Bits Bucket And Craigslist Finds For January 20, 2007
Please post off-topic ideas, links and Craigslist finds here.
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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i think this is one for the “hall of fame” from pimco!
really brilliant. please take the time to read this.
Petrodollars, Asset Prices, and the Global Financial System /PIMCO
http://immobilienblasen.blogspot.com/
Ohne Deutsch…
http://www.pimco.com/LeftNav/Global+Markets/Capital+Perspectives/2007/Capital+Perspectives-+January+2007.htm
Excellent report. As for ” one unambiguous conclusion is that a transfer of funds to oil exporters should boost relative demand for non-dollar/non-euro assets, particularly risk assets,”
I agree with the first part, but buying risk assets? 2007 should be the year risk returns with a vengeance from historically low levels. I think they will invest in infrastructure (Russia), and defense (Saudi Arabia), as well as natural resources around the world. USD will definitely lose, the only question is what will win.
Heres another one, same story, too much money out there looking for a investment.
http://www.safehaven.com/article-6732.htm
How about some dicusion on Bernanke’s comments concerning social security and how the problem will affect housing in the coming decades. It seems to me that downsizing to reduce expenses will gain popularity. Insecurity about the future may also bring saving money back in vogue. We could see a real slowdown from consumers as people become very worried about retirement.
I view this speech as serving a number of objectives:
1) CYA for the Fed (we warned you, and have been warning you, that the Social Security system needs to be fixed, so whatever goes wrong is not our fault…)
2) Helping to prepare future baby boomer retirees for the fact that they are not going to get as much out of social security as their parents did (thanks to an increasing dependency ratio)
3) Creating a climate of political acceptance for whatever combination of future benefit rollbacks and tax (er, I mean, contribution) increases are necessary to keep FDR’s social security scheme afloat, despite the fact that it is looking long in the teeth after seventy years
4) As you suggest, he is offering a subtle hint that with lower future social security payouts, baby boomers ought to think about saving a bit more, rather than continuing to spend like a gang of drunken sailors. This advice seems especially prudent, given that home price appreciation has decelerated all the way into reverse in many parts of the country.
One point I found interesting, was Bernanke’s suggestion that a vicous cycle of higher interest rates may result, as the goverment has to greatly increase borrowing to fund the coming tsunami of retirees. So many people are convinced that the future will bring progressively lower interst rates, steadily higher rates over the next couple decades could put pressure on real estate prices for a long time to come.
“One point I found interesting, was Bernanke’s suggestion that a vicous cycle of higher interest rates may result, as the goverment has to greatly increase borrowing to fund the coming tsunami of retirees.”
If you read between the lines of BB’s speeches, you might take the impression that the Fed stands ready to buy whatever mix of assets it sees fit to best serve its purposes. Everyone who took intermediate undergraduate money and banking “knows” there is an inflation risk premium priced into long-term Treasury bonds (Irving Fisher of “permanently high plateau” fame explained this long ago). But since the government controls the supply of treasury debt across the full duration spectrum of the yield curve (including the zero-duration, which is M3 — currently missing from official statistics), I am guessing it might be possible to adjust the mix of
$US assets across the duration spectrum to supress the
long-bond yield to conundrumishly low levels that give the impression that inflation risk is not a problem. That would also explain why top economic policymakers still confidently assert that a soft landing is on the way, even though in the past, a persistently inverted yield curve has often heralded a recession.
I took it to mean that the Fed would have to offer progresively higher yeilds on on its debt to attract increasing amounts of foreign money needed to pay for entitlements. Did I not understand correctly? Since the U.S. is already heavily dependent on foreignors buying our treasuries, we’re not starting the next 10-20 years in a favorable position.
In the near time, it may be getting worse. Here’s a quote from JMF’s PIMCO find (first comment above):
“I took it to mean that the Fed would have to offer progresively higher yeilds on on its debt to attract increasing amounts of foreign money needed to pay for entitlements. Did I not understand correctly?”
IMHO, it appears the Fed is walking the tightrope between recession and high inflation, thanks to the fiscal and trade gaps. As long as the economy teeters on the brink of recession, the long-term rates can stay conundrumishly low, avoiding the need to funnel lots of money into the credit markets to find purchasers of bonds. In a sense, the Fed is letting the economic situation help keep inflation under control, while trying to steer clear of the dreaded deflationary downward spiral.
“IMHO, it appears the Fed is walking the tightrope between recession and high inflation, thanks to the fiscal and trade gaps.”
They seem to be putting a lot of effort into talking down inflation expectations, rather than raise interst rates. The govenors talk about being vigilaint on inflation. I think they’d like to raise rates and really knock down commodity speculation, but with the housing market do a slow bleed, they’re afraid to. Thus they resort to tough talk. The commodities markets don’t seem to beleive them.
“… putting a lot of effort into talking down inflation expectations, rather than raise interst rates.”
That is because talk and paper are far cheaper than higher interest rates and gold, at least in the short run. Unfortunately, the solution is not sustainable.
They are simply prepping people for what the minimum wage hike will do. The inflation had already occured by the massive expansion of the money stock. It just hasn’t shown up in the basket of goods used to calculate CPI (doesn’t include stocks, bonds and real estate…yikes). With a 50% increase in the minimum wage, that is definitely going to affect the goods used in CPI, mark my words. That is 50% right off the top. Factor in “inflation expectations” once it gets rolling, and we’ll see more than that (talking measured inflation again).
They can’t force people to borrow more, but Congress mandating a roughly 50% increase in minimum wage will certainly stoke “measured” inflation.
On a side note, the issue isn’t whether a central agency should determine what the contract of labor should be to protect someone (well it is, but socialists and capitalists will fight to the death over which is better and changing someone’s mind here isn’t going to happen). The issue is that the damage has already been done by the Fed, and this is the best way the gov’t figures they can solve it.
“They are simply prepping people for what the minimum wage hike will do.”
How big a hike are they proposing? Because I thought the minimum wage mainly affected a bunch of high school kids’ spending money these days. The real minimum wage is whatever the illegal immigrants are getting for picking the crops, taking care of lawns, building homes and washing the dishes in the back of the restaurant. So far as I know, the high school childrens’ minimum wage will not have much impact on the real one.
Although I can’t believe we are watching a central agency plan labor contracts, it is their best opportunity to attempt to prevent a disaster. People having been using credit to finance their way of life, in many areas. The collateral for this credit is debt.
The expansion of the stock of money has already occurred via large, very large, amounts of credit/debt. Expectations are kept in check by people somehow believing reported CPI represents actual decrease in the value of Fed Reserve Notes (not sure how that gets pulled off…anyone tried buying a house lately). To prevent a depression, that debt has to continue to be serviced. If defaults spread, we’ll witness the cascading defaults that “the maestro” has preached.
Even if the number of people affected is only around one million, what will that do to expectations? Our current situation isn’t based much on reality, but on perceptions. If it were based on reality, you couldn’t buy a house with nothing down and be forced to put down a deposit to rent the same house (as someone pointed out earlier). However, the perception (maybe not for folks reading here) for a lot of people has become that homes will always go up, and go up around 10% a year. This leads folks to feel there is absolutely no risk…nada. The risk is that a renter may damage your home. This has distorted reality, and the decision makers are grasping at straws at how to avoid the oncoming reality….debt does not equal wealth.
As for the min. wage increase…it mayl have ripple effects. The lowest guy gets paid more. It is publicized, and the next guy up the ladder wants more, and so on. How effective it will be remains to be seen, but it is better, in the eyes of Fed and Congress, than hoping folks will continue to borrow more. That is a non-starter, and some are beginning to see we’re in big trouble.
GS: If you are getting paid $2 more than Min wage. Min wage now goes up by $2. You will now want $2 more to keep that absolute premium.
This should ripple up the wage chain.
Houstonstan –
Au contraire –that should increase demand for illegal immigrant labor. It could have a negligible effect on the average wage paid to legal workers, as it represents a small increase in the wage floor for a small portion of the work force, which gets even smaller when the govt requires a minimum wage increase, as some employers will eliminate positions rather than pay a higher wage, and others will substitute illegal immigrant labor for legal minimum wage labor.
It very well could if the people you mentioned receive min wage. I don’t know if Mc Donalds will resort to illegals. I also don’t know if home constructors receive min wage, but I’d guess not. Nor do I know if grass cutters receive min wage. I do know it’ll be tough for Mc Donalds to get illegals who can pull off the language barrier tending cash registers.
That leaves Mc Donalds with how to maximize profits with an increase in labor (assuming some of their employees receive min wage). They either reduce work force, find cheaper materials, or raise price of finished products. They raise prices, consumers need more money. Consumers need more money, they need higher wages (tapped out of credit), and the cycle begins.
Like I said, insidious and totally against a “free” market, but it is apparently what the lawmakers decided is in the best interest of the public. Thanks for deciding for us since we’re obviously incapable of determining the worth of our labor.
“It very well could if the people you mentioned receive min wage.”
Kerk–
The point is the people I refer to (illegal immigrants) receive a true market rate for their services, which is set by the demand for their services and the available supply and quality of the services they provide, not by a government-mandated price support. If the minimum wage makes it too expensive for an employer to hire a certain kind of worker legally, there is always the potential to find an affordable illegal immigrant substitute to do the job.
Au contraire –that should increase demand for illegal immigrant labor.
I’ve heard arguments that it might actually reduce such demand. The idea is that illegals working regular minimum wage jobs using forged docs would be replaced by legals, since businesses would be less likely to take chances if they’re forced to pay more anyway. Interesting theory.
It’s a fact that no one can live here in CA solely on SS and retiree’s can’t live off savings with low interest rates. Now get savings rates up to around 7% and retirees with savings could do quite well.
Salinas — unfortunately, I believe the only way that rates could remain at 7% is if inflation, that affects virtually everything the retirees need to buy, is higher than that.
Generally, I like the Japanese system a lot better than our own, given that we will not return to the gold standard. The interesting part of this is that somebody will be more toast than the other, and none of us can figure out who that will be.
I too would enjoy dissecting Bernanke’s intensions with this speach. Is he using SS concerns to introduce the idea of a faltering economy?
“It seems to me that downsizing to reduce expenses will gain popularity. Insecurity about the future may also bring saving money back in vogue.”
Vmaxer
I would so enjoy if this were true. Yet, I fear that in America acknowledging problems is considered a weakness. (”Oh, you are so negative! Now let’s talk how great we are instead. Be a cheerleader…Be a leader.”)
I’m 45 year old. I’ve probably been hearing the warning bells on this social security issue since I’ve been in my 20s.
Our family debt is within striking distance of being a memory (thanks to this blog for accelerating the mission). But just yesterday I was in a group talking about the belated arrival of snow. A Mom I know is in financial trouble with her husband’s salary deeply cut twice in the past 3 years still has got her kids all signed up for the season’s passes and ski equipment. I know her husband has been asking her to work for the past 2 years which hasn’t happened but still there is money for the expensive extras. IMHO, we Americans won’t put away the mask until the pain is deep and irreversible.
“IMHO, we Americans won’t put away the mask until the pain is deep and irreversible.”
I intend to continue smoothing my consumption stream over the business cycle despite the best efforts of the Fedury to continue the War on Savers.
I know this has been discussed in the past, but a good topic might be how some of the readers of this blog are reducing their comsumption and spending (or in some cases increasing their spending). Personally, I’m turning into an anti-consumer to the point some of my friends are starting to take notice and comment.
Said it before, and I’ll say it again:
Wife and I saved 64% of our take-home in December.
We save about 50%. It takes a long time to save up that $100K for the 20% down on a POS condo on the West side of L.A.
“reducing their comsumption and spending”
I channel as much of my income into tax-free deferred compensation as the law allows. My wife thinks we are poor, but it works great for me — we can spend up to the budget limit of whatever is left and save a bundle in current taxes. (Who says you need to pay home mortgage interest to get a tax angle?) The only thing that worries me is the Black Swan of inflation, which is a potential consequence of the War on Savers.
My wife pays all the bills with her salary, plus she puts 5% into her 401K( the company matches another 3.5%). My entire salary goes into the “saving for a house fund”(8% goes into 401K). We expect to buy in a couple years with a substantial downpayment, then payoff the mortgage as fast as possible. We expect that with a big enough down payment, we will take out a mortgage equal to our current rent( with tax deduction figured in). She will continue paying the bills,(including mortgage). I will continue saving into an account to pay the mortgage off as fast as possible. To me the interest rate deduction on a mortgage is just spending a dollar to save 30 cents. I’d rather have no mortgage, take the standard deduction and put the money that would have been spent on interest into other invesments.
Vmaxer, that’s the arrangement I had with my now ex-husband. Here’s the kicker…when it came time to split the assets, ALL that money he’d been saving was nowhere to be found. Sore subject for me.
“My wife thinks we are poor”
Mine did too. I’ve always been frugal. I grew up on a ranch in a very rural area, raised by grandparents that survived the great depression. They saved everything and used it twice or more… boxes, rope, glass containers, everything was used to the end of its life. When I married and had kids, I saved as much as I could and lived under my means. I knew full well that our later years would be difficult, and I wanted us to be secure. My wife, on the other hand, needed a lot of things. I ended up building a house we couldn’t afford. I had to make a life decision about my core values, and unfortunately, she didn’y fit into those values. After fifteen years of marriage it was a difficult decision, but it turned out to be a good decision. I walked with $200 in my pocket, my company 401k, and a truck with 200k miles on it. She kept everything else. I’ve lived the kind of life I wanted for the last six years, saving enough to buy a positive cash-flow rental, enough to pay cash for a house, and enough to send both my kids to college-one to an east coast ivy-league school. I have the luxury of traveling anywhere I want, anytime I want. And, I don’t have to suck up to my boss. A lot of my friends and co-workers wonder what’s wrong with me. After all, its the american dream to own a home, right? I see it as a potential nightmare. I had a male boss one time that we called the office Martha Stuart. He called himself a “master home decorator”. He told me he believed a home was an extension of a persons personality. I told him a house, to me, was a place to keep the wind from blowing on you while you slept.
Eastcoaster, I’m sorry to hear that, your ex is a creep.
I added my wife’s name to my savings account, it’s now a joint account. She can check the statements all she want’s.
“I told him a house, to me, was a place to keep the wind from blowing on you while you slept. ”
A house is a box of air on top of a square of dirt that you get to sit inside when you’re not working or traveling.
Me, I’ve started to unplug my teevee when I’m not using it. I do watch it sometimes but I enjoy the symbolism of denying my teevee of precious electricity.
It’s sad to break up a marriage for the “core value” of being frugal. You know, I had to be frugal for all my twenties and for the most part, I was OK with it. But there comes a time when you want a little more, more comfort in your home. YOu want to live a bit. I had a boyfriend who was counting pennies all the time. I believe in not buying things you don’t need or just buying to buy, but my life is not ruled by saving a dollar here and a dollar there. His consciousness says “poverty” and that is exactly what he gets. He lives in a junky room, has absolutely no beauty in his home (he scoffs at things like that) and just is tense all the time because of his main focus on money. I prefer a more balanced life.
Independence is an excellent thing to cultivate. Along those lines, a true master home decorator uses spackle, paint, cheap fabric, and other basics to create a welcoming and homey environment. No Martha Stuart necessary, though if she wants to come over it is no trouble to make some tea.
I’ve been living well below my means since the 1990s, so I am in a very comfy position. There are things I really indulge in. Lunches - I used to bring my own, but now the only reasons I would bring my own things are for better quality food (oatmeal and fresh fruit for breakfast before work). I tend to eat healthy, not cheap, these days. I travel to luxurious places spontaneously, but not often enough. I don’t look at the price, but look to who I rub elbows with. If I wanted to luxuriate next to fat Americans or “ebonic-speaking” Americans, I’d avoid spending and just go into any Target or Wal-mart, or any shopping mall and get my fill.
America is in a decline for the next 15 years. It will not be gradual. It has been gradual for the last 30 years but the next 15 will be just as great a decline, making it noticeable. The report card for American public education shows how it has sunk below dozens of other nations, when it was in the top 5 not that long ago. That’s one reason I buy gold. Americans are in denial about the threat of fundamentalist Islam - another reason I buy gold. Americans favor fame over significance - no wonder that they are obsessed with Brittney Spears and drugged-up sports stars instead of productive entrepreneur engineers or scientists - the real heroes. Also another reason I buy gold.
But in fifteen years I think we will be tired of mediocrity. Social security will become private and voluntary. Health care will no longer be taxpayer-financed for illegal aliens. Capital gains taxes will be abolished. Personal responsibility will be forced on Americans - the weaning has only begun with the Roth IRAs and Roth 401ks and HSAs. The next 6 years will be the last hurrah for socialist liberals in the U.S. They will be toast after 2012 and it will take another 9 years for their disease of dependency programs in exchange for votes will be eradicated.
I’ve been gone for a while but wanted to let others know that the Loudoun County VA area must be falling!! There are TWO houses up the street that are for sale for $549k and 579k!!! This was UNHEARD of just last September. The home we are leasing was listed for 729k and 679k and a few others around here were also. BUT a house sold in November up the street for under 500k and I bet the neighbors lost it!!! The 2 on the market now are actually much nicer than this one because they have lots of updates/upgrades (read: granite, etc!) and have an extra bath. I’m shocked that it is already happening here because there were those that said it would never go down in the DC area!!! I’m hoping those prices will be about 200k less in another 2 years or so…then we MIGHT be interested in buying!!!
I’m right with you Liz, I was hoping this was the year, but unless Spring brings a complete landslide in prices around DC it might be next year that prices make sense.
I agree! I was telling hubby about the two houses and we laughed and said maybe 2-3 years and 2-300k!!! Sounds reasonable!!! I’m not sure what a new administration will bring around in ‘09. Does a change in the administration make a big difference in real estate around here? If so, after ‘09 would be the soonest for us!!!
Well i’m a single buyer, and the places i’d like to live I think need to go another 20-30% down before would be close to in line with what I think makes sense… while that still might be a bit high, i’m looking for a place to live and if they fall down around that area it would be pretty close to in line with what im paying for renting a small house.
Yes, it is too early to buy. Rent is still 40% the cost of owing, so save the 60% for another year or two, and by then, when it makes sense, you will have another 10-15% to put into equity. “It gonna be mine in 2009, at half the jive of 2005″.
A good site tracking sale prices and inventory in Northern Virginia is the following:
http://askmerv.choice3realty.com
Merv is a Realtor, but seems to provide a realistic look at the market, unlike many who say prices can only go up.
Thanks for the info! I definitely will use it! We’re in no hurry. I like leasing a “700k” house for 2500 a month!! Works for me! All of my nice furniture goes well in it and if anything happened, we can walk away with only losing a deposit - not the end of the world. Furthermore, I saw some other really nice places, just like this one, in Ashburn for alot less, and we may even think about that come the end of our lease as long as we can do a 2 year this time. I’m not ashamed of leasing - only the snooty neighbors know it anyway and who cares what they think! I really don’t want to buy around here anyway - it’s just like the stepford wives community!!! Scary like drones!
People are still saying RE won’t go down in the D.C. area. I was talking to a guy - probably 60, bought a condo and some houses over the past 35 years - and he told me ‘now is the best time to buy’. ‘With the exception of a few years, RE has always gone up’.
Long story short, I was careful in what to say because many people are banking their retirement on continuous appreciation in housing.
But if you dig a little deeper, these older people that are encouraging you to buy:
* Don’t know that the average house in D.C. sold last year was about $500,000
* Are unaware that the cost of renting is much less than the cost of owning - even with the tax break
* They have Faith in housing. Period. In their mind, it will always go up.
I’ve read investing books by Ben Graham and Warren Buffet that talk about a margin of safety, not Faith. One should buy a stock when its worth is more than its price on the market. If you are buying a house right now, how much do you think the house is worth? $600,000. $750,000?
Right now, there is no ‘margin of safety’, and buyers are relying on Faith.
Also: Suppose Bernanke together with the Treasury decides to fire up the presses, resulting in inflation of 10% or 10%, are salaries going to increase that much? I don’t think so. Salaries have been stagnant for the past 6 years.
Absolutely!! I have no faith in anything other than God! The market, real estate, etc. are too unpredictable. I agree that the older folks are clueless to some of the realities of the current market and prices. They too have NEVER seen what is about to happen unless they were around for the depression, which, by the way is around the time that “exotic loans” became popular for the average joe back then! Funny how history can repeat itself, usually worse than the last time around and no one remembers or are too clueless to care! I’m glad My first degree was in finance and that I have continued to study history!!! But that makes me no genius, I just chose to be better informed than some others and I am not delusional when it comes to the “signs” of a wind of change!
I have no faith in anything, whatsoever. Faith is not really in my vocabulary.
I’m in loudoun county too and am amazed at the price drops seen so far. Like you said, last year you would have never seen a single family home listed anywhere near $500k. I’ve never posted before but am so thankful that I stumbled across this site over a year ago. Last april my apartment complex decided to raise my rent by 40%. At the time I felt like everthing was overvalued but I was the ONLY one that felt that way. “Prices will never go down in the DC area” and “the aren’t making any more land” is what I always heard. I’m a single mother and make decent money but I felt like I couldn’t even afford a 2 br condo. I spoke with a realtor about looking into buying (I thought maybe everyone else was right). The realtor that I spoke to pulled some listings of the cheapest 2 br condos in the area and even though I didn’t see how I could make the payments, his lender said that I could - since I qualified. My realtor was actually a decent guy. I discussed my options: buying vs renting. He told me everything was dead and that it would probably be smarter to rent instead of buying. When I came across this blog I was so relieved to know that I was not the only one that felt that housing was sooo completely insanely overvalued.
Also, I would like to note - I periodically check the forclosure listings on washington post for loudoun county. Back in March of last year there were usually between 3-8 foreclosures listed at any given time. Last night there were 109. I think this is going to be ugly!
Loudon county cookie-cutter McMansions have dropped by at least 10%. A friend of mine tried selling, but coundn’t and pulled the listing. After a few reductions, the listing price was 10% less than 2005 prices.
Welcome!!! And I’m thrilled you found us before buying too! A condo will go for a song soon enough! My hubby and I are definitely going to scale down when we buy as both of our kids will be gone by then. Problem is, we want a single story with a basement - IMPOSSIBLE to find around here unless you go to the “other side” of Sterling - not interested! So not sure where we’ll wind up but we’re definitely tired of the mcmansion thing too! I can’t believe you can’t find a nice single story without it being 30+ years old! What’s with that???? But soon enough some of these idiot builders will get the hint that not everyone around here wants 3000 square feet of dead space and they’ll start building smaller and AFFORDABLE homes by then!!! I definitely want to wait because the new homes will be much cheaper and NEW - not that I don’t like older but here again too old means renovation - I hate living in that mess!
That is too funny! I guess great minds think alike. For the past two years I have been saying that when I buy a house I want a single level w/ a basement. After living in my apt on the 4th floor with no elevator I’m sick of stairs. I’m in a TH now for the same price the apt complex wanted to charge. I’m in no hurry to buy, besides I don’t want a huge house and that seems to be all they are building around here. Rents seem to be coming down as well.
This is my favorite blog. Ben does a great job and everyone that posts actually contributes to the discussion and have been very informative. I recommend this blog to anyone that I come across that are thinking about buying now “because it’s a buyer’s market” I simply say - I think next year and the year after that will be even more of a buyer’s market. At least I have talked my youngest sister into holding off on buying.
In my obsession of watching the market, in the past couple of months I have come across a couple of houses that were purchased within the year and are already on the market to be sold. One house was listed for $150k less than what the owners purchased it for 9 months previously. (purchase price based on county records) I would be physically sick to be upsidedown 150K
I would be physically sick too! Can you imagine going to the closing table with THAT much money?? What if you don’t have that amount? How does that work anyway? I’m not familiar with the process of selling at a loss!
I think before long, people will just walk away from their houses because there will be no way they could come up with the dough to sell it at a loss.
And if the fed cuts back on spending - it’s going to hurt a lot of contractors in the area -which will add to the pressure of housing prices in the area.
It seems like it was just yesterday that people were lining up in excess of 1000 people just to sign a contract for a $750k condo that hadn’t been built yet and or course would never go down in value.
And if the fed cuts back on spending…
It’s not a matter of if; it’s when.
Keep that realtors name in your rolodex. In a couple of years when prices are down it would be good to have somebody that you can trust helping you shop around.
Unfortunately, he has dropped out of the real estate scene. Just couldn’t make enough to support his family. I guess he was just too honest for the biz.
I’m impressed with your realtor that advised you to not buy in spite of a mortgage broker saying you could qualify . Had the REIC started advising people three years ago to only make offers within their affordability and boycott the sellers and investor wishing prices this madness could of stopped .
We now all know that sub-prime lenders didn’t care about the borrower qualifying and they didn’t care about appraisals being reasonable . Sub-prime lenders didn’t care if speculators could cash flow or now and they didn’t care if they sold out new tracts with a high speculator count (which is unstable ).
Baby boomers that invested in second homes to fund retirement will lose money in alot of cases and young people just starting out in life will be sit back by this mania . Prices inflating at these insane levels was not a good thing in spite of some people making money on the frenzy .
For a market to crash ,without job loss, when the economy was cooking along, is more evidence of a outright speculative mania with no basis for the price increases, other than lenders making faulty loans based on prices going up .
I use to tell people not to buy when I saw that the market was going to far in past lending cycles because the market always overshoots when it’s in a up mode . This market overshot by 3 to 4 years worth of appreciation in many areas .
Thank loads REIC for keeping a evil party going ,which they are still attempting to do with this Ad Campaign and withholding viable information from the public .
Didn’t the Loudoun County recently put a freeze on new housing permits in an effort to stem the bleeding from what will be falling housing taxes as well? Too little too late if you ask me.
I have a bunch of friends in Leesburg, for 10+ years now, and it used to be a great country drive heading out to hang with them. Now you drive out and it’s just those non-neighborhood cookie cutter mcmansion style developments.
This blogger seems to be on the case.
“Freeze Growth”, by Dewita Soeharjono, Urban Trekker blog, December 7, 2006. See the original for links.
http://tinyurl.com/yv6343
Nurseliz, you are right. Many of the houses that are selling in Loudoun are at summer 2004 levels. Many of the realtors will say that there has been such a drop in inventory that prices will soon reverse course and go up. However… inventory has begun to rebound and as ARMS begin to reset, prices could go even lower…
Me personally, I’m ready to get out of the area, and I am not upside down in a loan that’s keeping me from going where I want to go…
In Arlington VA where I live, prices are *still* in the area of 100% overpriced relative to rental rates. Prices need to fall literally 50% before they would make financial sense. Example, a 2br apartment rents for about $2000/mo, but a similar condo will cost in the area of $500,000 to $600,000 plus condo fees (300 times the monthly rental value). Arlington has a very long way to fall.
OMG a coworker just spent 3 thousand dollars to attend a “seminar”- where- get this- the guy advises using credit card cash advances to buy property! Yeah! You can just sell for a profit before the bill comes due! Sucked this coworker in big time, now he’s paying a “mentor” to “help” him buy property.
I am just shaking my head.
A fool and his (borrowed) money…
yeh, my b-inlaw in fla is a robert kiyosaki guru and bought a bunch of old frame houses in tampa area for rental property and I know he used his equity and credit cards to do it too! trouble is, these houses are in areas I wouldn’t even drive through, much less live in and he did cheap renovations to them too himself. Hubby noticed his credit card bills on the table while they were having lunch and one of them had a balance of 50k!!! Now he makes around 100k a year with military retirement and another job but PLEASE!!! If just one credit card has 50k on it, you’re sunk if you lose your job, get hurt or any host of things that can go wrong in life!! He told hubby he was worth over a million now - I corrected hubby and told him he is LEVERAGED to the tune of 1million now - DEBT - not worth!!!! Oh well, I guess he’s a genius if he is following kiyosaki and we’re the dummies for refusing to be leveraged to the hilt in mortgage and credit card debt - call me stupid I guess!
I heard an advertisement last-night urging GFs to get in on the real estate boom using other people’s money. This late in the game and the REIC is still attracting GFs. As long as there are GFs in the population, these guys will be in business.
No doubt AND that means many foreclosures to drive down prices even further! One other above mentioned how many foreclosures were on the books last nite! It’s going to get ugly folks…EVEN here where it’s different!!!
Our next door neighbors are doing this very thing. They are flying all over the country buying properties in places like the 8-Mile in Detroit, the bad part of Kansas City (the Kansas part), etc. and paying an admittedly super cheap amount and then trying to flip them. They are doing all of this on their credit cards. They are nice people but I have this sinking feeling that this isn’t going to fly. They have “mentors” and everything. The part that made me heartsick is that their particular mentor is based in Naples, Florida.
their particular mentor is based in Naples, Florida.
If I were more than half awake I would be belly laughing.
Nurse Liz and CVBoy, your friends are speculating in areas that most likely are going to depreciate quickly and dramatically. Didn’t anyone ever tell them about location, location, location?
absolutely!!! it’s my brother in law and I didn’t try to explain it to him, he’s a kiyosaki guru and can’t go wrong. All I did was ask him if he had taken finance in college, he said no and I said never mind. I also ask him if he had taken physics, he said no, never needed it, I said never mind!
The craziest thing about this is that the girlfriend/fiance quit her job as an accountant (earning about 150K/year) to do this!! My wife and I are just kind of grin uneasily whenever they talk about how many disturbingly godawful properties they now have in their portfolio that will turn cash positive “any day now!”
I know for a fact “flipping” at 8 mile in Detroit is not going to fly. Body parts in addition to dollars are at risk.
Okay, I will correct my earlier post on a different thread. There are pleny of people left with a bucket full of stupid. While most of them don’t have the requisite box full of money, there are still some carting around a big FICO.
I don’t suppose said coworker put the 3 thousand dollar seminar tab on his credit card?
If any of you missed the 20/20 last night, it’s on the ABC website. I think I’ve seen it all. “Suzie” must be the most odious bloodsucking leech I think I’ve ever encountered. I have a few questions for Suzie:
How does one lose 200K in the “scrapbooking” business? What exactly is that anyway? The newest boondoggle for the bimbo who doesn’t want to work to pretend she’s “contributing?” When last I looked, those women were realtors.
How is a vacation you can’t pay for a “gift” to your daughters? Wouldn’t a better “gift” be a mother who doesn’t screw them up for life by being a completely worthless role model?
What drugs are you feeding this guy to keep him from going on an 9 state killing frenzy?
I was at a loss for words watching that stupid woman. Hubby’s just as stupid, though. I was glad to see there was no glamourizing these debt hounds. They should be mortified (though probably aren’t).
LMBO!!!!! I saw that too! My husband HATED her!! He called her a few names for not at least contributing something besides debt!! And yeh, what was that all about - “we took more vacations this year than ever before????????” WTH???? She was so smug and did you see her face when the guy told them they needed to sell everything???? She said something about a solution - nowhere to live and 3k??????? I personally wanted to SLAP her, I don’t know WHY he hasn’t killed her yet!!
Here’s their story for those who didn’t watch:
http://abcnews.go.com/2020/story?id=2804927&page=1
Let them learn the hard way.
Some people never learn — hard or easy. They are simply incapable of learning.
They are toast…. wonder what the assumptions are to sell the house? 2005 prices?
I watched that show and kept thinking “who are these fools”?
Worse, they’ve reproduced and have children. They can’t maintain their house–the pool or the empty walk-in wine cellar–and the wife looked resentful at the idea they should sell the place and rent. Wanna bet the place is heloced up the wazoo, and so poorly maintained, they may not be able to unload it. Oh yeah, and their “investment timeshares”-including a recent 100K one in Canada-wtf? The husband looked like a dim bulb but makes @100k. Neither parent had any clue that the world does not owe them a plush living. Scarier still–how many Americans are like these dolts.
AND the monthly income was only 8700 or so. What did that house cost to begin with and how much equity have they taken out? There is NO WAY to support their lifestyle on that income!!
Would’ve loved to have seen the 20/20 story. Does anyone know when or if it’ll be aired again?
‘How does one lose 200K in the “scrapbooking” business?’
1) Pay $200K for a couple of garages-full of overpriced “supplies.”
2) Never sell anything.
3. SuperEasyCredit and the ability of any dolt to print their own money.
Yep…that’s what happens when amateurs want to play “business”.
I feel soo sorry… and really pity… the foreclosure buyer that will have to tote all that junk to the dump.
i saw the show as well and was just blown away.
the fact that theytook more vacations then ever this year was
unbelievable. and it kind of looked like the woman had some cosmetic surgery done as well. (it did not help)
i bet abc paid them for this piece, why else would they let the whole country know what iresponsible idiots they are.
the fact that they have kids is scary i feel for those kids
i did like the family of 7 who survive and thrive on 35k a year!
there are some smart cookies out there
““Suzie” must be the most odious bloodsucking leech I think I’ve ever encountered”
I’m going to do something extra special for my wife this weekend because she’s not a Suzie. Woohoo!
Yes, but, am I the only one who also thinks Matt is a moron? I mean come on, pal…grow a pair already!
“I’m going to do something extra special for my wife this weekend because she’s not a Suzie. Woohoo!”
Me too! I feel a lot better about the $500.00 Longchamp bag I bought my wife last weekend. She’s deserves it, for being nothing like Suzie.
geez, vmaxer, I didn’t get a nice purse. But I did get a kiss and a hug…
‘How does one lose 200K in the “scrapbooking” business?’
Our votes for elected government officials have brought far, far more monetary damage then this pathetic person…I think the ridicule and anger is slightly…MISDIRECTED!
Sell another bond, fund another home rebuild on a spit of sand in the Gulf, …what’s the use… find some threat and start a war, protect every American from every possible terrorist threat, save the earth from itself…tax money well spent.
“Good Morning Vietnam!”
“Our votes for elected government officials have brought far, far more monetary damage then this pathetic person…I think the ridicule and anger is slightly…MISDIRECTED!”
—————————————————
this is a housing blog
you are looking for a political blog
there are plenty of those
I was LMAO when it was stated that she was up to 2:30am because she couldn’t sleep, and why? Because they went out to eat and their CC was rejected! What rock did these people crawl out from under?
Amazing huh? The fact that they had 60k in credit card debt on his salary just amazes me! What is the minimum on that balance? It didn’t matter, because they couldn’t make the minimums anyway. I’m up at that hour because I’m an ER nurse and at work…and if I couldn’t sleep because I owe out the wazoo, I’d call them up to make arrangements for crying out loud instead of wringing my hands. THEN I would accept reality and stop going on vacations and sell the freaking house and rent one in the same area like the planner suggested!!! Arrogance!
My favorite part (NOT) was when the wife said that she had no regrets, that if she had a chance to do it over again, she would do the same thing (overspend). At least in this case, I’m glad that the bankruptcy laws were changed.
Yes, didn’t wake up to the evils of $60,000 of credit card debt at 33% interest until one of the little ones stopped working.
How much can private firms reward the highly compensated guys before there is nothing left for the bagholders who dollar-cost-averaged themselves into owning all the paper? Here is one from the “creative theft” playbook — From today’s WSJ (p. A1):
—————————————————————————————————
Executives Get Bonuses as Firms Reprice Options
Aim Is to Offset Losses As Backdating Is Fixed; Mr. Deason’s Windfall
By Charles Forelle
————————-
The stock-options backdating scandal has prompted dozens of companies to fire top executives, take charges totaling billions of dollars against earnings and tell shareholders that they misrepresented how options were awarded.
Now, a number of companies are taking one more step: making special payments to executives or directors who received backdated options. Companies say the payments will compensate executives and directors who weren’t involved in wrongdoing, yet saw their potential profit redued when their options were adjusted to reflect the actual dates they were issued. Several of the companies describe the payments as bonuses in regulatory filings.
None of this matters now when the market is at 6 year highs just like Enron didn’t matter in the beginning. But when this entire gain has been washed away and we’re in Bear Market II you’ll hear nothing but this stuff. Lawsuits, Congressional hearings, Elliot Spitzer wannabes prancing around, you name it.
No joke. That is part of Galbraith’s point in “A Short History of Financial Euphoria” — the charade of fingerpointing and congressional hearings is a normal part of the sheeple fleecing cycle.
In today’s WSJ (p. B3): “Stock Investors Ride Oil’s Decline”
Bullsh!t again. Bulls never saw a change in the market that doesn’t signify that stocks are going higher. The problem with falling oil prices is that they are likely a sign that the oil-intensive residential construction industry is going into the crapper for the next five years. And that the rest of the economy is going into a recession. Good thing the plunge protection team stands ready to keep pumping up the stock market, because usually recessions are bad for stock prices.
I covered oil shorts initiated in October on Thursday. Excellent return, needed too, since I’m basically sidelined waiting for this BS rally to end.
tx- get stucco
in your opinion how long can these crooks on wall street
prop up this house of cards? when will the market correct?
it makes no sense, bad news stocks go up? wtf is wrong here?
How long is the $64K question and for those of us who make a living on it, how much more are we going to leave on the table waiting for it to end because we “can’t” get in at these levels?
All I know is when it goes, hide the women and children.
“How long?”
As long as they want. They hold and distribute all the cards — information ( breaking news, advice, short positions, new IPOs, and so on).
Who is they? The Masters of Fiat:
http://tinyurl.com/2f8joc
“As long as they want.”
More like as long as the Asian credit drug dealers are willing to keep supplying the junkies with dope.
The Pigmen are also in Asia busily setting up GSE type institutions and pulling all the right strings.
“The Pigmen are also in Asia busily setting up GSE type institutions and pulling all the right strings.”
They had better hurry up, because once our GSEs implode, there will not be many other countries eager to follow our model.
The police are giving the homeless people a rough time in St. Pete. Why not sign those people up for nodoc condo?
http://tinyurl.com/29pv58
some fancy antiques dealer on madison ave is suing a homeless guy for a million for staying warm on the heating grate outside his shop.
I read somewhere that populist politics will become trendy again this year. Duh, we’ve only been predicting that for three years, but this sort of thing as you described will get the ball rolling.
No joke, seriously! I drive by that area every weekend and there are several condo projects still in development a few blocks away.
ah the good life. being a landlord in archie bunker ville http://newyork.craigslist.org/que/rfs/265553336.html
I had to go look up the definition of “magnificent” after looking at those pictures in case I have been mis-using the word all these years.
“ah the good life. being a landlord in archie bunker ville”
Where’s the front yard?
My new blog on the Madison, Wisconsin housing bubble is now online:
http://madisonhousingbubble.blogspot.com/
This is one way you can tell it is different this time: In past real estate booms, the coasts were primarily affected; home price to income ratios in Wisconsin stayed nearly constant (2.2-2.4 ratio of median home price to median HH income over the long run).
Download the top paper here (in .pdf form) for more on this subject…
http://www.wellesley.edu/Economics/case/Research1-1.html
Don’t know if this was posted earlier in the week or not, but I thought it was a good read (well, minus the political stuff towards the end…The Online Journal definitely has an agenda):
http://onlinejournal.com/artman/publish/article_1635.shtml
Nothing new in the article, just pretty much a good summary of what’s been said on the HBB.
December job numbers show softening economy
With real estate sector cooling, employment stays on simmer
By Dean Calbreath
STAFF WRITER
January 20, 2007
http://www.signonsandiego.com/uniontrib/20070120/news_1b20jobs.html
Dragged down by a sharp decline in construction jobs, employers in San Diego County added only 300 jobs to their payrolls last month – a low figure during the holiday shopping season, when jobs are usually abundant.
HOWARD LIPIN / Union-Tribune
Jaime Rodriguez (left) and Diego Garcia dug holes for a fence at a Shea Homes development at La Costa Ridge in Carlsbad. During 2006, construction firms in the county lost 5,000 jobs, more than 5 percent of their work force. Construction firms shed 1,800 workers during December and real estate firms cut 500 positions, according to data released yesterday by the California Employment Development Department. But those losses were offset by a seasonal spate of hiring at retail stores, bars and restaurants.
“Even though there’s some cooling off in real estate, jobs are still being added,” said Nathan Moeder, a principal at San Diego’s London Group Realty Advisors. “The core is still there.”
During 2006, construction firms in the county lost a total of 5,000 jobs, more than 5 percent of their work force. Statewide, construction firms have axed 15,300 workers, a 1.7 percent loss. And economists say the losses will probably continue.
“I expect further contraction on single-family home construction,” said Kenneth Simonson, chief economist for the Associated General Contractors of America. “It’s hard to say when that will end. It’s really a question regarding how long potential home buyers think they can hold on. Right now, home prices are still dropping and buyers are waiting to see when there will be a bottom of the market.”
It’s really a question of when used home sellers and new home builders wake up to the fact that there is no bid at last year’s wishing prices. Because with the supply glut, which can persist in the near term while wishing prices stay delusionally high, home prices and rents will continue going down, as supply is added to the market in excess of demand until prices correct down to an equilibrium which matches the end-user bid. Meanwhile, potential home buyers can bide their time and avoid the risk of catching falling knives, as homes are still nowhere near affordable for those who actually intend to pay off their loans, and falling rents and falling purchase prices both act in favor of continuing to rent indefinitely.
Things might be getting interesting in Charlotte. We’ve been one of those “last dominoes” to fall, and homes are still affordable and sell well in the outer suburbs.
But, I’m beginning to hear some concern from people that moved into uptown condos… rumors that investors own too many other units… about house flippers that overshot the market in gentrifying areas, and have overpriced rehabs in parts of town like Belmont and Wilmore that are still pretty ghetto by most people’s standards.
Will be interesting to see how 2007 plays out.
What can I say here. They are saying a job at wallmart or mall santa is replacing a construction job OR a real estate agent. Wallmarts paying a little bit better than I expected.
The Arizona Republic will publish a front page story this Sunday 01/21. Their advertisement says the front page story will be “Mortgage Fraud Threatens Valley Housing Market”. Looks like MSM is catching up to reality. Find story this Sunday at http://www.azcentral.com/.
From craigslist… um, isn’t this type of advice why we got here in the first place? At least there’s an attempt to put SOME money down here… so Realtors are now recommending that buyers only somewhat F themselves…
http://washingtondc.craigslist.org/nva/rfs/265544093.html
The Royalton at King Street Metro - 309 Holland Lane, #209, Alexandria, VA 22314
Own it for roughly $1,600 per month*
-*$1,600 per month based on 10% down, 10% at 7.375, 80% at 6.375 I/O, taxes, condo fees and tax savings.
HELOC hijinks get Dear Abby’s attention:
Now I know why gen-Xers hate boomers
Actually, great story about why boomers loathe whiny, overprivileged younger people. Any reason this lazy little bimb couldn’t earn some money so her “fantasy” wedding wasn’t an embarrassment?
give me a gigantic break.
Sounds like in this case the daughter (Gen Y?) got the parents (Boomer or Gen X) that she deserves.
I thought the parents had promised the kid the HELOC money was going to be spent on her wedding. On second look, that was the cover story to LO. This still brings up the question - where did the $$$ go? True, it’s not the kid’s business what parents do with their cash. For all anyone knows, the old man stuffed a few strippers’ g-strings with the cash, and the old lady gave the Atlantic City slots a good work-out.
Dear Abby does not approve.
HELOC and lied to the loan officer, no foul, but whats the point. If the daughter is upset then don’t visit them in the assisted living facility.
Few notes from the inside here. For the first time in my career of 10 years i am hearing people tell me that their market is a little off when i ask their home value for the loan application. I have seriously never heard people admit that their house is located in a falling market up until now. It has been occuring over the last couple months from all over the country (i lend nationwide). There have been boom and bust cycles in different locals across our country over the last ten years and yet not once until now have i heard borrowers admit that house values were falling were they live. It is actually a relief to here these words after listening to so many smug homeowners brag to me how “things have really been taking off here”. Every call i took for the last 3-4 years people were patting themselves on the back for making such an astute purchase seeminly unaware that no matter where you bought it was doing the same thing. SO sick of hearing “they are building a mall here in Bourbonville, Kentucky which has really made our values skyrocket.”
“I have seriously never heard people admit that their house is located in a falling market up until now.”
I’ve heard a couple of “buyer’s remorse” stories this winter.
SO sick of hearing “they are building a mall here in Bourbonville, Kentucky which has really made our values skyrocket.”
HA! Everyone thinks they’re a genius.
Yes, the great mall…. same story in Estrella Mountain area. (AZ) Friend bought there, put house on market for 339, now down to 255. Still no takers
“Financial Genius is Before the Fall”
http://www.amazon.com/Short-History-Financial-Euphoria-Genius/dp/096247455X
“Financial Genius is Before the Fall”
The customer reviews of this book on Amazon make interesting reading in themselves.
You have to be careful there. Lots of people dislike what Galbraith said (especially if it reflects badly on their industry) and hence are eager to make a straw man characterization. Read the book and make up your own mind.
“Lots of people dislike what Galbraith said…”
Actually I was speaking of the positive reviews at Amazon. Many read like some of the more thoughtful posts to this blog.
In the current environment, are you referring to:
a. Land option contracts
b. Pay option ARMs
c. Credit Default Swaps
d. Mortgage Backed Securities
e. All of the above
f. Other
It’s amazing whenever speculation presents itself, bankers always create a product to keep the party rolling…
“Few notes from the inside here.”
Any indications that subprime and stated income loans are getting more scarce? Just wondering when the rising risks will get reflected in the interest rates and/or the underwriting.
The big ones I am hearing recently are Bass Pro Shops and Cabelas. These are giant sporting goods theme parks springing up everywhere with taxpayer financing.
I am visiting back in Ohio, and I just heard Medina County is apparently offering the proceeds of all county sales taxes collected for ten or fifteen years as an incentive to build a Cabelas. Wood County is offering something similar for a Bass Pro Shop. I’ve known for a while they were planning a Bass store in Mesa Arizona, but I didn’t know these things are normally taxpayer financed, just like a stadium. It’s apparently part of the business model that they don’t build without taxpayer financing.
Almost everybody thinks it is a great idea and will bring all kinds of business, but I haven’t talked to a single person who believed they would be able to afford to buy anything at one of these places. This has got to be one of the most transparently ridiculous boondoggles I’ve ever seen.
The big ones I am hearing recently are Bass Pro Shops and Cabelas. These are giant sporting goods theme parks springing up everywhere with taxpayer financing.
I am visiting back in Ohio, and I just heard Medina County is apparently offering the proceeds of all county sales taxes collected for ten or fifteen years as an incentive to build a Cabelas. Wood County is offering something similar for a Bass Pro Shop. I’ve known for a while they were planning a Bass store in Mesa Arizona, but I didn’t know these things are normally taxpayer financed, just like a stadium. It’s apparently part of the business model that they don’t build without taxpayer financing.
Almost everybody thinks it is a great idea and will bring all kinds of business, but I haven’t talked to a single person who believed they would be able to afford to buy anything at one of these places. This has got to be one of the most transparently ridiculous boondoggles I’ve ever seen.
A few people I know have finally admitted that the market is off ,but it’s amazing how many people have a wait and see attitude about the spring market . I guess the buyers are going to come from Mars this year .
H-dub,
The thought being “prices have dropped from their highs, so more people will want to take advantage of this temporary lull…before prices start going up again and potential buyers get priced out forever.”
Wizard –
The cargo cult mentality in this country is limited to Wall Street playas hoping for rate cuts later in the year. It includes home sellers who don’t know enough about economics to see through the NAR’s $40m-worth of MSM propaganda that says the market will come back late in 2007.
http://en.wikipedia.org/wiki/Cargo_cult
Very succinct piece on REIT valuations from this week’s Barron’s Online. When ROI no longer makes sense just change the metric:
“As for Equity Office, the REIT sector has ascended further into thin air, and there’s much loose talk these days about how office REITs aren’t expensive because of their “replacement value.” Never mind whether the rent roll can deliver a proper return; don’t you see that if you wanted to build the same structures at today’s construction costs and permitting requirements, it would cost more? Why one wouldn’t just say, then, “OK, I’ll neither build nor buy a skyscraper” is never discussed.
This is where the buyout bid-fest acts as a harbinger for the overall stock market. Buying becomes contagious and competitive, what someone else paid becomes the floor beneath my position, and ego blurs the analytical vision.”
Well, Trammell Crow and Sam Zell selling, 30something New Age RE “investors” buying with borrowed foreign money . . . which side of that trade do you want?
http://www.gazette.com/display.php?id=1329011&secid=1
Colorad Springs just lost 135 apartment units, with at least one dead tenant, thanks to two career criminals and gang-bangers who were coddled by our local “criminal justice system” and indulged by social services. I truly pity decent, low-income families or single moms who are forced to live alongside vermin like this - and suffer the consequences of their violent lawlessness - or apartment managers who are forced to rent to such scum or be sued for “discrimination.”