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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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The spring bounce?
http://finance.yahoo.com/real-estate/article/102330/housing_glut_gives_buyers_upper_hand
NJ saw December contract-sales tick up for the first time in what seems like a very long time.
http://njrereport.com/index.php/2007/01/31/december-otteau-report/
Did the spring market come early in the Northeast?
jb
That’s because it was the warmest december in 115 years, plus all the developers were giving mad incentives to the people if they closed before year end.
List all the “since great depression” here and see how messed up the financial situation in the US is. Obviously yesterday’s negative savings rate @ -1% and 2005’s report saying -.4%. But what else are we seeing that has not been seen in 70 years?????
Boy that Yahoo link was hilarious.
Regarding Florida condos:
Eventually, he predicts, hedge funds and other investors will step in to buy surplus condos in bulk at huge discounts.
So there you have it. It’s not the boomers that’ll save FL, it’s the hedgies. Lemme guess, there are a 1000 hedgies a day moving into MIA?
That is very true - they will be sold in bulk at discounts to instituional investors who have the funds to weather the downturn and create holding companies to rent the units out and generate cash flow. The FB’s will the one holding the bag.
well, there is definitely a spring bounce in the asking prices in the Netherlands. Maybe because we are getting another rightwing government that will do everything they can to stimulate the housing bubble in the next four years.
A home in my area that was previously sold for EUR 375K in 2002 is now on the market for EUR 1.500K, but that’s not all: they already split off part of the building for EUR 700K last year. This same home sold for EUR 110K in the early nineties, appreciation over 15 years nearly 2000% with not much more than some paint jobs and minor structural changes (to split off one part). And there are many more examples of huge price jumps in the latest realtor lists.
I don’t think the bubble is over until the fat lady sings in Europe as well, and that is definitely NOT in the cards yet. If the ECB keeps their rates as low as they are and does nothing about all the crazy lending, I think we will see double-digit appreciation of the average home price this year.
“I don’t think the bubble is over until the fat lady sings in Europe as well, and that is definitely NOT in the cards yet.”
Are you saying that Europe will keep bubbling long after the air has hissed out of America’s bubble? Because I am highly skeptical that a global boom which has exhibited near perfect correlation on the way up will suddenly decouple when things unravel.
Could you please explain your reasoning on this, and also provide a historic example while you are at it, so we understand how this might work? (Or are you floating another version of It’s different this time?)
no, I’m saying that I think the US bubble if not finished for good - because there is no sign that the global housing bubble is in trouble.
I agree that if the bubble in the US really collapses (let’s say back to price levels of 5 years ago) the bubble in Europe should collapse too. But it just isn’t happening. If you average the gains in Europe and elsewhere with the minor losses in the US, the global property bubble is still expanding at a very healthy rate.
“no, I’m saying that I think the US bubble if not finished for good - because there is no sign that the global housing bubble is in trouble.”
Do you understand the connection of California real estate market values to subprime? Because the bubble’s demise begins at the grass roots level and spreads up the tree — causality is not top down in this case.
we will see - my guess is that FED and politics are going to force a ’soft landing’ by inflating away the debts and keeping interest rates artificially low (and no, the dollar will not fall because of that because in Japan an Europe exactly the same policy is used).
Inflating the debts will only work if wages go up. Otherwise, cost of living inflates with stagnant wages and will put more people in trouble and acutally accelerate the bubble. Nto to mention the impact on interest rates.
High inflation will drive long term interest rates back towards double digits regardless of what the Fed does with short term rates. That coupled with $5+ gasoline, 2-3x on the grocery bills, heating bils, etc… just will make it worse.
The Fed does not have control of this anymore….right now, a lot of legacy thinking and hopeful psychology is holding the housing market at still high levels (albeit lower than before). Lose the hopeful pyschology and watch the panic selling by 50 something boomers who may have 50% equity…but are desparate to get something out before it goes to zero or negative. The rest with less than 50% equity, either pay the mortgage off or down a lot or eventually it’s a foreclosure.
The only thing the Fed can do is to PAY OFF/DOWN people’s martigages to save this!
Mortgages….can’t type.
High inflation will drive long term interest rates back towards double digits regardless of what the Fed does with short term rates.
that sounds logical, but up to now the logic is not working. Many experts think rates have been and can be kept at artificially low values because the FED is printing so much money that people are willing to accept dismal gains (and maybe because the FED is secretly buying their own treasuries, stocks etc.). The perception that there is no risk (FED/ECB will bail out everyone, especially the big players) and the huge distortions of the CPI are playing their part as well.
and regarding salaries: they are rising in Europe lately, even significantly above official CPI. But they sure are not keeping up with real inflation.
Long term rates are low because inside money sees a risk of deflation…actually, we may well see a mix of deflation (luxury assets - McMansions are in this category) and inflation (living necessities). The situation is quite confusing…something will blow at some point and then we are off to the races….what, how and when, who knows?
“inflating away the debts and keeping interest rates artificially low”
Er, excuse me, but doesn’t higher inflation normally result in a higher yield on T-bonds to price in a risk premium? How does this work?
Yes, that is the normal result. That’s why M3 is no longer being reported. As soon as the market sees that the “man behind the curtain” who is buying all the Treasurys is actually the Fed, all heck will break loose.
“If you average the gains in Europe and elsewhere with the minor losses in the US, the global property bubble is still expanding at a very healthy rate.”
The extensive margin effects of the rolling bubble are somewhat congruent in terms of their movements across nations and across US states. At the same time former Eastern bloc nations are bubbling up in the international arena, Utah and other California refugee states are bubbling up within the US. It takes time for a wave to propagate.
yes, I agree - but even in the primary EU markets there is no sign that the bubble is loosing steam, on the contrary: prices in the primary bubble markets in Europe like UK and Netherlands seem to be accelerating again after some years of smaller gains.
Ben, I propose an online debate btw NHZ and Get Stucco for the weekend.
It’s a rolling debate
right wing ? dude
right wing by Dutch standards, based on their plans (labour party PvdA is part of the new government, but the new government plans are just as conservative as those from the previous rightwing government).
Marco Island Florida - part of Collier County - very hard to get true statistics on closings- in the latest newspaper listing (marconews.com) , a “recently” sold home was really sold last June.
Sub-Prime
http://www.ft.com/cms/s/2e254842-b224-11db-a79f-0000779e2340.html
“The American Securitisation Forum’s annual conference in Las Vegas took place as an index that measures the health of bonds backed by subprime loans, which are made to borrowers with tarnished credit histories, flashed new warning signals.”
I can’t think of a more symbolically apropos setting to discuss the merits of subprime lending than the gambling capital of the world.
“Problems remain confined to the minority of borrowers in the subprime category, but they have forced several small lenders to close their doors.”
Glad to hear the problems are limited to a minority of borrowers. Too bad the minority has set the price of all other real estate in California, through the effect of subprime lending on inflating the home purchase budget relative to household incomes, and the effect of a few comparable sales results in setting the market value of everything else.
Clarification: I should have said “all residential real estate in California,” though there is an indirect effect of subprime residential lending on commercial real estate market values (especially when you consider that new tract home developments are built with new strip malls attached at the hip).
“The index, which measures the spread between the London interbank offer rate and the yield on subprime mortgage bonds rated BBB-minus reached a record 640 basis points on Wednesday and was trading at 625bp yesterday. The spread has widened by about 150bp in the past week.”
Conundrum, RIP. And welcome back, risk premium.
Is it too late for FBs to get out from under the guillotine?
A few weeks ago I told you guys about my buddy Bob. Well he finally came clean. He is sooo in over his head he missed January’s mortgage payment. Naturally, there is no way he is going to come up with his annual tax money. He is in complete melt down — financially, emotionally, spiritually, and so on. He wants to walk. Start over. There is even talk about divorce.
Does anyone have any advice for Bob regarding a quick sale, where to buy and bury St. Joseph, avoiding foreclosure, avoiding bankruptcy, forebearance, marriage, anything at all OR is it too friggin late for FBs like Bob?
I forgot the details. Does he have any equity?
No — not much. Bought in 2005. Piggy back loan. Pay option ARM.
Here is the link to our previous discussion regarding Bob; it’s the third or fourth question in the thread: http://thehousingbubbleblog.com/?p=2123
Tell him to get another job and have that go to pay his debt.
Advice: Good spouses are hard to come by. Everything else in that list is fluff.
And if the wife doesn’t really that, then she’s probably fluff too.
“really” -> realize
P.S. the wife can get a second job too. If it takes flippin’ burgers to crawl out then so be it — honest work is honest work — oh and tell them to cut up the credit cards and act poor (since they don’t know how to be poor .. just act like it for a while and maybe it will come to them).
There is always hope, but not always easy solutions. Once you get behind it’s damned hard to catch up. No doubt the divorce rate will tick up, to bad when tough times befall, you and your mate are supposed to work together to solve the problems. If Bob loses the house it’s not the end of the world, he should re-group cut way back on spending and set new more realistic goals. Anyway I’m sure you have already said all that. There are many,many Bob’s out there, that’s way I see no “soft or slow landing”.
wmbz — your dead on - the unfortunate thing is one of my best friends in grade school (mid 70’s) father had faced many financial hardships - with 3 kids and a wife and all the weight of the world on his shoulders and no one he felt he could turn too - he hung himself in the garage - I can’t even imagine what his family went through after that - they moved away - obviously the bank kicked them out of the house - no insurance on suicides, we kept somewhat in contact but his life was turned upside down - and the saddest thing is - this stigma haunted him most of his life until 3 years ago he to took his life - thats what angers me the most when I read some of the postings in Ben’s blog - not everyone is a flipper or a scammer - some make honest mistakes and will pay dearly for it … while those who play the system and get stung - well they wait another day and play again -
As long as you have some sort of roof over your head and some sort of food in the refrigerator, you’re still in the game. I agree, everything else but the spouse is fluff.
I’ll be curious to see how many FBs just drop out and become extremely ‘judgment proof’. Heck, even the IRS can’t do much to you if there’s no pound of flesh to be extracted.
The IRS can put a wage levy on you if you have a job.
Agreed. The new IRS is not “kinder and gentler” anymore. They are going after everyone who comes in their radar.
Bob needs to seek out some qualified financial counseling (not just from a quick hit BK attorney or from a credit counselor). He needs to seek out a true adviser, either a CPA or financial planner who specializes in personal finance. Then he and his wife need a gameplan for the next 3 to 7 years on how to stay in the game, pay bills, get out of debt, and they will need some marriage counseling because it will get very ugly before it gets better. But doing this now instead of waiting till the sh*t hits the fan would be my recommendation. Things like having no credit changes your daily life as follows:
1. may not be able to get a job (so if there is any doubt as to job stability, then they better both make the change now, while credit is still okay)
2. may have to quickly find a used car or two
3. may not be able to get a credit card (may need a secured card)
4. without credit card, harder to rent car, reserve hotel, buy plane tickets (if family death or emergency)
5. some employers may frown upon garnishments and may fire as a result
6. may need to find an apartment now, before credit takes a further hit
And as others have mentioned, if he has a good wife then his family will make it - it will be work but it can be done.
Bob should listen to Dave Ramsey for the next decade. It sounds like he needs a life plan. Once he works his way out of his current mess, he will need some character and wisdom to make sure he doesn’t walk right back into it again.
Incorporate cheaply and become self-employed. Corps don’t even receive 1099s. Keep a low profile.
The spouse is solid. Bob is the one who is having the melt down. It seems like he wants to run away from all his obligations including his mortgage, wife, job, and so on; he just wants to get away from it all; he works very hard 10-14 hrs/day but was blindsided with his tax, insurance, and hurricane Wilma roof repair bills; he is an emotional wreck and sees no end to his serf like existence. He wants to dissappear but obviously cannot.
Convince him that dread-of-the-thing is worse than the thing itself. Or get him to somebody who can help convince him…
No one is shooting at him, and he has health. There are people who would trade an awful lot to get such a life. (For instance.)
Good luck, and more power to you for helping a friend.
mrktMaven, it looks as if the meltdown is pshychological. Look him in the eye and ask him: Are you a healthy man? Are your wife and children healthy? Do you know there are 6 year olds dying of cancer in a hospital near you? Everything else can be overcome.
Oh man, does this hit home! I have a friend named Jay who makes a very good salary, but cannot stop spending money. He has to have the best of everything, cars, electronics, etc. His wife told my wife a few weeks ago that they received a notice from their mortgage company that they were 60 days late on their house payment and had one month to catch up before the foreclosure process starts. They have a large ARM and are way upside down now that the market has tumbled.
Now Jay has already lost one house to foreclosure in the past five years, and he has used up all his equity by refinancing to buy lots of crap. Jay doesn’t know that I know all about his financial issues, but I have tried to warn him from time to time about what is happening in the housing market. I think he’s finally starting to get it.
My wife thinks Jay’s wife really doesn’t understand what’s happening with their finances. She signed a Disclaimer Deed before they bought their last house, so she didn’t sign the mortgage papers on their refi. They love each other and have been married for many years, but I shudder to think what’s going to happen to them from the fallout that’s headed their way.
One thing I’m certain of is that Jay won’t be asking me for money. Despite the fact that we’re good friends, I think I’m the one person he couldn’t face in this situation.
Yesterday (Feb 1, 2007) seemed like a watershed day in terms of housing bubble-ending news (e.g., NY State -14% YOY drop in median price). Which raises the question (again) of where is the collective psyche in terms of the housing bubble stages of grief? (And will some remain at stage 1. indefinitely?)
1. denial
2. anger
3. bargaining
4. depression
5. acceptance
“Anger, denial, bargaining, depression and acceptance.”
Sounds like a Jewish law firm.
(anyone remember that movie line?)
lol, yes. Bob Fosse mocking Bob Fosse mocking Lenny Bruce.
(and was also my introduction to modern dance.)
Funny….
Some people are still in denial but I suspect most are angry or bargaining at this point. A left-shifted histogram with a smooth drop off to the right. After 2007, most will become depress.
Nah - the bargaining stage (catching falling knives) IMO will continue well into 2008, and maybe even 2009. Depression will set in some time in 2009 I think.
“the bargaining stage (catching falling knives) IMO will continue well into 2008,”
I am skeptical, because the subprime enablers (and their regulators) are having second thoughts. Whether you have GFs who would willingly catch falling knives becomes a bit irrelevant if nobody is willing to hand them $500K to buy a home they can’t afford.
You are assuming that the next wave of GFs would only reside in the lowest parts of the credit spectrum.
Would being responsible about credit correlate to having the kind of intelligence to see what’s going on with housing? Probably there’s *some* correlation.
Well if there isn’t a strong correlation between being a greatest fool and being at the low end of the credit spectrum, than the fault is in the algorithm used to score credit worthiness. There are profligate idiots up and down the income scale, but they’re idiots who should be regarded as bad risks no matter what their income is. The amount that you lend them might depend on their income, but their odds of default depend on their idiocy.
my suggestion for a weekend topic. how many of the people who bought their home in the last 18-24months using crative financing
and are having superbowl parties with their big screen tv’s will be in their homes by the time nfl season starts up again in september?
I am one who did buy a house, but I should share my story…and be brief.
4/2 1600 sqr ft craftsman comes on the market at 215k june 06, watched it all summer, met the realtor….lowballed at 135k…. realtor says “Im not gonna make that offer to the owner”…I tell him, “I’ll report you.” He makes the offer, rejected.
So the house sits all summer and finally the listing expires in Oct. at a final ask of 179k.
Then I wait, new roof gets put on, new paint goes on….3 weeks ago, I make a 150k “which is my top dollar” offer, and the owner says, done deal.
In relation to your question of creative financing? Hell, no. 15 yr fixed, 20%down, 900 pmt, 600 insurance, and 800 taxes. I make only 40k yr, but with what I was paying in rent (750 for a 2/1), it seemed to make better sense due to some creative tax incentives.
Oh, I forgot to mention it has a small rental unit in the back that gets $400 a month.
Moral of the story, let the realywhore find the sellers, let the lisitng expire, do your homework,and if you really want a house,and you have the financial means to take care of not only the house, but your family, and their collective futures…. then make a good decision.
People who have gotten these toxic mortgages are idiots. The dollar signs that were in peoples eyes regarding the get rich in real estate scam have turned to stars swirling about their heads after getting punched “repeatedly” in the face with the Interest only, pay option, 123 yr ARM resets… don’t get me wrong, I know the housing market is tanking, and will for a long time to come, but by the time I have my house paid for, it’ll be back and time for me to move to the river frontage that Im gonna pick up for a song in about 2-3 years.
Good post.
More power to ya. You bought for the right reasons, the primary being a place to live, first and foremost.
My only suggestion is to try and add a little extra each month to pay off the mortgage early. Paying interest is almost as painful as paying rent, even with the tax deduction.
Live within your means, and everything else is easy.
If his mortgage was only $120K, he’s not getting much (if any) advantage from itemizing his deductions (like mtg interest) instead of just taking the standard deduction. All the more reason to make extra principal payments when he can.
great job congrats
Ditto…..I especially love the way you “owned” the realwhore. “I’ll report you”…..
Somebody needs to come up with one of those MasterCard Priceless ads using that line.
You will do well; best wishes
What city? Couldn’t be California
Maybe he has a time machine?
wow, way to go.
What are the implications of a Depression-era US personal savings rate level?
—————————————————————————————————–
Boomers beware: You’re saving at lowest rate since the Great Depression
By Martin Crutsinger
ASSOCIATED PRESS
1:48 p.m. February 1, 2007
WASHINGTON – People are saving at the lowest level since the Great Depression, and that could be a problem for the millions of baby boomers getting ready to retire.
In fact, the Commerce Department reported Thursday that the nation’s personal savings rate for all of 2006 was a negative 1 percent, the worst showing in 73 years.
…
“Wealthy individuals have become very wealthy and they now have a larger nest egg and therefore they are spending more of their current income than they have historically,” said Mark Zandi, chief economist at Moody’s Economy.com.
http://weblog.signonsandiego.com/news/business/20070201-1348-lowsavings.html
This measure of savings is a little misleading. This represents the difference on “flows” of cash. Americans may be spending more than they earn but they still have plenty of “wealth”. Meaning they have money in savings accounts, stock, bonds, and IRA’s.
And yes, they still have “gold”. God forbid someone forgets to pander to the gold bugs on this board.
You can be both, a gold bug and voyeur of craziness, a powerful combo, to be sure.
You have to realize we are wired so very differently than the rest of you.
I’ve run this comparison of buying a Troy Ounce of Gold, vs buying a $300k house before, a parable of how we see a world gone mad, financially, but here it is again:
Gold:
Today, you’d pay around $670.00 for a Gold Krugerrand. Payment would have to be with good funds, for physical delivery. Typically no creditcards will be taken, as the 2% vig negates the buy/sell spread.
You have to be real, to buy Gold.
$300k House:
Lie about your income to get in the door, don’t bother to read the terms of sale, it’ll just make your head spin, and you might get a little fatigued from all those initials and full signatures you’ve had to sign, (hey, could there be a future Carpal Tunnel Syndrome lawsuit possibility, if I need some cash, if this doesn’t work out?) and don’t worry about the financial death hole you’ve consigned yourself to, god damn it, you are a freshly minted home owner now, it FEELS GOOD, and if you are like most of the population, i/o and arms are the bomb~ we can’t think past a month out anyway, anymore…
The lenders know they are screwing you, but everybody get’s a piece out of the gig. Within a few years of buying, your payments revert back to reality and the truth is, you couldn’t even afford a $100k home and you’ll end up giving back the house to the bank, in the end, your credit ruined. A Bizarro World, lifted from an old Superman Comic Book.
Can I eat, crap and sleep on my once of gold also?
I’d be the 1st to admit that paper money makes a damn fine toilet paper substitute…
LoL… good one, ok you sold me on gold.
I’m afraid I’m not following you. Almost no one in this country has any gold.
True….but the ones who do own gold are easy to spot. They have that glazed over look in their eyes.
Nah,
We’ve just had to be quiet and suffer the horse lattitudes for a whole generation and now is our time to shine. It feels good.
That’s great! Enjoy the sunshine while you can. I was around during the last outbreak of goldbug fever…laughed then…..will laugh again soon.
It never ceases to amaze me how pundits have recycled the same ‘ol arguments and people buy into it once again. I guess they have to wait until a new generation comes along.
Most UFO conventions have a “Why you should buy gold” booth.
When I used to travel in Europe, one thing i’d always purchase before leaving, was a brand new sequentially numbered stack of 100 banknotes of the country de jour, that had let Hyperinflation ravage their country.
Being a student of human nature, i’d clandestinely drop them in railway stations or put a few on an escalator, going up or down and as I always had a choice of around a dozen countries currency at any given time, to choose from, I usually opted for the banknotes that had both interesting designs and high face values, to conduct my experiments.
A bundle of 100 banknotes typically cost me $6 to $8, cheap entertainment and I always would keep a “rob me” wallet in my back pocket, (got to keep the pickpockets entertained as well, I got picked clean in a Prague subway station about 7 years ago by a team of gypsies) with a compliment of debunked banknotes.
The countries represented were from Central and South America and Africa, many countries would go b/k and try a new currency, only to go b/k again. All failed countries, financially.
It’ll be much harder to convince somebody to pick up debunked yankee dollars in the not too distant future, but you should have seen the Europeans scramble for a 20 pack of Bolivian 10,000 Peso Banknotes thrown out a railroad window, upon entering a railway station.
Give it up, aladinsane. You can lead a horse to water…
Dan shows complete ignorance as to the factors underlying the last gold boom and (obviously) the coming one.
Hello,
I read on MSN Money about a week ago the definition of middle class. It was you had enough to pay the bills, buy a few extras, and save a few dollars.
I began thinking about the people we know all of whom make as much or usually more then we do and they all live in much bigger homes. Yet they all are broke or talk like it. When you ask a few questions there is no cash in savings at all. Sure the 401k is funded and the nanny is paid but thats it.
My suggestion would be “How over extended are we?” Especially with the new savings rate report at a minus. What does this have to do with housing? Everything I think. Personally after being nosy with people I am really surprised to find out how much of a facade those big homes are.
“Yet they all are broke or talk like it. When you ask a few questions there is no cash in savings at all.”
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
David Copperfield by Charles Dickens
but of course, as long as interest rates keep going down (or stay way below actual inflation) it is very clever to go deeply into debt to finance an over-expensive asset. It is a win-win as long as it lasts, and the people who took advantage of this are way ahead in the game. Just another example where risk is not priced correctly into the market.
“…as long as interest rates keep going down (or stay way below actual inflation) it is very clever to go deeply into debt to finance an over-expensive asset.”
My training suggests that lower interest rates increase the present value of fixed stream of future payments (like the fixed-rate mortgages that everyone is currently trying to lock in on homes valued at over 10X their annual incomes). If I bought a home at a price of 10X my income (which, believe or not, many Californians have done in recent years), and I can only afford to pay 30% of my income per year to pay off my debt (an obsolete rule-of-thumb for mortgage loan underwriting), then even if interest rates dropped to 0%, it would take me 33 years 4 months to repay the bank what I owe them. But the bank says that I have to repay them in 30 years. I guess we should all pray for high future wage inflation…
The people who make up the middle class are a facade; in reality they are peasants, and will soon revert to their historical norm.
While reading yesterday’s “The Rest Of The Worst Is Yet To Come” post, something occurred to me, and you all might find this idea to be subject matter for a Weekend Thread.
Here’s what struck me: people in Des Moines, Iowa are aware of what is going on in the major real estate markets at either end of the country in a way they never were before, and it’s affecting their market in real time. Why? The Internet, baby!
Twenty years ago, how many people in Des Moines, Iowa would even be aware of the real estate market in Florida or San Diego? How long would it take the Register to catch on to whatever real estate news was coming from Florida? What time lag would it take for information about a boom or bust to travel thousands of miles and affect a critical mass of people in another, largely unrelated market?
Now think about the present: I think that most industry watchers recognized the market was trending downwards nationally by mid-2006. Now, it’s the sixth week of 2007, and already people in Des Moines, IA have changed their psyche. Wow. Before the ‘net, how long would it take that information to filter out from the “experts” to the teeming, unwashed masses? Years?
Maybe the untold story behind this whole thing is the impact of the Internet. Just as the Internet allowed folks the ability to research home prices and then buy them at long-distances with great confidence in what they “knew” about the national market, so will the Internet spread the bad news now that the mania is turning to fear. Fear is contagious, and the Internet is a wonderful spreader of viruses.
Interesting observation and one that probably needs to be discussed more……
please explain to me why people in Europe are totally unaware of the housing bubble troubles in the US. We do have internet here as well.
I don’t believe that the internet is speeding up information transfer, on the contrary. And as I have mentioned several times before on this blog: the 1635 tulip bubble in the Netherlands collapsed (minus 90%) within a week. That was long before the internet and the telephone.
Well, I think we probably need to define our terms here. My evidence that “people in Des Moines are aware” was that the Des Moines Register is running an article that cites local housing folks bemoaning the state of the national market, and talking about how it’s impacting their market. I don’t read any European papers online or follow blogs there, but I’m betting your statement that “people in Europe are totally unaware of the…bubble troubles” is not entirely accurate. I bet I could find similar, recent articles out there, if only I could read German, Dutch, French, Polish, etc.
If what you’re really saying is that their markets have not been affected by the recent turn in the US market, so the Internet could not be having any effect, I would argue, wait a few months before feeling too confident in that regard. If the scary newspaper articles have travelled from CA and FL to IA in a few months, I imagine they can cross the Atlantic and the language barrier in a few more. (As opposed to pre-Internet, when I could only say, what, wait a few years?)
As to your contention that “the Internet is [not] speeding up information transfer”, I can only say….that’s illogical. Consider this: how long would it have taken you to respond to my post using the Pony Express?
of course, anyone from Europe can visit the housingbubble blog, but that is not the point. I can assure you there is NO stories about the US housing bubble in Netherlands, either on the TV news or in the newspapers; nothing at all for at least the last year or so. And of course there are NO stories about the EU housing bubble either (there were many stories about that around 2001, but they disappeared completely when the markets kept advancing against all odds). Don’t know about the rest of Europe, but it can’t be much different.
That is also the point of the internet: information at your fingertips, but if people don’t look for something they will not find it. Consumer and investor confidence in Netherlands and most of Europe is completely over the top, even higher than in 2000. People are not interested in housing bubble stories or other negative news, they will believe all the rosy crap that the official news outlets (which are just as corrupt as those in the US) feed them.
and regarding the speed of the internet: I can assure you that the bursting of the housing bubble (or the stock market bubble, if you want something more ‘liquid’) is going to take far longer than the one week that it took in 1635 to unwind the tulip bubble. It’s all about psychology, not about technology.
I think the Internet was what helped equity locusts buy in Oregon and Arizona. In turn, that helped turn the bubble into a national phenomenon, or at least to extend it into areas that would not have seen such appreciation before the Internet.
Well The Economist which is European if not continental had the collapse of the American RE bubble as a cover story last year.
Very interesting point, Fiver. I’ve been following the Seattle bubble closely, and what many market watchers there believe is that because Boeing was hit incredibly hard by 9/11, the Seattle real estate market had a significant lag behind many others. However, I’ve been wondering if the Seattle market won’t turn down faster, more in line with LA and MA and FL once news becomes more prevalent on a national level.
What happens when Time Magazine sports a cover with an illustration of an imploding bubble?
I’ve got a topic:
How many people here are in the limbo between first and second purchase? My first purchase was a condominium back in 1999. I sold a few years back, and now would prefer a house with land to a shoddily constructed apartment (shared walls, flood/ceilings, and overbearing HOA).
Being nearly 35 and single, but with a feeling that I probably will not be single for more than a few more years, I don’t want to buy another “bachelor pad”. However, I don’t really want a house to myself, either.
Of course, I am not buying any real estate until I see further price declines toward the historical mean.
Anyone else in this kind of limbo?
Same situation, except I am still renting and haven’t purchased.
I don’t want a house anywhere as long as I’m alone. Plus townhomes and condos are too restrictive. Some of my friends have got into trouble trying to marry someone who already owned and in today’s market, two single people each owning a condo (read: depreciating asset) can cause stress early in the marriage.
Thus, guess I’ll be renting for a while. Maybe a van down by the river isn’t such a bad idea after all….
Now, you kids are probably asking yourself, “Hey, Matt, how can we get back on the right track?!”
Thanks for the laugh. Chris Farley (I, too, am from Chicago) RIP.
I just sold my home of 15 years in Minneapolis. I have no car payment, no mortgage payment and no credit card debt. The sense of relief and freedom is fantastic. I’m putting most of my stuff in reasonable storage, heading downtown to rent. Downtown Minneapolis is saturated with condos. I have three months to make up my mind as where and how much. Looking forward to wheeling and dealing on rent… content to sit on the sidelines and watch the chips fall. I’m in NO hurry…
Why can’t I meet a woman like you? All I meet are pretty paupers with (stated incomes) champagne tastes, and Coca-Cola budgets (real incomes).
jobs number
RE empl was 9.5% of total in 05
mean is 6%
even w lots of illegals it’s a hard number to hide
another dagger in the housing bubble. Especially CA, where is Arnold when he is needed?
WASHINGTON - One hundred twenty-two levees from Maryland to California are at risk of failing, according to a list released Thursday by the Army Corps of Engineers.
ADVERTISEMENT
There could be danger to people who live in communities near some of the levees as well as a chance that they will have to pay more for insurance, said Butch Kinerney of the Federal Emergency Management Agency’s national flood insurance program.
The list was released in response to Freedom of Information Act requests filed by news organizations, including The Associated Press.
If the Corps of Engineers determines a levee to be at risk of failing, homeowners in the area could be required to purchase flood insurance, though exceptions can be made.
Communities near the levees have been notified that they have received an “unacceptable maintenance inspection rating.” That means a levee has one or more problems, which can include movement of floodwalls, faulty culverts, animal burrows, erosion or tree growth, according to a statement released by the Corps.
California, with 37 suspect levees, and Washington state, with 19, led the list.
FEMA’s Kinerney said he was concerned that the levees present not only a chance of higher insurance costs but a danger to those living nearby. FEMA maps flood plains and helps determine the flood risks that communities face.
Kinerney said people living near the levees should have an evacuation plan, a family emergency plan, and a disaster supply kit, along with flood insurance.
The Corps has been warning communities they need to take care of routine levee maintenance, said Larry Larson, director of the Association of State Floodplain Managers. Larson said he was glad the Corps was putting out the word on the levees.
“The feds are saying, ‘Wait a minute, we haven’t been doing our job,’” Larson said. “‘We better get on top of this. Your people are at risk. You need to get something done.’”
The Corps historically has constructed the levees and has turned most of them over to local communities for operations and maintenance. Some communities may not have kept up with needed repairs, while others may merely lack the documentation, Kinerney said.
As the Corps decertifies the adequacy of a particular levee, it also notifies FEMA, which can take away the credit communities get on their flood insurance rate for having a levee.
Kinerney added that if residents of the communities at risk were to purchase flood insurance now, before the community’s designation changes, they can still pay the cheaper rate.
The Corps can give communities 12 months to make corrections — sometimes it’s just a matter of “filling gopher holes,” Kinerney said.
Also, FEMA can issue for up to 24 months a provisional accreditation if a community requests it, giving it up to two years to correct the problems or contest the finding that the levee is not sound. During that period, residents are not required to purchase flood insurance.
___
On the Net:
The list: http://www.hq.usace.army.mil/cepa/releases/leveelist.pdf
“One hundred twenty-two levees from Maryland to California are at risk of failing, according to a list released Thursday by the Army Corps of Engineers.”
Au contraire — broken windows are good for the economy, because they open the floodgates for FEMA money to generously drop out of helicopters…
When will the stock market crash, how much, and how will that affect the housing situation?
It’s not going to crash. Cause that would be ba-a-d.
Mahendra is predicting a 18-27% stock market crash after february 12
A great list and topic would be to find all the “since great depression” here and see how messed up the financial situation in the US is. Some real estate, job numbers, and credit extension needs to be looked at. Obviously yesterday’s negative savings rate @ -1% and 2005’s report saying -.4%. But what else are we seeing that has not been seen in 70 years?????
Good news is scarce in the Marketwatch.com Real Estate weekly…
———————————————————————————–
NUMBER OF VACANT HOMES FOR SALE SURGES 34%
The number of vacant homes waiting to be sold surged 34% to 2.1 million
at the end of 2006 compared with the end of 2005, by far the fastest
increase ever recorded, the Census Bureau reported Monday. See Economic
Report.
http://www.marketwatch.com/news/story.asp?siteid=mktw&dist=nwtreal&guid=%7BA09A933D%2D57BA%2D4583%2DBDF7%2D6E000DF9E74D%7D
_______________________________________________________________________
HOME PRICES GROW AT SLOWEST PACE IN 10 YEARS
Home-price appreciation weakened to its slowest pace in more than 10
years in the 12 months ending in November, MacroMarkets and Standard &
Poor’s reported Tuesday. Home prices fell in 17 of 20 cities in November
compared with October. See Economic Report.
http://www.marketwatch.com/news/story.asp?siteid=mktw&dist=nwtreal&guid=%7BF61226BD%2D82EA%2D4504%2D97C0%2D20807898056E%7D
_______________________________________________________________________
BANKS MOVE EARLIER TO CURB FORECLOSURES
As the number of borrowers falling behind on their mortgage payments
climbs to the highest level in five years, the mortgage industry is
trying new strategies to help bail them out. Much of the attention is on
homeowners who in recent years took out adjustable-rate mortgages, a
popular way to finance a home when interest rates were low. Now, with
rates having moved up, many of these borrowers have recently seen, or
soon will see, their mortgage rates adjust higher for the first time.
See story from RealEstateJournal.
(http://www.realestatejournal.com/buysell/mortgages/20070131-simon.html?rejpartner=mktw)
_______________________________________________________________________
U.S. MARKETS WHERE HOME PRICES ARE MOST LIKELY TO DECLINE
Over the next two years, housing markets in California and the
Northeast are the likeliest to see declines in home prices, according to
the most recent PMI Mortgage Insurance Co.’s U.S. Market Risk Index.
See story from RealEstateJournal.
(http://www.realestatejournal.com/buysell/openhouse/20070131-kim.html?rejpartner=mktw)
Weekend topic, is Bernanke doing a good job?
My view, yes…he is giving ample time to “real” homeowners to refinance longer term loans at low interest rates, in few years inflation will put those back on track…cheaters & wannabe landlords = wiped out….
I would like to the Virtuous Cycle as a topic of discussion.
What is the Virtuous Cycle? Basically, the cycle by which sanity will return to the housing market. The specific topic would revolve around how it might play out. Here’s the way I see it:
1. The binge of prolifigate lending to finance things people don’t need and can’t afford, gets choked off as lenders belatedly recognize they can’t blithely continue to pocket commissions on bad loans that will be fobbed off on “investors” as mortage-backed (ha!) securities.
2. The tightening of credit standards will sharply reduce the ability of the vast majority of would-be buyers - most of whom are already living paycheck-to-paycheck - to gain access to new credit. The credit they do get, will be much more expensive, further curtailing demand.
3. Inventories will soar at a parabolic rate as the first wave of seller panic overtakes the stubborn bulwarks of greed and denial. However, huge numbers of home “owners” who bought circa 2004-2005 will be trapped by the fact that they simply do not have the money they would have to bring to the table to sell their houses at prevailing (and sinking) market prices.
4. The unrelenting bad news of soaring foreclosures and FB tales of woe prompts the political whores and swindlers of both parties to hurriedly pass new legistlation to “protect consumers.” This will throw up a few more temporary hurdles to foreclosing on FBs, or curb some of the worst abuses by lenders and the RE industry, but will be too little, too late to rescue the majority of FBs from the inevitable consequences of their own foolish decisions and the venality of the RE industry. The rising tide of bad news will also completely negate the frantic, doomed efforts of the NAR truth-makers to conceal the full magnitude of the housing bubble crash from the rapidly dwindling number of creditworthy, would-be buyers.
5. Millions of FBs, deeply underwater on their “investments,” simply leave the keys on the counter and walk away. In addition to the carnage overtaking the subprime lending industry, more and more “respectable” banking institutions become insolvent and must be taken over by the FDIC.
6. The delta between what lenders loaned on their homes, and the amount they are worth after being foreclosed on, becomes a chasm. The slow, steady decline in sales and prices begins to accelerate into what even the NAR must admit is a “plunge.”
7. Vast swaths of tract housing developments become trashy nightmares where even the residents who could afford to stay, flee to escape the deteriorating quality of life as Section 8s and various transients, thugs, and fixture-strippers loot and vandalize acres of empty houses, which will only command a fraction of their loan value in mass auction sales.
So, where does the “Virtue” come in? The full consequences of the greed, deception, and irresponsibility of the past decade or more will be fully recognized by all. There will be fundamental, far-reaching reforms aimed at outlawing predatory lending (let’s face it, the public aren’t going to be getting any smarter, so crooked lenders, appraisors, and realtors have to face severe and credible punishment for practices that have become “business as usual” in recent years. Home prices will stablize - much lower than they are right now - and, much as the Great Depression corrected the excesses that preceded it, we will see a widespread return to fundamental values and a sense of responsibility, although the price paid by the millions of cautionary tales evident all around, will be staggering. People will lose their asses, but regain their souls, if you want to look at it that way. And their children will learn from hardship the lessons their parents should have imparted on them from setting a good example, not playing the fool and paying for it.
Now, I expect there could be many variations on this hypothesis, but I’d like to see a discussion of various scenarios and their wider implications.
Sounds like a perfectly viable scenario to me. The Second Great Depression has been overdue for several years now. Let’s get it over with.
Good post Sammy .
Has the main stream media “turned”?
Most of the last few articles referenced in the blog seem full of reasonable statements rather than silliness. Anyone else see this? Ben Jones? (Or are there just enough now so you can select out the wasted bytes?
)
This was a comment posted by a blogger from an ealier thread. Anyone want to weigh in on this?
“What I REALLY want to know is if houses sold by banks, foreclosure, auction get entered into the pricing/comps database. If so, we should see some real downward action on comps and average selling prices in the not too distant future”
Ben, in my humble opinion the two core issues with this housing bubble are
(1) Affordability
(2) Inventory
These two factors will determine the magnitude of the crash to be experienced.
We can daily debate what some particular article says but ultimately the pack of cards so to speak doesn’t change.
Ben, you have been recognised through this blog and I would suggest it’s time you start to put out your own press releases.
In my opinion just keep pounding the same issues as I have stated above.
The Bulls will have a real task dealing with it.
jmho
Look for the full story tomorrow, but this is late-breaking news: Lakeside condo owner in foreclosure shoots Realtor… (so far Google space does not mention the situation, only the incident)
http://www.primenews.com/sdhn_020107_lakeside.html
http://www.signonsandiego.com/news/metro/20070202-9999-1m2killed.html
This was the lead story in tonight’s local SD news on all stations, according to my channel-surfing spouse. It is easy to conjecture that this is one of many incidences soon to occur which demonstrates the housing bubble has moved on from the denial stage to the anger stage. Watch out, lenders and Realtors who helped set up your clients for future foreclosure — the consequences of your past actions may await you.
Is anyone in the market for a SD SFR attractively priced at $600K? Because ziprealty.com currently has 200+ listings on the range from $599K-$600K. The funny thing is that there is a huge variation in locational amenities for homes priced within $1K of one another, leading me to believe that some of these will never sell without a serious price reduction.
Darwin meets the home building sector…
—————————————————————————————————
WEEKEND EDITION
Wall Street picks home-builder stocks that will survive slump
After years of moving together, a batch of survivors emerges from the slump
By John Spence, MarketWatch
Last Update: 8:10 PM ET Feb 2, 2007
Home-builder stocks under scrutiny
BOSTON (MarketWatch) — America’s home-building industry is playing out a 21st-century version of “The Three Little Pigs.”
And as in the original nursery tale, investors are starting to learn which company has followed the example of the clever pig who built his business to withstand the shocks of a housing market blown out by a devastating plunge in sales.
With the key spring home-selling season approaching, investors and analysts are sifting through the wreckage of annual reports and balance sheets searching for signs of life as builder executives put the brakes on their production to adjust to the U.S. housing industry’s “new realities.”
“We look at balance sheets and where the companies are located to try and get a flavor for which companies are best-positioned,” said Chris Hussey, an analyst at Goldman Sachs.
http://tinyurl.com/2du8de
Good luck — with 2.1m vacant homes for sale, and construction recessions hitting bubble markets in Iowa and Kentucky, I think the whole sector is hosed!!!