff is way uglier that stucco IMO (I’m from Tampa). But, it is supposed to be virtually maintenance-free and will probably last a long time. Another example is engineered I-beams made with oriented strand board used for joists. These things look flimsy but looks can be deceiving.
Oriented strand is actually much stronger than solid lumber…but short cuts have been taken. One item we discussed here a few weeks back is the practice of “hot loading”. Demand was so high during the building frenzy some plants didn’t allow the product to cool and wrapped before shipping via truck…….dunno what effect it had, if any; but experts were concerned enough to raise the issue within trade publications.
Siding sucks….period. I’ve had a couple of houses with HardiPlank and it performed well for me. Looks great and is extremely durable if installed properly.
Subprime hired so many
Trumpeting the new era
Layoffs without warning
http://ml-implode.com/
YES!!!
From Russ’s post:
‘In fact, I’ll submit that if you wish to focus on one indicator to track the emerging credit Bust in the US, just focus on reports and accounts from “the Map”. Ben Jones at Housing Bubble truly catches about all of them and in rapid succession. Henceforward a new Winterism (see primer on Winterisms in the side bar) will be “the Misery Map”, so be aware of what it means. Motivated sellers of housing henceforward will be referred to as Joe Ultra Light Sixpack (JULS).’
The “Misery Map” seems to suggest California’s home finance market is a disaster in progress…
San Diego, as we all know, has a glut of new condos and slow sales overall. How much did that market fall in 2006, and in what sectors? Rich?
Listening to my radio show on KFNN. The real estate guys are talking about how to get out of a negative cash-flow property now with some new techniques of real estate. They are recognizing that flippers are getting underwater and are still trying to profit off of speculators with option-type leveraging. What do you make out of this site:
http://www.pickmypocket.com/ ?
I am seeing it as a means to unload houses obviously. They can not find buyers in Phoenix. Wasn’t there a time when people had to camp out in a line overnight to get the right to a lottery drawing to buy for these urban dwellings?
Why are they keeping an 8% annual appreciation rate? If they were more truthful, they would peg appreciation closer to rent rate increases (note the rent figures they use on this worksheet have about a 2.3% annualized rate increase):
http://www.pickmypocket.com/rentvsown.html
Just one more. How is this not preying on the remaining speculative types that may be out there?
http://www.pickmypocket.com/PDF/IronMountainLeaseOptionAdvantages.pdf