The Housing Bubble

Stagflation, Paul Volcker….

http://www.pbs.org/wgbh/commandingheights/shared/minitextlo/int_paulvolcker.html

It’s all in this tome…

http://www.amazon.com/Secrets-Temple-Federal-Reserve-Country/dp/0671675567

but caveat emptor, as Greider knows a lot more about bookwriting than economics…

(i.e. keep an economist’s eye for the journalist guy while reading)

in the late 1960’s and the early 1970’s the fed let inflation get out of control because they thought it was OK as long as there was growth. then they started raising rates with the peak being the oil crisis, the 14% Fed Funds rate and 20% prime rate around 1981.

take a look at the historic CPI numbers and the 10 and 30 year notes. As inflation got worse people became scared of the US economy and interest rates went up with the peak being 1981. As things got better afterwards the rates started to drop along wth inflation. In 1990 the CPI peaked again along with the fed Funds rate of 10% and started another long drop in the 1990’s. Part of the problem in 1990 was the budget deficit which as a percentage of GDP was a lot higher than today. for all the grief bush gets, the deficit is pretty small along with our defense budget

Don’t forget the inflation of the ’70s was rooted in the twin wars of the 60s - Vietnam and War on Poverty. Today, we have War in Iraq and War on Terror. Sound familiar. Where exactly do you think the $8-10 billion per month is coming from to fund the war? Not from the pockets of the few people left who support. No, funding for the war is coming from the pockets of our children and future generations. Virtually all of the money used to purchase the bombs, bullets, etc. is printed out of thin air. Inflation is an increase in the supply of money. A symptom of inflation is a rise in prices.

just in

Vornado offers to buy Equity Office Ppties for $56/shr
Vornado in talks to sell $10B of Equity Office Pties assets

this is for sure not enough to trump the cash offer from blackstone

That’s a super piece. Thanks for posting it.

Q. What specifically about the pre-foreclosure market? Would that have value to us or would it also engender lots of negative P.R.?

A. There is an indication that getting a loan during the pre-foreclosure period is possible although it is felt that most borrowers will not be approved. However, it is a delicate situation. Working in the foreclosure realm does potentially cause a negative PR cycle.

appears to be some sort of trend………….

Meltdown ??? Isn’t this snow bird season ?? I would think the market would start to pick up right about now ??

I’m a complete novice when it comes to economics, finance, and real estate, but Google is my friend.

Anatomy of a Trustee Sale

“what exactly is a Notice of Trustee sale”

Basically, a notice of an auction to liquidate a house due to foreclosure.

Actually the entire article was a pretty good read. The last line made me laugh: (paraphrasing here) Waiter bring me your menu … and your lastest listings too!

Yeah, but waiters provide a valuable service.

Waiting tables beats prostitution any day (unless you personally enjoy prostitution, that is…)

I heard it…
What did the California Real Estate Broker say to his latest customer?

“Would you like fries with that?”

w/o nukes alternatives are total gov subsidized BS

“I wonder how much greenhouse gas emission is prevented by substituting a gallon of ethanol for a gallon of petrol, after you figure out how much oil was used to drive the tractor that plowed the corn, how much oil went into the fertilizer that made the corn grow faster, etc?”

Do you really want to know the answer to this question? First, comparing on a volume basis is misleading because ethanol has a lower energy density than gasoline. Comparing on a energy basis the optimistic calculation is that for ethanol from corn 1 BTU of oil produces 1.3 BTU of ethanol. In order to even get this good a return some of the energy input is assigned to the corn byproducts from ethanol production. By that I mean that something called distiller’s grain is left over from the fermentation process and this is an animal feed. Since it is a useful byproduct some of the energy that went in to procuding the corn is assigned to it rather than the ethanol.

Bottom line - using corn to produce ethanol as an alternative fuel is a giant waste.

Sugarcane on the other hand is a viable source of fuel. Just look at Brazil.

“Did any of Arnold’s advisors mention how much oil is used up in producing a gallon of “clean” ethanol?”

Farm lobby…Agricultural Industrial Complex?

“Unfortunately, the Department of Energy has provided statistics showing that it takes more energy to produce a gallon of ethanol than the amount of energy that gallon of ethanol contains. In addition, the Congressional Research Service, the Congressional Budget Office, and the Department of Energy all acknowledge that the environmental benefits of ethanol use, at least in terms of smog reduction, are yet unproven.

In addition, ethanol is an inefficient, expensive fuel. Just look at the 3- to 5-cent-per-gallon increase in gasoline prices during the winter months in the Washington, D.C. area when ethanol is required to be added to the fuel.

Finally, let me quote Stephen Moore, of the CATO Institute, who puts it very succinctly in a recent paper:

“…[V]irtually every independent assessment–by the U.S. Department of Agriculture, the General Accounting Office, the Congressional Budget Office, NBC News and several academic journals–has concluded that ethanol subsidies have been a costly boondoggle with almost no public benefit.”

So why do we continue to subsidize the ethanol industry? I think James Bovard of the CATO Institute put it best in a 1995 policy paper:

“…[O]ne would be hard-pressed to find another industry as artificially sustained as the ethanol industry. The economics of ethanol are such that, for the industry to survive at all, massive trade protection, tax loopholes, contrived mandates for use, and production subsidies are vitally necessary. Only by spooking the public with bogey-men such as foreign oil sheiks, toxic air pollution, and the threatened disappearance of the American farmer can attention be deflected from the real costs of the ethanol house of cards that consumes over a billion dollars annually.”

Mr. President, last year, when the Congress was considering the Taxpayer Relief Act, the House Ways and Means Committee took a bold step and included in its version of the bill a phase-out of ethanol subsidies. In the report accompanying the bill, the House Committee stated:

“[Ethanol tax subsidies] were assumed to be temporary measures that would allow these fuels to become economical without permanent Federal subsidies. Nearly 20 years have passed since that enactment, and neither the projected prices of oil nor the ability of ethanol to be a viable fuel without Federal subsidies has been realized. The Committee determined, therefore, that enactment of an orderly termination of this Federal subsidy program is appropriate at this time.”

The Senate Finance Committee took the opposite view, but fortunately, reason prevailed and the conference agreement on the Taxpayer Relief Bill made no change to current law, allowing this needless subsidy program to expire at the turn of the century.

Mr. President, we should end these subsidies. If ever there was a prime example of corporate pork, the unnecessary, inequitable ethanol subsidy program is it.

Mr. President, with today’s booming economy, it is hard to justify continued government subsidies for programs that have not lived up to expectations after more than two decades of government assistance. It is even harder when those subsidies are given to an industry that makes over $30 million a year producing ethanol.”
Senator John McCain
March 11, 1998
http://tinyurl.com/3cj4ph

And if every ethanol plant under construction is on line by 2009 they will use 90% of the world’s corn crop. They waste an incredible amount of water which is becoming a scarcity world wide. etc.

http://www.larouchepub.com/other/2006/3319ethanol.html

Ethanol takes more energy to produce than delivers. Biofuels are a fraud that will only exacerbate growing foodstuffs shortages and costs.

“Corn is a much better investment these days.”

Could be risky, due to the “emperor’s new clothes” effect (some kid might point out the transparency of the new attire)

pending shortfalls in CA…..???

My single biggest fear….A recession that significantly curtails revenue and both state & local muni’s collapsing under the weight of unbearable bond, employee & legacy costs….

Spending is clearly out of control. I was at a luncheon last month attended by a County Treasurer in SoCal. He noted that revenues were up 30% and the county commissioners were spending it just as fast as it came in.

Jones, 27, got a so-called sub-prime loan because he was a first-time buyer who is a self-employed barber, has debts and makes about $500 a week. He planned to refinance before December when his monthly payment could jump to $1,646 from $1,291, hoping a good payment record on this mortgage would secure a lower rate.

that ought to work out well, who needs food or any savings when you have a home! the american dream hard at work oh btw he aslo has 2 kids he is supporting

“I’m at the barber shop from open to close,” Jones said in a Jan. 30 telephone interview as he was leaving his house for work. “I can’t do more than that.”

Quoting a barber with an adjustable ARM,trying to trying to stave off foreclosure…as often predicted here, debt slavery and mortgage serfdom already in play. Oh, the joys of an “ownership society” .

I read this article this morning from link on Twist’s blog.

But as usual, the writer didn’t comment (judge) the man for making two babies and being married to the mother. Which would in fact save them both money since they would be in one household. Judgements aside, this is sound financialy planning - stay married and build up savings.

“Housing and autos hit the economy with their best punch, and the economy is still standing. It is dancing,” said Stuart Hoffman, chief economist at PNC Financial Services Group.

http://www.msnbc.msn.com/id/16901445/

Not trying to be argumentative JAS but the data although factual, is misleading in that it paints a picture of a soft rental market in the valley….Many markets are very tight right now and the pressure is upward on rents….Mt. View, particularly near town is as tight as a Virgin the night before their wedding…I recently did a rent survey for a client on California street…I canvassed well over 30 complexes encompassing more than one thousand units and found less than a dozen vacancies….Many complexes had waiting lists….As I suggested before on the earlier “Bits” 2001 was a anomaly…Almost like saying that Cisco was @ $90. per share in 2001 and its only $25. in 2007 so it must be doing poorly….The $90. per share in 2001 was not a realistic value of Cisco and neither were rent rates….Maybe someone else on the blog that’s in “Silly Valley” can comment ???

Here’s a nice set of charts that are good to look at whenever you doubt what you see in the real world.

http://www.safehaven.com/article-6819.htm

Wes Chester,
Really entertaining site…did you see this, from a “determined realtor”?

(As a realtor)…There is no transaction we are involved in to which we don’t bring a great deal of non-obvious value. Frankly, if I just talk with you, or visit you at home, I’m going to shed a lot of information gleaned from experience…the job is so complicated that, unless you are doing it full time (which could include full-time investors), you could not possibly do it as well as I can.”
http://www.bloodhoundrealty.com/BloodhoundBlog/

Learning to be a waiter is going to be a stiff learning curve for this guy…he might not be able to make the cut.

uh … about #5 .. those cell phones are enlarging something but it isn’t he earlobe.

What a strange world we live in.
Levitt said:
“New home orders totaled 204 in the latest quarter, but 122 cancellations resulted in net home orders of 82″
And along comes a generous buyer and offers a 32% premium for all the stock of Levitt. How much more would it have paid if Levitt had no net home orders?
Crazy!

What a stupid statement, “The Builder know they had PRICED the homes WAY BELOW MARKET”. No you moron, the builder priced them at the CURRENT market, where he could actully sell them, vice letting them sit indefinately while waiting for a GF like your friend to come along and willingly pay OVER the market.

Sounds like the couple in Garbage Grove, CA

I’d put money on this being the Garden Grove folks. I drive by that tract sometimes…and I shake my head. It’s not exactly a nice part of OC (not the ghetto, but on it’s way there) and they thought it was okay to buy an $800K house there? The house was worth $800K at the time because you were willing to pay it. If none of the 12 idiots paid then the prices would have come down before that. Now it’s worth less because there weren’t any more idiots left who were willing. You gambled like a whale in Vegas that the builder would find 39 idiots just like you. And you lost. They only found 11 more. I hope any lawsuits get tossed out.

I like what you’re saying and I applaud you for saying it, but I cannot get past people’s capacity to rationalize debt/wage slavery. What you suggest goes so much against the grain I think people will opt to take on four jobs, sell a kidney, and work until they drop before they consider such sensible alternatives.

As for me, home is a 350 sq.ft. shoebox in the sky, with a large balcony just made for playing a fiddle. Soldier on.

Unfortunately, today’s “small house” is 2000 sq feet. If you want smaller, they will pack you into “attached product” (condo or TH).

Neg am means the principle is increasing each month. If you have a 100% loan and the house does not increase in price, the very next month you are already upside down.

‘rising house value will “bail them out?”’

Suppose you paid $500K for a house with an I/O option ARM. Five years later you learn (1) you owe more than $500K (thanks to negative interest payments) and (2) you cannot afford the doubling of your monthly payment when the loan amortizes over the remaining 25 years at a rate twice what it was back in 2003 when you bought.

Your ace in the hole? The value of your home is $1m now (at least if prices went up as fast as they did from 2000 to 2005) so you can pay off the loan, pocket over $400K and go retire on a lake somewhere i AZ off the proceeds.

The MSNBC article is here http://www.msnbc.msn.com/id/16922582/

I guess, in the words of the Kinks song, “I’m not like everybody else.”

I’ve been following the personal savings rate for a while now. Here is the link to the data:
http://www.bea.gov/bea/dn/nipaweb/TableView.asp?SelectedTable=75&FirstYear=2006&LastYear=2006&Freq=Month

2006 - 74 = 1932 (gulp!)

Glad BB has studied the Great Depression and knows how to steer us clear of another one…

–
74 years ago the US was in the depth of Great Depression.

Bring on the Greater Depression, you borrw-and-spend fools, by falling for Bankrupters’ and Fraudsters’ tricks. Stupid people never learn.

Jas

Never thought i’d see Gresham’s Law (bad money drives out good money)
relegated to the lowly Cent~

I really don’t understand why the mint would care? Let people melt them down and make a few bucks. How are we harmed by that? In fact, taking money out of circulation reduces inflation; we should all melt down our pennies. Further, if they were actually considering changing the value of pennies, can you imagine the speculation for pennies and the entire market that would spring up around trading pennies?

Right. Ok. Nevermind the lowest personal savings rate in 74 years. Nevermind the charts waaahoo posted above (2007-02-01 06:13:50).

I don’t know…maybe I’m wrong. Maybe, despite the facts that are given repeatedly on this blog, things will continue to defy logic and economics forever. And I’ll end up being the idiot.

(Can you tell I’m in a bad mood today?)

Well, we all know something was up when POTUS went to the NYSE the same day the FOMC was all but assured not to shock anyone with a hike. How’s that for telegraphing your moves? Plus, it spawned all kinds of feel good economic tripe like you’ve posted. Are they celebrating or doing damage control?

Bush visited the floor of the NYSE? That seals it for me. There will be a crash for sure this year!!!

“Nothing, other than an external shock, will derail the economy this year,” said Eugenio J. Alemn, senior economist at Wells Fargo. “The economy’s in good shape.”
—-
Wells Fargo Home Mortgage, Number 1 in subprime loan originations as of 2006 Q2. ~50% more market share (9.8% = $43.8 B) YTD than #2 (6.4%).

Makes me wonder which is worse… for the next natural step after saying “I do” to be going deep into house debt — or for the next natural step to be procreating more future wage slaves and land serfs to offer up to the international banking cabal.

When wage slaves have kids, the central bank cartel has much greater control. Having kids means needing to buy more stuff to pay interest on.

If everyone here really wants to have some control, you all need to stop buying any new consumer products — especially to stop buying them on credit. Freecycle.org (not the dot.com site) is a good place to start. Withholding our dollars is the only language the ‘fed’ overlords will understand. When I say overlords, I’m referring to welfare queens of the sponging Rockefeller and Rothschild variety.

Anti-consumerism will first starve the obese upper-middle class shareholders. Once that happens, they’ll turn on the international banking cartel to feast. http://www.geocities.com/northstarzone/FED.html

Getting pre-qualified is not necessarily a bad thing. I will be looking to get pre-qualified within a year or so at 3x my salary and then use that to bargain shop for the house I want. I may “insult” a few money renters along the way, but I know exactly how much I am willing (and can afford) to spend on housing each month and what I want for that money. If I can’t find what I want for that price, I continue to rent. But if I can find what I’m looking for at a comparable price to renting I want to be able to make the purchase.

Pre-qualification is just being prepared. It doesn’t necessarily mean you overpay. You may in fact still have an opportunity to enlighten her (assuming she doesn’t already know) on what a good deal and traditional lending standards (i.e. what she can truly afford) look like.

Now get out there and buy a v-8! (auto)

They have to run for reelection next year. By that time, people won’t be able to construct the time line or won’t care.

Sounds like bitter owners to me.

I say tell the kids to jump in and leave a couple of Hershey bars on the bottom.

Maybe it’s just the lawyer in me, but if some a–hole tries to tell me that, I tell him to prove it or get out of the way. And if it turns out to be true, then I’m on the phone to the landlord demanding an immediate rent reduction, since I’m not getting what I bargained for.

Renters = criminals. Get used to it. Renters and landlords cause property values to decline. Swimming without authorization shall go on their permanent record, such undesirable traits. A 2000 foot rule could be next, no renters within 2000′ of any owner occupied sfr or pricey condos.

No fear in Weimar America:

http://www.nowandfutures.com/us_weimar.html

“As a contrarian, I’m chomping at the bit in anticipation of tremendous buying opportunities ahead, and adding cash reserves on each new surge up. I feel about as lonely now as I did in late 1999 and early 2000.”

I’ve been thinking about this a lot. I cashed out in early Nov. Since then, everthing in the market is up. I keep trying to remind myself, March, 2000, March 2000….I see what I see, and I’m staying on the sidelines.

“There seems to be no fear in the markets”

Recently, when stock investors thought that Ben B would start dropping rates this year, stocks went up.

When economic data showed a ‘gangbusters’ economy, the thought was that Ben B wouldn’t drop rates, and may even raise them a bit. Stocks went up as well.

It’s a no-lose scenario. Stocks always go up. No one ever lost money on stocks.

Got bubble?

The one that cracks me up is SUNW. Everyone getting aroused because it’s over 6! I had a friend with a 7 figure option position (employee) at that company in 2000. She didn’t want to sell of course, it was going straight to a gazillion dollars a share, so she sold 2001 leaps against the position. Well, that hedged about 20% maybe of the drop from the 90s to 2 bucks a share. Idiot. She could have retired in her early 30s.

Never fear…..

“There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved.”
–Ludwig von Mises

$10,000 for a class or $99 for that red light/ green light trading software–either is the ticket for “working” in your PJ’s and flip flops.