“The Big Question Is How The Correction Will Play Out”
The Press Enterprise reports from California. “The Coachella Valley’s residential market isn’t immune to the steep downward path housing is headed toward nationally, a regional economist warned Friday. ‘The worst is not over. The worst is in front of us,’ said Christopher Thornberg, a former senior economist with the UCLA Anderson.”
“He warned that the housing slowdown has appeared slower and less daunting than it really is, because it takes a while for home prices to drop. ‘This isn’t going to hit bottom in 2007. This is going to be a mess for quite a while,’ he said. As a result Thornberg said construction-related jobs should feel a bigger pinch and the Inland Empire’s employment growth should slow.”
“Spending binges brought on by cheap goods flooding the country and by the overconfidence of owning a suddenly pricey house have sent personal savings rates plummeting, he said. For the first time in 2005, Americans bought more than what they earned.”
“If consumers start saving slowly, 2007 should be a weak year, Thornberg said. But if they start saving dramatically, 2007 could turn into a recession when the money stops circulating, he said. ‘There’s all sorts of nasty scenarios out there,’ he said.”
“Tom Noble, a residential and commercial real estate developer in Palm Desert, said Thornberg was ‘right on’ with his forecast.”
“‘Having a negative savings rate is a potential disaster,’ he said. Noble agreed that the Coachella Valley’s housing market wasn’t worth praising but described the slowdown in the desert as ‘a less calamitous landing than the national economy,’ he said.”
The Desert Sun. “Thornberg said there is no question that the national housing bubble has popped, but not all regions will be affected the same. ‘The big question is whether it’s going to be a hard or soft landing.’”
“Chapman University economist Esmael Adibi, who regularly tracks valley trends for The Desert Sun, recently noted that the valley is creating jobs at a much slower rate than two years ago and construction spending declined by 5.95 percent from a year earlier.”
“In the months ahead, the economist said, ‘construction spending and home prices are what we have to watch for.’ Those variables are particularly important because of their ‘multiplier effect,’ Adibi said, as they not only create jobs but spur consumer spending on items like furniture, appliances and other home fixtures.”
The Chico Enterprise Record. “Saying that some in the real estate profession are forecasting better times in 2007, two economists predicted there’s continuing misery in the housing business, especially in California.”
“Economist Nancy Sidhu of the Los Angeles Economic Development Corp. and John Mitchell, senior economist for U.S. Bancorp in Oregon, both said the housing industry won’t have much to cheer about during the new year.”
“Not only has the high cost of housing seen in California over 2006 bitten home buyers, sellers and professionals, it’s hurt related industries, from home improvement and furniture stores, to architects, lenders, builders and subcontractors, Mitchell noted.”
“‘The big question is how the housing correction will play out,’ he said. ‘The National Association of Realtors thinks the bottom’s here. I don’t think so.’”
“Looking at November data, Sidhu said that statewide housing resale was down 31 percent from February 2006, and permits issued were down 43 percent from the same date. Sidhu sees further declines in housing permits over 2007.”
“‘We’re seeing fewer Realtors, and offices with fewer professionals,’ said Sidhu, who also sits on the Economic Advisory Committee of the California Chamber of Commerce.”
“Home sellers’ laments about weak prices really means, ‘I didn’t get as much as I thought I was going to get compared to what my neighbor got when he sold his house,’ Sidhu said.”
The Napa Valley Register. “What a difference a few years can make. Back in 2003, neighbors on Eggleston Street opposed Randy Gularte’s plan to build three cottages on a small lot.”
“On a 3-2 vote, the Napa City Council approved the houses, but insisted that Gularte sell them after two years. Last week Gularte was back before the council, asking that he be allowed to keep the houses as rentals beyond the two-year limit.”
“Councilman Mark van Gorder said the requirement should not be waived. The council would not have approved the project in 2003 without this provision, he said. The rest of the council disagreed. Circumstances had changed sufficiently to merit giving Gularte a two-year extension, the majority said.”
“Gularte argued a sale would displace his daughter, who is living in one home, and her friend who is living in another. These 1,000-square-foot houses would probably sell for $500,000 today, Gularte said. They are being rented for between $1,000 and $1,400 a month, he said.”
“Councilman Peter Mott said Gularte was probably not acting out of pure altruism. This is a flat housing market, he said. If prices were appreciating 25 percent per year, Gularte’s daughter would probably be out of there.”
Not so worried:
- Coachella (Valley) becoming more of a suburb, less of a tourist hub
- Next 5 to 10 years, baby boomer retirees will move in
- Coachella Valley could become a suburb of greater Los Angeles
All of these statements are fallacious with absolutley no basis in fact. I wonder when conjecture and hoping became part of an analysis of a market? Plus, who the hell is going to commute from Palm Srings to LA every morning?
BTW: For those of you in Phoenix, Florida and Peoria who were counting on the baby boomers to come to your neighborhood I am deeply sorry but they will be moving to the CoMetha Valley instead.
Yes, the kool-aid is strong in the CV. They are also still trying to say prices haven’t fallen at the Sun. Probably don’t want to admit the wind farm fiasco either. There’s no stinkin’ bubble in Indio!
“but described the slowdown in the desert as ‘a less calamitous landing than the national economy”
It’s different in the Coachella valley. Yes, I’m certain of it - it’s much worse. Expect the Coachella valley to become a ghost town…
No they will be moving to the California central coast. No, they will be moving to the California high desert. No, they will be moving to Bakersfield and Fresno. No, they will be moving to Boise.
I read both CV articles, where did that quote come from?
There is a bull at OCR’s blog that is hanging his hat on Mugsy’s straw man argument.
“Source: Christopher Thornberg”
That’s right from the bottom of the article. I don’t do “straw man” arguments.
The quote from the article: “Not so worried:
- Coachella (Valley) becoming more of a suburb, less of a tourist hub
- Next 5 to 10 years, baby boomer retirees will move in
- Coachella Valley could become a suburb of greater Los Angeles”
Is the straw man I was referring to, I understand you were disagreeing with it.
This tripe sounds like 23 year old studio executives planning the next big sit com for FOX TV.
The disconnect is laughable. The Desert regions are going to Burn like the mid-day heat of a July day.
My family has been “wintering” in the CV since the early 80s. What has happened there over the past 5 years, especially east, is disgusting. What used to be palm groves, country clubs & Rolls Royces has been replaced with crystal meth, tract sh*t-boxes, and Escalades. Take a drive through one of these “upscale” developments and notice how every driveway seems to have a contractor type pickup truck and a bmw parked in it. There is no more industry/economy in the valley now than there was 20 years ago. The growth here was from homebuilding. When it ends, where will these people work? Will they leave? Maybe it will be a ghost town?
how can so many so called senior economists and real estate professionals argue about what will or won’t happen to home prices in 2007?
All they have to do is ask Larry Goldilocks Kuntlow what he thinks or have John edwards reach out to John Galbreith for his thoughts.
just my suggestion
Or Robert Schiller.
Just pay Gary Watts to come down and review your locales situation. Why mess with these other fools? Get the facts from the facts man.
“If consumers start saving slowly, 2007 should be a weak year, Thornberg said. But if they start saving dramatically, 2007 could turninto a recession when the money stops circulating, he said. ‘There’s all sorts of nasty scenarios out there,’ he said.”
Oh I wouldn’t worry about that. What is the attraction to Joe Average to start saving ? regular passbook and premium checking accounts don’t pay squat in interest and what little you get is taxed so why bother ? We saw the other day all the whining from the banks about lack of deposits, where do you think I’m going to put my money ? With WAMU at 3.5% in a jumbo account or Emmigrant Direct at 5% with no limit ?
What money ?
It’s all negative money in the form of borrowed money.
lol marc
Yea, what they really mean is if consumers stop buying themselves deeper in to debit, using credit. This is the new unofficial definition of “saving” and it’s what everyone (economists, Fed, etc.) are all scared sh#tless of.
These guys with the japaneese (never forget the crazy japaneese) created the Frankenstein Monster Debt at the first place. They have no choice but to continue the monetary, debt and credit expansion and destruction of the currency. It already has lost 97% of its buying power. It’s as simple as that. They are in a corner but they can’t shout it aloud. So they make believe that everything will be OK. No it won’t and no it’s not. Compounding the problem, China, Japan and Europe follow blindly the same path as the US.
They don’t actually need to start saving. All they need to do is stop spending and begin to pay down their 23% credit card debt instead. That alone would cause a slowdown with a “multiplier effect”.
Count on it.
“
multiplierdivisor effect”Exponential divisor if you factor any blowup in the 317 trillion dollars derivative market.Real science fiction. 317 trillion dollars is like an hyper space concept but it’s a real number floating around. (Bank of International Settlements june 2006)
“The Coachella Valley’s residential market isn’t immune to the steep downward path housing is headed toward nationally, a regional economist warned Friday. ‘The worst is not over. The worst is in front of us,’ said Christopher Thornberg, a former senior economist with the UCLA Anderson.
He warned that the housing slowdown has appeared slower and less daunting than it really is, because it takes a while for home prices to drop. ‘This isn’t going to hit bottom in 2007. This is going to be a mess for quite a while,’ he said. As a result Thornberg said construction-related jobs should feel a bigger pinch and the Inland Empire’s employment growth should slow.”
Thank God at least one high-profile economist with media exposure is willing to call a spade a spade.
I agree with you, GS, that Thornberg generally doesn’t mince words, but unless he’s changed his tune somewhere along the line that I didn’t see, I’d bet he’s still toeing that “prices will plateau” line.
Oh, jeez, never mind, I should have read the entire bit.
Guess he’s no longer toeing that line.
“If consumers start saving slowly, 2007 should be a weak year, Thornberg said. But if they start saving dramatically, 2007 could turn into a recession when the money stops circulating, he said. ‘There’s all sorts of nasty scenarios out there,’ he said.”
That’s why the virtual printing presses will have to run at full tilt — to make sure the money does not stop circulating. Unfortunately, it will be a little difficult to turn around the negative savings rate if everyone expects a giant printing press to inflate away the value of the currency.
AS A GROUP, the combined middle class and poor class, will never have a positive savings rate, ever again. At least, I don’t think so. My reasoning is this: middle class, as a whole, no us here, are too overleveraged on CCs ALONE! How many articles do we read here and there and we find out person or couple X is 50K or more in debt, just on the CCs. Okay, I’ve had my share of CC debt, but not quite that high.
Second, as already mentioned, J6P has no incentive to save, esp. after tax. If you inherit or gain a windfall, maybe, since you can use it, after you pay off ALL your debt, to sock away a CD earning 5-5.5%, which even after taxes isn’t so bad. In my case, that amount pays my rent 2X/year. Not a bad deal!
Third reason: middle class, as a whole, can’t control themselves. Buying crap they can’t afford to impress other sheeple who don’t care with stuff they can’t afford. Also, they want to live the Miller “High Life.” Rather than go another 100K on the Toyota, let’s live a little and buy the 50K Benz or Escalade. Hey, I would like a 69 vette and probably could buy one, but unless you are a collector or afficionado, why bother? For me, a car is just a tool to get me to work. Don’t get me wrong car people, if you are one, I just don’t need it. If you can afford it, fine. However, too many yackals in this country can’t go without some new toy or luxury, so they go into serious debt for it.
Fourth, too much other debt. For example, toxic mortgages, upside down car loans, etc. Need I say more?
Fifth, peak debt. as an experienced part of this overextended middle class, I can honestly say that most of this group has nothing in the tank. They live paycheck to paycheck. Even those that have seen the light are in most cases too late. Their debt mountain and interest to service that debt are too much to overcome.
I don’t think I need to point out what the factors are against the poor, as a group.
I understand there are exceptions, in great numbers, to what i think. However, these groups, as a majority, are toast. US consumers are financially fatigued, if they were to actually look at the family balance sheets. However, make the monthly payment, charge the dinner 2 days later. Sadly, for many, the debt will not end personally until they drop dead. Even sadder, our country went from the greatest creditor nation to the greatest debtor nation in just a quarter of a century.
You can thank your neo-cons fascists for that.
hang in, soon healthcare will”be a right”= free
and in FRAnce housing is soon to be “a right”
More probably they will introduce the social programs that they have in China. Very progressive communist China.
Whick is
ZILCH, NADA, NOTHING, NIETCHEVO, RIEN, NIET, NITCH.
You will soon have the right to get sick and die like in China. As for France, this is just an electoral promise that nobody seriously intends to keep. French Socialists are hypocrits. Sogolène Royal is a lot like Hillary Clinton but even more dumber. Don’t get your hopes to high. Unless you were kidding ?
“You can thank your neo-cons fascists for that.”
[rolls eyes]
I agree arroyo. These mindless political comments on this blog get old. I was waiting to see a George Bush = Hitler reference.
For the most part the neo-cons suck but look at what the liberals have put forth in recent years.
Al Gore (silver-spoon liberal)
John Kerry (guilty white liberal personified)
Hillary Clinton (do anything for some power)
Nancy Pelosi (nutjob)
Harry Reed (dope)
Ted Kennedy (refer back to John Kerry)
John Edwards (scum sucking lawyer parasite)
Al Sharpton (the world’s biggest racist)
Jesse Jackson (competing with Al Sharpton)
Politicians all suck. Posts like Marc Authier’s above are just stupid. I disrespect the ideas of the far left and far right equally. Common sense lies in the middle. Too bad the parties are dominated by the extremes.
George Bush = Hitler IS OLD NEWS.
We all know that one!
Not even. Anyways you have wonderful choice in the US. Rubin or Paulson. Wal Mart or Haliburton. I don’t think much of the Democrats either. Politics in the US is quite depressing. Anyways the future bosses of the US will be japaneese and chineese. Last week there was a rumour that Toyota was considering buying Ford Motors. I would wait that they bleed to death just to remind who’s the boss.
Thank you nycityboy, i agree as well. take the political BS elsewhere. I’m also sick of his one liner attempts at jokes that spam nearly every thread. We get it, you hate Bush and have no sense of humor, enough
Yeah you can be sure of that. Bush is a moron and was soo arrogant with “Old Europe”. Mister “Know it All” with the other pr-ck from the UK, Tony Blair.
Marc sweetheart, tell us all where everything is just perfect, according to your measuring stick. Let’s hear it. France, LOL? Lybia? Russia? Mexico? Switzerland LOL…
China, our master. What a joke. China is a powderkeg waiting to explode any day. The next soviet union…
I agree BubblePopper. Soon the Chinese will face their 21st century Tiananmen Square. It might be college students or it might be a massive revolt by Falun Gong. Will they have the ability to shoot again? If they do, it will kill them in the world’s public opinion. If they don’t it will kill the Communist regime. Oh, how hard it is to walk the tightrope. China has more problems to deal with than any other developing nation. The first economic downturn and they will have to deal with a firestorm the likes of which they have only imagined. China’s rush to dominance is not quite so easy as many would have us believe.
Don’t forget the 2008 Olympics. I don’t thing China wants to rock the boat too much before their big coming out party.
Chineese save 40% of their earnings. Americans minus 2%.
Hey big spenders I wouldn’t talk too loud if I were you. I remenber a certain Ford Motors, General Motors, American Motors (gone) and Chysler, that had about the same opinions of Japan a couple of years ago.
We were all supposed to be speaking Japanese in the 80’s, too, dork. Their economy depends on us continuing to spend. China, too. We stop, they COLLAPSE. Unless you think that they both can somehow sell stuff to their own people?
Marc posts ” You can thank your neo-cons fascists for that. ”
Marc you are being way too kind. The last guess I read said we are over 400 Billion in the hole over the Iraq war. I am sure that was a good faith guess because nobodys knows. One really annoying point on the subject…. the damm mess is kept off the books! Like it does not exist….what a dumb frikin’ joke!
Our current government is corrupt in any measure and at every point.
Hey. Corruption works! It gets you elected and makes you very very rich in real estate. Why should it be different in politics ? I am too kind. That’s the problem with us humans. We get used to everything. Crazy politics. Crazy medias. Crazy wars. Crazy economics. Crazy people. Crazy wives. Crazy husbands. Crazy kids. Crazy stock prices and finally crazy real estate prices.
You can thank the liberal communists for that.
As far as the people I work with, none of us are big spenders. I drive a BMW, but I am single with lots of disposable income. My rent is only $585/mo. The only one out of my workgroup of roughly 10 who is a big spender is the manager. He and his wife have a combined income of over $150K though. They could easily get their finances in order if needed. Everyone else plays it pretty conservative.
Jerry posts ” I drive a BMW, but I am single with lots of disposable income. My rent is only $585/mo.”
Hey Jerry, do you want to trade lives?
AS A GROUP, the combined middle class and poor class, will never have a positive savings rate, ever again.
Nah, savings rates run in cycles mirroring the economy. Loose credit begets tight credit, fear trumps indulgence, and the savings begin. Human nature.
I agree, tj, everything in this universe is cyclical. Everything goes, turns around, and comes back again.
Come to think of it …
I can’t bring myself to believe that we’re alone in this universe. I wonder if other worlds have had housing bubbles. What happens if they run out of developable land? Do they come here? Maybe they’re ALREADY here. Maybe they sold dylithium crystals to the Iranians, and they’re recycilng euros into London flats. I think that would explain A LOT. Beware of buyers with crooked pinky fingers looking for cash back at closing. Roy Thinnes will thank you.
“AS A GROUP, the combined middle class and poor class, will never have a positive savings rate, ever again. At least, I don’t think so.”
OCDan, I believe we were in the same shape just prior to the Great Depression. Perhaps not in the same numbers due to credit not being part of most people’s picture. Pls correct me if I’m wrong, I was under the impression many lived paycheck to paycheck prior to that crash too.
I think we’ll come out of it and then we’ll save like never before. It will just be after walking thru fire.
What will happen to those that will be walking thru fire is what concerns me. The strong minded among us (and I think the numbers are greater than you think) will do what they’ve got to do.
Then there are people like the woman who told me she’d rather drop dead than mow her own lawn…..(sniff..she could never bring herself to a situation where she might have to sweat) What will people who believe doing anything to get ahead is below them? I do wonder what will happen to their mental state as these things move forward….their selfworth so wrapped up in maintaining the image.
How much more money can people borrow? Isn’t there an expectation that,at least at some point, principle and interest must be paid back? Realistically, how much can that debt be “inflated” away in the short term? If borrowing slows down and savings pick up, even a small amount in each, then that would have big consequences for the economy in fairly short order. How would lowering rates help people already stretced to the max at these current historically low interest rates?
It’s a liquidity trap. Eventually even if these incompetent and stupid central bankers lowered interest rates to zero, it wouldn’t change a thing. That’s what I expect mind you. A japaneese scenario in slow motion is unfolding. 0% interest rates during 10 years like in Japan.
Doesn’t a liquidity trap portend deflation, not inflation?
I wonder if the “playing out” of the bust will lead to ethnic unrest and such. Multicultural societies are always unstable. After Katrina, I’m a total pessimist.
You know how “there’s a fine between pleasure and pain”? Same goes for deflation/hyperinflation. We’ll likely see both.
Yes. Both. But it’s the timing of the events and the order in which they will happen that remain fuzzzy. Maybe we will have both in North America. The situation is a lot in Germany before the Weimar Republic. But I forgot. These things never happen in the land of honey and milk and of the choosen people. It just happens to big bad Russkis, to the nasty Old Europe or inferior chineese asiatics. Yeah people in Washington are as arrogant as that, when it comes to the rest of the world. It’s the timing that you cannot pinpoint. It will happen in this decade anyways.
Before, during and after Katrina. I remember when a quarter of Los Angeles was burned in the 90’s. What was the name of the guy beaten by the police? Rodney King ? It’s not the first time. And you are not the only country with these problems. Let’s say the US will ressemble more and more to Brazil and places like Venezuela or Mexico. Hyper rich and well connected all working at Goldman Sachs, a smallish middle class, and a lot really poor. Not a good trend indeed for real estate values either.
Nell, the problem is that the group I am in 40 yrs. old grew up during the 80s and 90s with the mentality that if you couldn’t afford, buy it on credit. I speak from experience in that while in college during the late 80s the older students had never seen the swarm of CC offers as the underclassman had. With the magnitude came a mentality. The problem is that it will be hard to change the mentality. These people will continue to beg and borrow, some even steal, to get the toys they want! The children of the late 60s, for the most part, have no control. Or, they have learned it late. I don’t want to get into an age bashing thing, but the lessons our fathers and grandfathers learned through the depression and WWII have been forgotten. Now the mentality of most is, charge it now, maybe pay it off later.
True, true, true.
“I speak from experience in that while in college during the late 80s the older students had never seen the swarm of CC offers as the underclassman had.”
Most college campuses allow the credit card shills to setup booths near the social areas like the bookstore or cafeteria. Parents, who have had to bail-out their sons and daughters from financial dead-lock, have complained for years; the arguments fall on deaf ears. It’s all about the money!
What’s the interest charged to them ? 33%. In some cases anyways in Canada, the bloodsuckers can charge up to 59%. After 59% it’s usury. Life is soo funny.
I don’t want to get into an age bashing thing, but the lessons our fathers and grandfathers learned through the depression and WWII have been forgotten.
Which is exactly why we’ll have another depression.
“Those Who Forget History Are Doomed to Repeat It”
“History is just a lot of bunk.” Henry Ford
And then we had 1929 and second world war.
Poor Ford Motors. They risk themselves to be very soon history. Eat your words Henry.
You all see this? Apologies if already linked
http://www.bloomberg.com/apps/news?pid=20601109&sid=a7zn9LSjFDMI&refer=home
Holy Shiite! Oops Jethro, looks like we made a boo boo.
Jan. 12 (Bloomberg) — Mortgage Lenders Network USA Inc., a provider of home loans to people with poor credit, said “human error” caused it to lend $600 million at below-market rates, fueling losses that led to the closure of its biggest unit.
“The economics of the market went upside-down,” Heffernan, 49, said. “We could continue to go down the path of funding loans at a loss or we could exit the market completely.”
Althought the above script was uttered by a busted subprime lender it could just as easily have been uttered by a broke FB in reference to the housing market and his alligator.
Sadly, the a-holes who made this mistake will get some 50mil a year job at Trinkets-r-Us. In time s/he will dump the stock options, make off with another 100million, banrupt the company, and screw the workers’ 401Ks. Great country, where can I get this kind of job!
There was no mistake. What kind of national mtg company goes bust due to a $20 million loss?
MLN employees failed to set a limit on the number of discounts customers could be given, Heffernan said. “It turned out to be a human error,” he said. “Not one person in particular and it wasn’t intentional.”
No one in particular is responsible? Not intentional? BS! It was a deliuberate decision of the higher ups. What kind of business makes a $20M error and doesn’t figure out who exactly the person(s) is (are) that committed the error?
This CYA verbiage so the employees and clients can be prevented from raking the bigwigs over the coals.
who is running the operation Peter Griffin?
Ah come on ! Total crap ! How in the hell can you make a 600 million dollars error and not notice. I smell a mini ENRON and a mini Kenny boy here.
Marc, I have always thought, while maybe not a full-blown conspiracy, that those higher up the economic food chain have always wanted to perpetuate debt. Look at how these debt contracts, i.e. CCs, mortgage docs, car notes/leases are set up. I realize that these guys need to make money, but not at the rates and covenents they currently use. I don’t begrudge interest, but most of these guys are charged usury-type terms, even in many of the best-case scenarios.
I believe this to be true because wasn’t in Dostoyevsky who wrote or said that the most dangerous man is one without debt? Even he didn’t, it still makes some sense in that most people are so saddled with debt that they have no time to go to the gov’t for a redress of grievances. They are too busy working to “service,” not pay off the debt they have.
I know one person wrote a couple of days ago that the gov’t/FED could have done this in 1932. Well they virtually tried. Precious metals were not allowed to be owned by individuals. Likewise, since a third of the worforce was jobless, that group was already SOL! Then came WWII. The 50s could have been a good time, but since it was Leave It to Beaver time, why bother? 60s, well that was choas followed by the disco 70s. Finally, Reagan and the conservatives are starting to gain a foothold, even though the 2 houses were still deomcractic, how many times did they go along with the president? Well, the 80s ushered in the biggest debt-spree of all time up to that point in history. Now, 25 years later, look at where we are.
Yes, I realize we have ourselves to blame. No going to argue that point. My point here is that we have allowed our greed and shortsightedness to cloud our judgment on what really is of value in our lives. this whole mess reminds me of the guy who complains about cradle-to-grave gubmint, but whines evertime the SS check is late. Can’t have it both ways, buddy!
There is nothing wrong with a litte bit of debt or even banking. The problem is the total lack of regulation of the bankers and the banking system by this criminal Alan Greenspan and people like Rubin and Paulson. The ultimate result will be the destruction of the middle class not only in the US but in the western world in general. Dostoevski was right about debt. He was a compulsive gambler. That’s the problem with banking today. It’s managed by compulsive gamblers like Dostoevski, with no respect for basic economic rules or fundemental human values like moderation, thrift and hard work.
I agree, debt is not always a bad thing, you have to determine the nature of the loan to really understand if you should use cash or credit to purchase something.
My own personal, and favorite, example was purchasing my car. The IR on the note was 3.9%, and was totally detached from the price of the car (thank you Acura, what a wonderful system, go online, get all the loan terms, and then go shop for a car as a cash buyer!).
Anyway, at 3.9%, you would have to be nuts not to take this type of loan. The dealer asked me how much I was putting down; for which I had set aside about 15K (1/2 the purchase price). You know what I put down. 0$. Not a penny.
That, IMHO, is how debt can be made to work for you. If someone is going to offer you a great deal to buy something on credit, especially when below the rate of inflation; you would have to be nuts not to take it. I will be paying that car back with inflated dollars every month from now until the loan has matured. Great deal.
Same thing with the 0% financing for 1-2 years commonly offered at dept stores. Take it! They are paying you interest to take that loan (because that’s money your not spending, that is, at least in theory, earning interest elsewhere). You do have to be a bit more careful on those though; as typically at the end of the no interest period, if not paid in full, all the interest comes back! (that’s cute!). I have done this deal 2X now, gotten something 1-2 years earlier, and not paid penny one on it until 1 month before the loan matured. Again, great deal.
Now, 18% int on CC? That’s the type of debt that is terribly destructive. Especially when you consider what people buy with it! Yes, buying a new car is a terrible investment (as it loses about 25% of value when you drive away in it). However, it is an asset, and can be leveraged/sold. Those 200 dollars jeans at Lucky? Guess what, when you leave the store with them you would be LUCKY (see, it all ties together in my sick little mind) to get 5-10 bucks for them. And you paying 18% on the money at the same time!??!
The point of this is… Not all debt is bad. 90% probably is. But not all of it.
Def. agree w/you Michael. We bought our 2nd saturn with 2500 down @ 0% interest for 20K. Paid it off early and still running 5 years later with almost 100K on it. However, the latte grande from Starbucks @ 18%, if you are LUCKY, more like 25% for most yahoos, is totally reckless spending.
Unfortunately, the government has led the way in this type of spending and naturally people have followed.
Here’s a new one: If you can’t afford to buy a car, don’t buy it! Brilliant!
reminds me of that SNL skit: http://youtube.com/watch?v=aIm8Mfo4_Fk
I know, oldie but goodie… DON’T BUY STUFF YOU CANNOT AFFORD!
Love that skit.
Re: CC interest rates. I think I saw something on PBS
‘Frontline’ that talked about exactly how cc companies started with their super high interest rate cards. While other states were limiting what cc companies (who were based in their state) could charge for interest on balances, one state (I forget, N. Dakota?) realized that if they eliminated the restriction, they could get alot of these companies to move their base of operation to that state, and therefore help out dramatically with the local economy.
Once the cc companies realized that being physically based in that one state would allow them to charge the exhorbitant rates we see today, generally 20-30% (I think this all transpired in the 80’s, maybe earlier), they FLOCKED to the state so they could charge what they wanted to customers in any state, bypassing the poorly passed regulations of the other states.
Of course, also in the 80’s, cc companies flooded the college students with offers. In my college days those offers were unheard of, because they knew your credit score did not merit extending cc offers (my first major cc gave me a $250 limit - woopee). Now however, these companies know 2 things. First, overly generous parents will bail their kids out, resulting in the kids learning NO lessons about money and debt early on as they should and second, even if the accounts do go bad, they still will have made oodles of money with the high interest rates on the closed account and all the others, plus they’ll take you to collections and recoup some of their losses.
It is a win, win situation for the cc companies. Congress of course knows about this and does nothing. So all the steam they bellow is just to make the masses think they care. They could stop it in a second if they wanted to.
If we just got back to the idea of companies extending credit only based on the person’s credit worthiness this would all go away. Regulation would do it…. I’m conflicted though, about that only because by the time everyone gets their finger in the pie of a new law, the regulations are convoluted, onerous, and full of loopholes. Yet, allowed to continue, we will spend our country into the ground and all of us who are conservative with our money will be sucked in the quicksand right along with everyone else, so touting that the market will sooner or later ‘correct the imbalance’ may still not save the people who did not fall into the trap, and who, like me, proudly call themselves ‘cc deadbeats’.
Take the cc problem, and multiply it by the huge factor of housing purchases, and you really are digging a big hole in the ground.
What to do?
No they couldn’t have done this in the past (1932). Back then, there was NO replacement for the US consumer.
Today, there are hundreds of millions of potential consumers in China and India, loaded to the gills with $$$. And companies and banks are salivating at the chance to give Chinese and Indians credit.
going forward: the US consumer is done, and will be left to rot. remember kids, keep voting republican!
And all the US dollars are about to come back in the form of much much much higher inflation.
“Comment by Marc Authier
2007-01-13 13:26:00
It’s a liquidity trap. Eventually even if these incompetent and stupid central bankers lowered interest rates to zero, it wouldn’t change a thing. That’s what I expect mind you. A japaneese scenario in slow motion is unfolding. 0% interest rates during 10 years like in Japan.”
These 2 statement are incongruous to me. Your constantly harping about how the dollar will be inflated to worthless, then you post this statement. Just curious, how do you reconcile the two in your mind…
You are just lucky that it’s the japaneese with 0% interest rates, and China with their peg on the dollar, that are still applying this stupid policy to protect their exports markets and kill your manufacturing and yes give puffed up value to your dollar. But eventually you will have to use the same strategy if you don’t want to loose all your industry. Greenspan did it when the NASDAQ bubble imploded. They will be back with it.
They have no choice. The inconsequence is that all monetary policies are a joke today. Have you ever seen something not incougruous when it comes to monetary policy based on fiat system ? Everything is incongruous in that field. Everything. Satisfied ?
“Back then, there was NO replacement for the US consumer.
Today, there are hundreds of millions of potential consumers in China and India, loaded to the gills with $$$.”
As things stand today there is STILL no replacement for the U.S. Consumer. For 2005, U.S. consumption was 9X China’s, and India was even further behind.
Someday, China will encourage domestic consumption. But that day will not come until they’re close to having already bled us dry.
…those higher up the economic food chain have always wanted to perpetuate debt.
You betcha. That’s the rat race… keep people indebted and therefore dependent upon a regular paycheck. Keeps the masses in line.
“Marc, I have always thought, while maybe not a full-blown conspiracy, that those higher up the economic food chain have always wanted to perpetuate debt.”
There is a very simple, time-tested principle at work here. When you are the real owner of assets, and others only nominally own the assets on paper, you dilute the value of the others’ ownership stake by expanding the number of paper claims on the underlying source of real wealth.
The same principle applies to corporate stock shares, which are diluted by option grants to senior management not counted on the company’s books, as to a nation’s currency, if it is inflated to a level in excess of the value of underlying real economic activity. The moral hazard to inflate is extremely high in the wake of a score and seven years of Republican demonization of taxation as a means of balancing government spending.
Inflation dilutes the real net worth of people who actually have positive net worth, and it devalues future payments by the indebted classes. Why on earth would anyone except perhaps the indebted classes want to see inflation?
There is no question that most employers like employees with a lot of debt, provided that it is big enough that they can be forced to do damned near anything, but not quite enough that they feel tempted to embezzle to make ends meet.
Wow!
http://www.itulip.com/forums/showthread.php?t=817
from that thread
The number of foreclosures that lenders are taking back in California has increased from an average of 32 a day in August 2006, to 300 a day in December 2006. In dollars that’s an increase from $13.3M per day to $45.9M in four months. So far, for the first week of 2007, the numbers are 161 homes and $63.8M–per day.
“If we extrapolate the numbers from the first week of January for the month, we estimate $1.3 billion in loans will return to lenders in January. If the pattern of previous months followed, this number is likely conservative; the rate of increase has tended to rise week by week during previous months.
That’s right, lenders are on track to take back over a billion dollars worth of loans a month in January in California alone. A billion here, a billion there. That may soon add up to real money.”
I don’t live in CA, but in the gov’s recent budget address, was any mention made of these kinds of numbers? Any move to address the issue?
^^^ No, infact, the Gov recently unveiled his proposed FY2008 budget. In it, he anticpates revenues growing by 7% (extemely optomistic)… barrowing/stealing from public transit… recending some benefits to teachers… to balance the budget. He’s also proposing another mega-bond package at $43 billion for various capital projects.
If Ahnie is proposing 43Bil in bonds, this state is def. what I would call at peak-debt. The boneheads in this state will of course vote for it since they don’t really see it coming out of their pocket and going into the state coffers. Unfortunately, if Ahnie needs another mega-bond CA has proven it can’t meet its obligations. Just think we already have the 50Bil bond passed a couple of years ago. This one will put us at almost 100Billion. Hey, another 30 years and we will get to a trillion. By then you can forget about ever getting the state out of debt short of closing down the state gubmint. Then again, if Ahnie gets the debt up to 100Bil I think you can forget about CA ever getting out of debt.
I know I sound like a clanging pot, but SHEEPLE, come on. How long before the game is up for the feds and the states. We, as a country, have come to the crossroads. Either we pay the bills as they come in or the future of this country is toast.
This loan proposal astounds me. It seems ineviitable that California will hit the wall and come down like a junkie on a long meth binge. If anything happens to the $200k+ tax bracket then the state is completely screwed, but the state now needs $50 billion a year in loans to make it so what comes next is anyone’s guess. My bet is on a derivatives debacle of colossal scale resetting everything at zero and bringing Prop 13 back into play.
I’m just amazed at Arnold’s spending proposals. Seems like California is going down a road NY took years ago. But Bloomberg, a self-made billionaire from the Bronx is a prudent man with the city’s money. NYC budgets by law have to be balanced. With Spitzer as the new Gov. and big scandals hitting the old, entrenched republican power brokers in Albany, there is some hope for a leaner, more biz-friendly tax environment. There’s a disconnect with Arnold and his huge bond projects and the housing-based financial squeeze that’s beginning to hit his tax base-middle class homeowners. Hasn’t anyone given the governor a clue?
spike:
photo op for arnold. he hopes for Pres Opportunity Passage of his proposals = 32%. Publicity Opportunity = mr nice guy to the rabble.
Comes off Deomocratic. More plus good on Long Shot…. President. Stranger things have happened….
Another fiscally responsible “CON-servative” politician?:)
Very funny numbers. All this fiscally responsible conservative debt just for Cali. Cool !
“My bet is on a derivatives debacle of colossal scale resetting everything at zero and bringing Prop 13 back into play.”
Good bet. I can’t imagine why anyone knowledgable would buy at this point, with the prospect of resetting the Prop 13 basis at a far lower level than the current one?
The data ties into the foreclosure trend in San Diego County which continues skyward.
http://www.sddt.com/Finance/EconomicIndicators.cfm
Looks like trustee deeds are rising at a faster pace than they were in the early 1990s.
Mazo Maz,
Wow, you are correct. If you plug 1986 into the start date for the graph, you see the rate of acceleration for foreclosures is steeper than any time in the last 20 years. Amazing. Did you also notice the 1990 market peak took 4 years to reach the maximum velocity in foreclosures. And then it STAYED THERE THRU 1998! If that holds true now, we can expect maximum foreclosures in 2010, with velocity holding thru 2014, until the market is corrected and we resume normalcy. So when Business Week suggested in the Dec. 25 issue that we would not see 2005 prices until around 2020, they were right, based on history. Of course it “could be different this time”. Yes, it could be worse, since we have never had such loose, sub-prime lending standards. Look out below…..
I guess there is no way to allow for the fact that information travels so much faster now so FB’s will just give up perhaps much sooner than 15 years ago.
If I hadn’t sold last year to rent I’d be crapping my pants right now everytime I visit this blog, but now I’m on the other side.wheew!
PP, GREAT link … thanks!
Wow! Now that’s explosive negative growth.
It’s hard to save when you can barely make the minimum payment on credit cards or when you ARM payment jumps by hundreds of dollars.
“Home sellers’ laments about weak prices really means, ‘I didn’t get as much as I thought I was going to get compared to what my neighbor got when he sold his house,’ Sidhu said.”
I have to partially disagree with this quote. We are in a transational market where we are going from sellers’ mentality is going from fitting this quote to where its starting to mean sellers are not getting what they had paid for the home when they bought during the bubble. If they are flippers then serves them right, but many of them are people who did not realize they were paying a “bubble premium” and now that they are being forced to sell in a slowing market they are either upside down from the beginning with a short sale or after transaction costs they are in negative territory and bringing a check to the table.
“but many of them are people who did not realize they were paying a “bubble premium” and now that they are being forced to sell in a slowing market”
Why are they being “forced” to sell unless they couldn’t afford the house in the first place and were counting on continued insane appreciation allowing them to stay in their gold mine, nest egg, great investment or whatever they choose to call it. Maybe not a flipper per se, but it’s speculation of a sort, so I don’t get the significance of your distinction.
Agreed, manraygun. Screw these people. How can you not know there is a “bubble premium” when the exact same house cost 35-50% less 6 years ago? How are people rationalizing this b.s. in their minds? Everyone that mindlessly bought into the pyramid has only made the situation worse. Without demand prices cannot go up, so why were people buying? Because they thought they were going to get 20% annual appreciation. Let it burn.
A 35% rise over six years is 5% annual appreciation. That’s not too unjustified.
What was ridiculous was the near doubling of prices in 2003-2005 in some areas.
Mazo, you are saying about the same thing. A 100% rise is the same differiential amount as a 50% decline. A $300,000 house goes up 100% = $600,000. A $600,000 declines 50% = $300,000
Instead of talking percentages, let’s just use dollars. In Reno, NV, a 60’s ranch in the southwest (89509) went from $250,000 to $750,000 in 5 years. Yeah, that’s normal.
Manraygun. I think You are right.
A LOT of people rolled the dice, buying more than they should have, via funny money loans. Eventually, even very wary people were drawn into the gamble from tremendous appreciation gains they witnessed their “peers” gained through their “gambles”.
Personally, at least here in Los Angeles, I think, MOST buyers were aware that they were gambling. They KNEW that they could not afford the loan once the teaser rate rolled over, but they did it any way. They hoped appreciation would erase the danger.
For many, it has. For many others, it looks like it won’t. They took that risk, that gamble. The down side to gambling is that you can loose and when you loose, they take your money.
If you can’t afford to have your money taken, don’t gamble.
Yeah, I bet LA proves to be the worst in this regard — as it is in a ton of other ways. (I live here, too. I guess I like it.)
People who just wanted to buy a house and live their lives and were not in it for the investment, just old fashion “home”. They were not even looking at the facts that housing was turned into a mania/bubble. They were not happy w/ the pricing but did a real time comparision and bought prudently relative to prevailing conditions. Then they have a life altering event that “forces” them to sell, job loss, job change requiring relo, expansion of the family, etc etc. If the market was the way it use to be they could sell in a timely fashion and while not make any money, they would just lose out on the transaction costs. But now they must suffer greatly because the few new buyers out there are demanding an extraction of the bubble premium, so the losses amount to something much greater than just the transaction costs.
Are we clear now? I think we’re all losing out perspective and objectivity because we’re too steeped in the mania to read things objectively. We’re forgetting how housing operated in the past and assume that everyone is purchasing/thinking with full awareness of the bubble. Many are still not fully aware of the bubble and how it is skewing pricing.
Stockton CA Market Follow up from July 2006: Margot Ray Radio Ads
Remember Margot Ray, the Stockton, CA woman who bought advertising on the radio in a futile attempt to sell her house at 9723 Treetop Lane? Even with radio ads, no one was looking at the property. The story broke in July 2006 and she had her 2300 SF house listed at the “reduced” price of $439,000. She wasn’t going any lower. She knew if she just got enough people to come look at the property, someone would buy it.
Well, Margot finally sold her house on October 10, 2006. The price you ask? $392,500. Yes, dear old Margot reduced her price $46,500 or 10.6% in the 90 days following her advertising blitz. This once again proves, “It’s the price, stupid”.
And actually, Margot appears to be a good businesswoman. She recognized the market factors, did what she could to get a sale and reduced her asking price enough to hook a buyer. Given the pricing forecasts for real estate values in the central California valley, I would say Margot got out in the nick of time.
Paladin,
Out of curiosity I googled Sean Libbert (buyer for those properties in Indio) and he came up in several entries at “Whostherat.com”. If you google him and view the cached pages there he is listed as a “loan consultant/rat bastard” and variations thereof. Another entry is from the broker site:
http://forum.brokeroutpost.com/loans/forum/2/8979.htm
The only google entry on James Proetz I could find (buyer of another one of those properties) was a Chiropractor in Long Beach CA. I have no idea if this is the same person so I wouldn’t want to make any false allegations.
“Gold Hawk”… a bit of a mystery. There is a company based out of Chicage called Gold Hawk International. No website I could find; just an address. There is also an international mining company by that name.
Anway, thanks for the great information. This is really fascinating to see happening. I hope the proper authorities have the resources and the wherewithal to act on the information.
I live in san dimas, ca. about 20 minutes north of Orange County. One of my friends called the other day, asked if I was still waiting, she said prices aren’t coming down. I noticed less houses on the mls, but the prices are still too high. Waiting to see if there will be a deluge after superbowl, or did these sellers just give up? This is a nice area, no gangs ,no graffiti. I’m trying to hang in there, but damn, I thought by now we’d be in the 400k range. As for the foreclosures, if you put in 91773 in realtytrac, you get quite a few, hoping to pick one up sooner rather than later.
Waiting to see if there will be a deluge after superbowl, or did these sellers just give up?
Nope…they didn’t give up. They’re waiting for the spring bounce when they think they will all be saved from their stupidity.
BayQT~
C’mon, Patricia, the theatre hasn’t even lowered the lights and turned off the cheesy music yet. Patience!!! The show will be worth the wait.
p.s.: Use the time to save money!
Eww. NY times latest RE b.j. “blog”:
http://dreamhome.blogs.nytimes.com/
walkthrough failed because it was erroneous and irrelevant - so this is their solution: make another erroneous and irrelevant blog, but this time, make no attempt whatsoever to couch pandering to RE industry. Old gray lady’s escort service at it again.
Can’t wait to read some of our posts on it.
An article on Credit Cards in China. It will take time to get the people from China maxed out on credit due to their conservative nature. Article is a little old.
http://www.bloomberg.com/apps/news?pid=10000102&sid=aQGahNCxFJz0
Chinese banks will much prefer to issue credit cards in the USA…it’s much more profitable.
Can credit card issuers seize Roth IRA accounts of deadbeats? I have no debt, but the thought of sticking them with the debt appeals mightily.
I don’t think so..retirement account are generally exempted in most states when filing bankruptcy…
Is not a deadbeat someone who pays his/her balance in full each month? (http://tinyurl.com/5sw73)
40% savings and big big big buyers of gold and silver.
USA minus 2% savings rate plus crazy spending governments and crazy personal debts levels.Who is living way way over its means ? Who ?
ot-
just got a phone call from a friend who is considering buying
a 2 bedroom condo in boerum hill brooklyn for 600k (1200sq ft)
with a 10yr tax abatement $60 month tax $340 cc plus parking fee
i did not want to be mean so i was just like oh wow sounds nice
i heard his wife in the background raving she loves it (poor guy)
if he does it he said he will do a 10% down(condo minimum)
and the loan will be a 10 year int only fixed (btw he works for wamu) he said he is not set in stone and may have been wanting me to say hey go for it (i did not ) any advice to give him without
sounding like a jerk?
also a side note he mentioned how well business was and i said i’m sure with all the sub primes biting the dust lately, he says wow you know everything going on (lol) i said yeah i read a little bit(more like alot) on the web
of course i did not tell him it was on the hbb thanks ben and co.
Take the spin to him like this… Tell him how you heard of the news over the past week (the final truth that is coming out) on the severity of the housing situation. Give him this web site as one of a few web sites and leave it at that. You can lead a horse to water…..
WAMU - talk about job insecurity
I’m so f$%^ing sick of hearing about how the “baby boomers” are going to save every region’s RE market in the next decade.
Give it up!
How can they save it? They are the ones who caused it! LOL, now I will sit back and take my licks.
You generally post intelligent stuff, but this is dopey, IMHO. People of all ages participated and helped to create the housing/credit bubble and there’s been plenty of stupid to go around for all the generations involved.
Hey, I’m allowed a little ribbing here and there!
BB — (ugh, you sure you want THOSE initials?
) — I’m a boomer, and I don’t necessarily disagree. I’d love to see a demographic breakdown of the specuvestors who made up 28% of all sales during ‘04 and ‘05. How many boomers do you think took one look at their paltry savings and panicked?
Just think about when they start hitting SS enmass!! Also, when they start cashing in their stocks to transfer to more stable investments such as bonds and treasuries. Just think what level the market will be at then!! Greedy ba*st*rds!! Not all of them, but a whole bunch!! Their parents spoiled the hell out of them after being in WWII and now they are a major cause of the downfall of our great nation!!
“Their parents spoiled the hell out of them after being in WWII and now they are a major cause of the downfall of our great nation!!”
Yea, Vietnam was like summer vacation….
……Your great nation? Please, explain to the audience your tremendous sacrifice and contribution that allows you to separate your self from the others that preceded you.
Yeah, you boomers really “deserve” all the opptys given to you that we gen’xers will never have just because of Vietnam! Give me a break! Look at this Iraq crap! The reason I call it our great nation is due to all the freedoms we have and are now at the point of losing. I think of all the people who have given their lives for this country and the mass financial plundering that has taken place over the past 30 years and it makes me sick!! I don’t need to “separate” myself other than being a proud American which is seen nowadays as being a traitor or politically incorrect!!
Does any one have YOY total dollar amount of transactions? I would like to see how much economic activity in the housing sector, has actually slowed. This would give me an idea of how much less, municipalities would be collecting in taxes. Does anyone know where to find these numbers?
One approximation for that would be the total quarterly mortgage origination figures. Check Mtg Bankers Association data. There may be regional dollar volume figures available from different sources (Dataquick for CA, Warren Group for MA etc).
These 1,000-square-foot houses would probably sell for $500,000 today, Gularte said. They are being rented for between $1,000 and $1,400 a month, he said.
Hello? The houses would sell for between 350 and 500 x monthly rent and he doesn’t want to sell?. Either this guy is off his rocker, or we’re not hearing the whole story.