Bits Bucket And Craigslist Finds For February 6, 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.
About Me
Name:Ben Jones
Location:Northern Arizona, United States
To donate by mail, or to otherwise contact this blogger, please send emails to: thehousingbubble@gmail.com
PayPal is a secure online payment method which accepts ALL major credit cards.
Links
-
November 2024 M T W T F S S « Sep 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Photo Submission: hbbphotos@gmail.com
View the HBB Photo Gallery *updated 4/13/2008
another four years for the Dutch Housing Bubble?
Yesterday the new Dutch center-right government published their plans for the next four years. Contrary to many proposals in previous years, nothing will change regarding the hotly debated HMD (50% of the mortgage is paid by the tax office), renter subsidies and all the other tools that are used to prop up housing prices in the Netherlands. The new plan even forbids the government to discuss any changes to HMD and other subsidies in the coming four years. The labour party vowed not to participate in a government without any changes to HMD, but they were apparently bribed with some nice jobs for their politicians and more subsidies for renters (mostly labour voters). So, the Dutch will probably keep their spot at the top of the housing bubble hitparade.
On another note, today for the first time in many years the newspaper mentions that housing prices are getting a bit out of hand in the Netherlands. The article quotes the official ‘Kadaster’ numbers that suggest home prices have increased fourfold over the last 20 years (in reality the increase is at least double this amount).
The article mentions that lower rates and big changes in lending practices are mostly responsible for this, but does not acknowledge that prices could go down at some time. The chart for home prices conveniently starts 25 years ago, just after the last housing crash; no need to scare the small speculators.
In the earliest days of this blog, a fundamental belief embraced by most posters was (and continues to be) that it is better to pay a lower price for a house and have a higher mortgage interest rate, than to pay a higher price and have a lower interest rate. The simple reason is that while it is quite possible for interest rates to decline during the life of the loan, the lender is never going to voluntarily reduce the principal owed, which would be the direct corollary.
To me, at least, this thinking easily could apply to such an extraordinary tax effect as appears to be the present case in the Netherlands. I doesn’t seem likely that many would forecast the deduction to climb above 50%. While it might remain the same, it also seems quite possible that the rate would decline before the borrowers sell, screwing those who paid the top prices because the effective interest cost was only “half” the market rate.
“In the earliest days of this blog, a fundamental belief embraced by most posters was (and continues to be) that it is better to pay a lower price for a house and have a higher mortgage interest rate, than to pay a higher price and have a lower interest rate.”
It goes much further than this when you factor in the effect of loose lending standards and Alternative Mortgage Products on the ability of households to pay 40% more than they can afford for homes. With the advent of tighter money, the subprime bid will revert to its historic share of the overall market (close to 0).
apparently people are struggling to get in at the top (maximum HMD and minimum rates); but maybe they are forecasting that housing subsidies will continue climbing forever …
I definitely agree that it is better to buy when rates are high (and HMD is zero).
“Contrary to many proposals in previous years, nothing will change regarding the hotly debated HMD (50% of the mortgage is paid by the tax office)”
For those debating on whether or not congress will bail out the FBs, perhaps they will take this lesson from the Dutch. Homeowners in the future will be able to write off not just their local taxes and interest, but principal as well.
Many borrowers these days don’t pay any of the principal anyway, so this would have no effect on their carrying costs.
“…all the other tools that are used to prop up housing prices in the Netherlands.”
Such tools are less effective in the US, where the direct effect is the construction of more ghost tract home developments in the Southwest desert.
GS I greatly value your opinion and knowledge. Do you think our government will try to bail out FB’s in this housing bubble (directly with a legislation, or indirectly through taxes or programs, or with the long reach of finance regulation to put pressure on private sector to offer relief). Moreover, what will be the impact on housing prices either with or without federal intervention on behalf of the FB’s?
“Do you think our government will try to bail out FB’s in this housing bubble…”
Yes. I have no clear idea about what exact form the intervention will take, other than that (1) it will be stealthy (unannounced and under the political establishment’s radar screen); (2) it will charge the costs of bubble mop up operations to innocent third parties with viable circulatory systems.
“Moreover, what will be the impact on housing prices either with or without federal intervention on behalf of the FB’s?”
Absent government intervention, the market would quickly crash, as there is no support for the recent bubble price levels without the prop of subprime lending, and subprime loans don’t make much sense for buyers or lenders when prices are falling.
My best guess is the government will look for ways to slow the equilibrium adjustment process from the pace of a flash flood down to that of a glacier, without encouraging further speculation (which would simply increase the number of ghost tract homes built in the middle of the Arizona desert). Most people (especially economists) cannot detect the cumulative effect of gradual change — you need a geologist for this kind of detective work.
“A careless observer of life is the man who has failed to observe the hand that kills — gently.”
-Friedrich Nietzsche-
Inflation would bail out the little FB’s and the biggest FB of them all: The US Government. Why work for money. Print ‘em.
(Waiting for the standard comment: “but wages won’t climb!” My reply: “Oh yes they will, always have”)
I think governments will inflate away to keep real homeprices where they are now or higher for the next 5-10 years (to avoid crashing the debt/mortgage system). The sad truth is that probably by the time it’s attractive to buy again, most who are now waiting on the sidelines (because housing is extremely overvalued) will have seen their capital erased by hyperinflation. Nearly everyone is going to pay a heavy price for all this stupidity, the winners will be mostly those who gambled big and got lucky in the RE game.
that depends … I agree the overbuilding in the US is market tends to correct itself (better and faster than the government intervention with subsidies in Europe).
But suppose the US government would provide a starter subsidy like the Dutch government plans, e.g. a free $ 50.000 loan irrespective of credit history, income etc. Assume that just like in the Netherlands, buyers only have to pay interest on the loan and payback principal if higher income in future or resale at a huge gain makes this possible. I think this would keep the US housing market climbing for at least another year or so (just maybe not in the very expensive areas because the 50K wouldn’t get you very far there).
Also, you have to understand the implicit message in this kind of proposals: whatever happens, the government is going to bail out the stupid borrowers, declining home prices is simply NOT an option. If they can’t do it with lower rates or more loose lending (not much room there anymore), they will do it with bigger subsidies. Why not double the subsidy next year, or ultimately provide a subsidy that is even higher than the value on the home?
P.S.: I just learned that the average home in Netherlands now costs EUR 241K and the average mortgage is EUR 256K. Even if you assume that most buyers take the maximum mortgage (even if they don’t need it) isn’t this strange? 105% financing on average?
“e.g. a free $ 50.000 loan irrespective of credit history, income etc.”
I don’t think the $50K handout would fly politically, for several reasons.
1) It would blatantly break the budget.
2) It would have a direct effect of driving the relative price of housing even higher relative to all other consumption goods off an already-unaffordable base level.
3) It would be clearly perceived for what it is: government pork for the REIC, rather than a measure to make homes more affordable.
4) Any surviving members of the middle class who are paying attention have to feel a bit miffed already at the big leverage advantage the subprime buyer already enjoys in the market. Your proposal would make the playing field still more unlevel in favor of those whose game plan is “take the money and run.”
Other than those slight imperfections, this sounds like it may work.
GS: I agree with the above, however that’s the informed view. I haven’t read anything like that in the papers about the proposal in Netherlands (which for sure will proceed to get official approval soon, although probably with some minor changes). Some economists have warned that it will just push up home prices (!) and not change anything for affordability, but politicians don’t want to listen to that; they just cheer themselves for their brilliant new plans.
As long as most citizens think they can get rich from the housing bubble (includes both current owners and those aspiring to get on the property ladder) they will approve everything that pushes prices up - hopefully just after they got into the game.
reason 1: breaking the budget is no longer a problem but a feature (just ask Ben Bernanke).
reason 3: great for the next elections (majority of electorate is homeowner), that’s the only thing that matters for politicians.
reason 4: there are only small numbers of informed players who are standing aside by now. nobody will listen to them.
This is little old..but one of the harshest and realtistic take on south fla real-estate..sun-sentinel’s Paul Owers should learn..
http://southflorida.bizjournals.com/southflorida/stories/2006/11/27/story2.html?page=3
REPORT ALL CASH BACK DEALS FROM CRAIGLIST TO STATE & FEDERAL AUTHORITIES!!!! THIS FRAUD HAS GOT TO STOP!!!!!!
http://www.mortgagenewsdaily.com/mortgage_fraud/report_Arizona.asp
New York City building permits still near record post urban crisis highs in 2006.
After two unprecedented years, they could be even higher in 2007. Why? New housing outside the core of Manhattan is exempt from property taxes for 10 years, and then has taxes phased in over 10 to 20. In the core of Manhattan, you can get the same deal as long as you build some “affordable houisng” in poor neighborhoods — at a huge revenue loss to the government per unit. These rules were put on the books when NYC was being abandoned.
The tax benefit expires year-end 2007. And the only debate is the extent to which it should be cut back, or affordable housing requirements increased. And if people don’t agree, the tax benefit disappears. So there will be a huge rush to build under the old rules.
The last time this happened in 1985, when the Manhattan exclusion area was created, building permits also soared, leading to a crash. Also — the comprehensive zoning overhaul of 1961 which downszoned the city but included a grace period — the result was massive overbuilding and a crash.
http://www.newyorkbusiness.com/apps/pbcs.dll/article?AID=/20070205/FREE/70205048/1053/newsletter01
For those of you outside of this fine city, I think it is hard to understand how much condo development is taking place here. You can see buildings going up everywhere. If you look across the river to Queens you see the cranes dangling in the air. A drive through Brooklyn will make your jaw drop. Down near Ground Zero there are luxury condos going up everywhere. I was in the Upper East Side last week and saw several luxury buildings going up. Jersey City has one building after another going up on the waterfront. And the mother of all disasters will take place in Riverdale. It is out of control right now. My favorite abortion is fiveninejohn.com in my neighborhood. It is a dreadful location that will go for millions. Astounding!
hmm maybe the builder go bankrupt? Whats so good about a terrace overlooking the dingy street of downtown? they aren’t exactly looking into the water or the park… I do not get it.
I am in brooklyn btw. heh. I want prices…
I was born and raised part of my life in that area. All I remember was that Jersey City was a toxic waste dump. Luxury condos? You’ve got to be kidding.
And if you go 1 mile off the water you better have a pit bull and an uzi.
Seeing as I’m currently sitting in one of those buildings, I must agree. There are tons and tons and tons of “luxury” condos going up in this wretched area. This area only twenty or so years ago was reclaimed swamp. There is no infrastructure here almost, no restaurants, no entertainment. The only saving grace is you’re a path ride away from NYC. I haven’t met anyone yet who actually wants to live here… it’s all for convenience. My favorite Jersey terror though are those condos/multifamilies that were built on the east side of the tracks pulling into Newark train station that are literally on top of a just recently demolished old Chromium plant. I rode the train home one night next to a slightly inebriated developer who related the story of the places to me. Scary.
Many thanks WT - and how many news stories ignored this crucial bit of tax info and instead cast a rosy glow in permit issuance data? Here’s another problem - they’re putting them up even faster here — to get ‘em done, get the C of O and unload ‘em — meaning more shoddy construction in 2007. Beware to anyone on this board who is trolling for great deals on NYC new-construction condos when the market bottoms — make sure the building you buy in will not be a money pit.
08 should be interesting
I plan to have work done on my house in 08. Perhaps I’ll buy a condo for the kids in ‘09.
What is really interesting about these tax abatements is that the taxes are massive once the abatement expires in 10 years. For example, I saw a 1 BR condo in Chelsea which was about 800 sq. ft. where the MONTHLY taxes jump to ~$3k once the abatement rolls off. The selling agent didn’t know what the post abatement number was so we calculated it together and even she was stunned. She said no one ever asked her about it before and that unless I lived there for 10 years it shouldn’t matter to me. Crazy.
Hey, why shouldn’t the taxes by $36,000 per year. Anyone buying at those prices has to be a $billionaire, right?
well, maybe other buyers are assuming that in 10 years that monthly $3k is pocket change because of all the inflation the FED is producing. In that case it is nothing to worry about …
500 sq ft bargain.
http://southjersey.craigslist.org/rfs/271194973.html
Least Expensive at $1600 per sq/ft.
And a few blocks away you have a 3bdr for the same price.
http://southjersey.craigslist.org/rfs/269766339.html
with a nice outdoor shower. Hmm…I’ll buy the house next door to it and hope the Playboy playmates buy this one.
Buying any beach front property right now is suicide. You might as well be cutting your wrists instead. Not only insurance premiums are out of the wazoo, but with sea water levels rising, you are buying underwater garbage.
better to buy in the second ring of beach homes, the sea level will be just right in 20 years so you’ll have beach front property!
2 covered parking spaces with the MAJORITY under cover??? So your car’s ass is still sticking out? neato
I think I lost a friend last night who is going to buy in San Francisco with an interest only loan. I made the mistake of telling her to be very careful, because real estate doesn’t only go up, even in San Francisco. Well, she has been living in SF as long as I have been alive and it has never, ever, ever gone down and she didn’t ask for any advice and she knows San Franscisco and it’s not like other parts of California etc, etc. Sigh.
I usually don’t say anything when people I know online talk about their idiotic real estate plans but this woman has given me a lot of unwanted advice which I’ve disagreed with but have been polite about.
Oh well, you can’t be friends with everyone.
Because SF real estate never goes down, right?
I ran into this all the time in SF.
Even from a friend of mine who LOST money in RE in the late 80’s downturn!
We were talking and they said “yeah, it’s a no lose situation, RE only goes up!”
And I said, “but you lost all that money on your first home”.
Their response: “that was different, I chose the wrong neighborhood”.
*which is funny, because their new place which evidently is the “right” neighborhood is in the Mission neighborhood, ON South Van Ness near 18th, near the Whiz Burger (I love the whiz). The only thing that neighborhood is right for is prostitutes and crack. Even I hesitate to walk along Mission st at 2am, and I’m a hardened city guy!
Hey, I’ve been laying out the argument for four years. Everyone is glad they didn’t take my advice thus far.
These aren’t speculators — they are just families cut in the upside panic. Sure they might lose money on the sale price someday, but they want to lock in their cost of housing at its current painful level before it becomes impossible and they have to move to West Virginia because it is the only place left they can afford on their 6 figure income. (I guess those with HIGH six figure incomes and up will occupy the rest of the country).
Perhaps there are enough people who sold internet companies to stock victims to fill San Francisco, and enough hedge fund traders and rich expats to fill Manhattan. But Brooklyn? Queens? Oakland? Etc. Etc.
There are some great neighborhoods in Brooklyn that have become very fashionable. I grew in Queens and it has some great neighborhoods, too, but they are farther out and not as chic as high-end Brooklyn. People who have money and move to Brooklyn typically do so because it has a different feel than Manhattan….
it’s gone down the last 6 months-everywhere
Melsky, she couldn’t have been much of a “friend” if
offering some advice puts you in the dog house.
You’re better off.
I beat on everybody I can- saved an inlaw in cc tx 5k so far -08 at the earliest for a purchase
You guys just have to try a little harder. My tally to date:
brother-in-law - sold at top and renting
2 work associates - sold at top and renting
3 friends in So Cal - sold at top and renting
There are listening ears out there. You need to know your stuff, though, none of this “I just know it’s going to go down”.
nvmtgbrkr — Please tell me how you managed to talk these people into doing the right thing! I’m in West L.A., and fretting about a co-worker who, along with his wife, is purchasing a $711K, 2900 sf mcmansion in Newhall (two hour commute to UCLA in either direction, anytime of the weekday). Between then, I think they make about $125K. They’re getting something called an 80/20 ARM that he insists will stay fixed for five years at a ridiculously low payment, and then I guess he plans on a big fat raise or a refinance. The property taxes alone are almost as much as my annual mortgage payment on a two bedroom condo in West Hollywood, and I hear the cost of a/c in the summer will run him in excess of $6K a year. Anybody want to comment on this? He’s in escrow, I believe, so if somebody’s got a “magic word” to make him see the light, let me know. Believe me, I’ve tried everything and since his wife is calling the shots (her sister is buying the shack across the street), I guess it’s kind of a moot point.
Sad to see somebody you care about ruining their life, though.
Nvmkbrkr,
You did well! I’ve only talked my grandmother into selling and renting. You… have taken it too a new level.
Bubblewatcher,
at this point, I know of nothing that would stop your sister in law from buying across the street from her sister. Give them moral support, a nice bottle of wine as a move in gift, but not money nor any financial advice. Be there to help your friend rebuild. Its sad. But I’ve accepted the fact with many of my friends.
Neil
(Note the lack of my signature. When its individuals we know, its really sad. Yes, it has to happen, still sad.)
I failed miserably with my family…
Sister # 1 & husband live in Tucson, are building a house @ Mt Lemon and decided to buy a house in San Diego a few months ago, because prices “seemed” cheap.
Sister # 2 & husband had an older house near North Park in SD, an area nicknamed “The gay 90’s”, because you’d have to be gay or around 90 to fit in. They have 2 small boys and bought a house in north SD and kept the older house, despite me virtually screaming at them, that their $650K house in North Park rented for nada ($1500) and to get rid of it, before moving to northern kid friendly climes. They did great on the 1st house (paid $165k 10 years ago) and will suffer greatly on their 2nd house. (paid $715K this summer)
The rest of my family (2 other sibblings) and us, are content with owning one house.
There is nothing that you can do!!! Their minds are made up, just provide moral support when their world melts down. If they need food for the kiddies, help there but avoid at all costs loaning them money. You will never see it again.
Peace,
Mdsn
Bubblewatcher:
First, buy them a book on bankruptcy law and send it anonomously to them. Include in the package a list of good attorneys. Also be sure to explain that California is a non-recourse state, and if they avoid HELOCs and other loans against their place, they can probably walk away in 5 years with just ruined credit, rather than facing a judgement and possibly 5 years of paying the bank, while living very sparse (although the “20″ part of the 80/20 loan may allow recourse - others may know better). Oh yea, congratulate them and wish them the best.
Here’s my brothers response to my “advice”…he’s in escrow on a $675K Hotel-Condo:
“I get that you have become a doom and gloom democrat…I know the sky is falling and Armageddon is coming…you do not need to keep sending me articles to justify your belief’s ..Its ok for you to have your opinion…everyone doesn’t need to agree with you though. What we bought in Vegas is a done deal at this point…as the market adjusts and ebbs and flows…I’ll make a decision then what if anything I want to do with the property. Currently the condo is holding its value.”
Laf…. hits home, that’s the response I got from a few people, one in particular. I still send him an article now and then and he just asserts I deserve the monicker Dr. Doom. I gave up on caring
If anything, a thicker skin will do me good.
So far, I’ve convinced a relocating co-worker not to buy into the DC suburbs market. He was hot to buy, but eventually came to realize that the income:house-price ratios are way off here, and renting was so much cheaper that he’s living in a far better place renting than buying. It also helps that he’s got the fear of impoverished retirement staring him in the face, and he realises that funding both his 401K *and* a huge mortgage is impossible. Best of all, he’s had the housing bubble drilled into him enough that he considers the ideas his own now — hooray! Sure, I’d like to take credit, but this will stick with him longer if he thinks it’s his own, and he;’ll be spreading the word as well!
And secondly, I saved another friend from a dire, dire situation where his fiance got the huge nesting instinct and wanted to buy a house. They made not much money, maybe $50k-60k total, and so they’d have stretched to buy even a fixer-upper, but she was hell bent on doing it. Maybe pointing him to this blog saved him. He refused. She got irate. But then his company folded, and he’s out of work! They can still manage renting while he looks for work, but oh boy, would they have been screwed if they’d just bought a house. So another one saved, thanks to Ben.
Funny thing is, I can’t think of anyone around here I know who’s actually bought a house in the last year. Hmmm… That’s really weird. But I do know some desperately trying to sell!
I offered to provide hard numbers and she was not interested. I’m not willing to spend a lot of time convincing people who have told me very clearly that they do not want my advice. People who are open minded about it I will do anything I can.
It is truly pointless to argue with native-born Californians about housing price dynamics. “Real estate always goes up” is one of the ten commandments of the California religious creed.
Yes, true GS .. it’s the second one right after: “I’m going to live forever”.
…which is followed by: “…, and plastic surgery can make me look young forever too”
Followed by a 20 something girlfriend and a convertible make up for any amount of lost hair.
No wonder we have the most cyclic real estate market.
The state is about to get an enema.
Got popcorn?
Neil
The real estate agent selling my grandmother’s house in Hemet told my dad that California real estate will not go down because everyone wants to live here because of the weather. It’s the same weather that we had in the late 80s-early 90s crash though.
My dad said the same thing. Until a few weeks ago. What changed his mind? One of the companies his friends consult for cannot win new business as the salaries required to keep so-cal talent are too far “out of whack” for a national business.
So they have been informed that their services are no longer required. This is several thousand consultants!
Mostly retired “eggheads” brought in to design/fix very specific components.
They are now talking about that division just shutting down.
Aerospace is priced out of so-cal. We’re going to see thousands of jobs leave over the next two years. Yes, only 2,700 transfers have been commited to (+1,000 Nissan). That number is about to grow. How am I so sure? Consultants. My cell phone is ringing off the hook as every farging consultant who has that number is calling me trying to sell work. Failing that, they then try to get hired direct (”sorry, so-cal wide hiring freeze at XXXX”).
Its only gone south this fast once before. When? 1991 and 1992. Its not the industry this time. Its southern California employment.
If I’m wrong… explain the multiple messages per day. The multiple resumes in my in-box. The shear number of employees either begging to be transfered out of state or now aware that home prices are going to tank.
Yes, I realize most six figure jobs in so-cal are now in other industries. Woo hoo. I’m betting letting go/transfering ten thousands of 5 figure jobs will “reset” the housing market well enough. Yes. 10,000 jobs is my prediction. A drop in the bucket (250,000 Aerospace jobs in so-cal). But enough to break the camel’s back.
Got popcorn?
Neil
Is it really the native-born Californians? I’m native born and I see the phenomenon more as naive people coming into California from out-of -state and being lured into this nosrtum by real estate agents. I try to tell people that I’ve seen lots of people hurt in the real estate market here over the years and the people who don’t believe me are the ones who only recently moved here, not the ones who were born here.
I am native born californian and i wish everyone who isn’t would get the hell out.this once was truly paridise,can i have have my old town back please?
yes, just like Netherlands probably - home prices have been rising for more than 25 years now, just mentioning the possibility of a price decline ends all conversation. A big chunk of my family (mostly relatively low-paid government workers) has been speculating in the housing market for years, most of them own 2-3 small homes and they are extremely proud of al the money they are making with this. So far, so good.
Not this one GS
I sold my residence at top (5/05) and currently renting. Born and raised in NOr Cal. Some of us can just see the light and know that RE doesn’t always go up. We are far and few between though. lol
Interesting that when she gives you advice, she expects you to listen, but whne you gave her advice, she got upset. “Friends”, who needs them?
Don’t feel too bad. I have learned to shut my mouth as well. I have so many friends who have overpaid in neighborhoods that they think are so special. My closest friend told me the homes in her neighborhood will never go below a million. There are currently 22 units out of 227 on sale from a $1.3 to $1.9, not to mention the taxes. What do you think is going to happen. The housing bubble isn’t the problem. People live in bubbles, that’s the problem. I recently read on this blog that you have to be a billionaire to afford $30k n taxes, do you think all those people in that neighborhood are billionaires? There taxes are well into that range. Bubble, bubble, bubble.
Here is a little blurb burried on page 28 of DR Horton’s 10-Q (quartrer ended 12/31/06) that was released last night:
Our net sales orders for the month ended 1/31/07 decreased as compared to the same period in 2006 at a greater rate than the 23% decrease we experienced in our most recent quarter. Our cancellation rate for the month ended 1/31/07 was similar to our canncellation rate during our most recent quarter.
should be good for a 5% up move in the stock. I swear, the company could announce that Osama BinLaden has been appointed CEO and the stock would go up.
You can thank the Plunge Protection Team.
This is an excerpt from last night’s MIDAS posted at lemetropolecafe.com:
“It really seems that the government now has complete control over all markets. The blizzard of money, combined with expert leadership from Paulson, has the markets doing whatever they want at any time.
That’s why gold stocks are so dead. Just as it has become clear that the stock and bond markets, not to mention the dollar, are not allowed to go down, you get the sense that the market believes gold and commodities are not allowed to go up.
I keep watching and waiting, but each day it seems like the PPT’s control over the markets gets stronger. The ease of today’s afternoon takedown of gold is case in point, in my view.”
It’s a rickety financial house of cards and just one shock to the system (financial or an act of nature) will cause the structure to come apart.
Nobody buys gold nowadays as an investment, from a profit and loss standpoint. I look at the curiously beautiful yellow metal as the last honest bulwark, in a financial world gone mad.
The government does not have control of the market. Gold is breaking out, even as the stocks lag. Why? The PPT doesn’t buy gold stocks; however they can’t stop the gold price moving up, and that will ultimately move the gold stock price. The PPT cannot stop a move, they can only delay it, and make it ultimately larger. As for gold, it has been a top performer for the last 5 years, regardless of the PPT.
Gold went up with real estate and will go down with real estate. Not in a straight line, but with enough bounces to trap the true believers.
Both are tangible assets, but that’s where the similarity ends.
IMHO, the pricing of Gold and housing have an inverse relationship. Gold has always been a non performing asset, housing is a liability. Gold will rise because of international economic conditions (eg. China decides to get out of dollars). Current housing prices appear to be the result of a speculative investor fervor financed at greater than 80%, gold is transportable (standard bar 400oz or ~25lbs or $500,000) - which is in stronger hands? Gold or housing?
“Both are tangible assets, but that’s where the similarity ends.”
But that is the main factor in why both went up — speculative booms drive up the price of real assets in terms of the expanding credit base used to purchase them.
Gold is not in a speculative boom. There is almost no public involvement in the market, and gold cannot be bought on credit (excluding paper gold products which are merely financial products). Better to say both were driven by inflation/currency debasement; gold has no direct link to housing. They are now behaving differently; cutting off credit destroys the housing market but has little effect on gold.
Well, somebody has been buying it, and it’s not the central banks.
http://www.msnbc.msn.com/id/16960673/site/newsweek/
For the first time in US history the poverty has shifted to the suburbs…
I look at that story and see the picture of the freezer with nothing but a few pieces of meat in it and wonder how much that cost (I’m a lifelong vegetarian). I go down to my local Viet market and buy a week’s worth of dinner for two people for $5 - $10. Literally.
(I’m a lifelong vegetarian)
In TX? I thought they outlawed your type there.
(I worked for TI for a short while. Only veg was Indian, which was surprisingly good for Dallas.)
Trying to keep air cold is a waste of money. They need to put some water bottles (mass) in that empty space.
I can do the same at oriental store in downtown Tampa. The vegetables are infinitely better than those sold in the big stores, and prices are far, far lower. And the variety is amazing. I really like the packaged products from Japan.
Since my favorite dish is Thai green curry, I buy a lot of coconut milk, fresh basil, etc., and the stuff in the supermarket doesn’t come close in quality or taste. Why spend many times as much for crap? I guess for the same respon people people pay fortunes for junk houses and condos. They’re lazy.
I am not in the least surprised. Like many developers drooling since the Cabrini-Green buildings were completed, the area has been ripe for redevelopment. A notorious housing complex, the complex was 1 mile from the Rush Street/Loop/Oak Street Beach area and in excellent transit to all. In Chicago, the individuals that lived in this complex have been moved to the out suburbs. Schaumburg were many moved has poorer transport and requires a car. In the ’60’s, when building the Schaumburg houses, many city planners felt that the area could become a future slum. Houses were poorly manufactured and had estimated life of 30 years, no transportation and incredible noise from O’Hare airport. Now with rising energy costs, the inner city neighborhoods are going to be redeveloped and the ‘burbs will be stretched from education to police/fire protection.
Between 1999-2001 I mapped Chicagoland for a company providing databases for in-vehicle navigation. We saw it all, the good, the bad, and the ugly of suburbia. What you say Hoz is entirely true, many of the postwar burbs have housing stock that falls far short of the desires of today’s upwardly mobile crowd. Adding to the SFH mess are large 1970s vintage apartment campuses. Orginally meant to house pre-urban young professionals they have since become regional ports of entry for low wage earners and more than few now resemble what Chicago’s projects once did. Meanwhile luxury condo building continues apace on all sides of the CBD. Capital has reclaimed the city.
PPT tidbits:
http://tinyurl.com/32de53
http://www.safehaven.com/article-6831.htm
WOW Fred … good reads. I did not know the PPT was created by law in 1988. Wonder what was going on in the markets then that made them creat this group? I’ll look into that. thanks!
See 1987 stock market crash.
Greenspan was so convinced of financial implosion in the nineties that he advised Congress that we return to the gold standard:
R.W. Bradford writes in Liberty magazine that, as Fed chairman, Greenspan (once) recommended to a Senate committee that all economic regulations should have fixed lifespans. Senator Paul Sarbanes (D-Md.) accused him of ‘playing with fire, or indeed throwing gasoline on the fire,’ and asked him whether he favored a similar provision in the Fed’s authorization. Greenspan coolly answered that he did. Do you actually mean, demanded the senator, that the Fed ’should cease to function unless affirmatively continued?’ ‘That is correct, sir,’ Greenspan responded.
Bradford continues, The Senator could scarcely believe his ears. ‘Now my next question is, is it your intention that the report of this hearing should be that Greenspan recommends a return to the gold standard?’ Greenspan responded, ‘I’ve been recommending that for years, there’s nothing new about that. It would probably mean there is only one vote in the Federal Open Market Committee for that, but it is mine.’
http://www.usagold.com/gildedopinion/Greenspan.html
Knowing Greenspan’s past (in his youth, he was a staunch libertarian and a member of Ayn Rand’s inner circle) and looking at his actions as head of the Fed leads me to one of the following conclusions about him:
A) He had a Saul-of-Tarsus style conversion to the wisdom of centrally-planned economies.
or
B) He simply gave everyone what they wanted and will allow them to deal with the consequences of their decisions.
The fact that he continues to this day to advocate a return to the gold standard leads me to believe (A) is wrong and (B) is closer to the truth. Of course that means all his actions as chief have been duplicitous and he is untrustworthy. Still, sometimes I wonder if he has allowed himself to be a sacrificial lamb to point out the folly of our economy and monetary system. We’ll never really know.
My theory is that Greenspan knew exactly what he was doing in providing endless “liquidity”, and that he knew that the result would be disastrous for the fiat paper “money” crowd. By an amazing “coincidence”, this is almost identical to what one of the heroes in Atlas Shrugged did!
May be double post.
500 sq ft bargain.
http://southjersey.craigslist.org/rfs/271194973.html
“The Cape House is the only 1 bedroom condominium in Ocean City that includes two assigned parking spaces with the majority of parking under cover. ”
Advertising is so stupid sometimes. what does this even mean? Does this mean that one space is under a structure, and the other isn’t? Does it mean that the front 2/3rds of each car are covered? Do they give you a blanket?
Wow, that really makes the unit stand out to me. Let me pay almost $800,000 for a 500sq ft “hotel style” condo with mostly-covered parking!
Sheesh.
HIC,
And 2 years ago I worked on the same kind of project 2 blocks away that sold for 400K.
but did it have the majority of its parking under cover?
Is anyone suspicious that Franklin Raines is pushing for a speedy hearing? Could it be that he wants it done before the full extent of the mess is exposed? http://www.washingtonpost.com/wp-dyn/content/article/2007/02/05/AR2007020501400.html
If it is law that the trial must start within 60 days “is required by law to begin a hearing on the evidence within 60 days of that event….” and the state (Office of Federal Housing Enterprise Oversight) is not able to comply then Raines has every right to ask to have the charges dropped. The trial may start in 2008 or later but the appeal should be heard based on the governments trial delay. In similar instances the verdicts have been thrown out and the accused individuals released. A smart move by Raines attorneys.
I was toodling around on our local RE website (edinarealty.com), and I was SHOCKED to see that there are over 140 homes for sale in my neighborhood for over $1 million.
Even more shokcking, over half (probably closer to 2/3rds) of them are CONDOS.
To me, even more shocking, was that over half of the homes for sale over $3 Million were CONDOS as well! amazing.
you have to understand, in Mpls $3 million can get you an impressive HOUSE (not a mcmansion, a beautiful well crafted house).
the condo craze is literally insane. it doesn’t even make sense.
let me think:
1800 sq ft “modern” (which is to say stark and bare with freezing concrete floors and drywall and an Ikea sink) condo
or
1909 handbuilt 4500 sq ft beautiful home
hmmm….. let me think on this.
oops, mistake:
seems like around half over $2 million were condos.
Only 3/17 over $3 mill were condos.
Not only that but for $2 mil you can have a house on one of the lakes. Let me think, small little box with balcony looking over Cub foods or a house on a lake.
It is the same in the Jamaica Plain section of Boston. Over a million dollars for a condo? Why would you live in JP? Would that same amount of money give you something nice in the Back Bay? It boggles the mind.
While searching for homes in the Sarasota area, I can’t help but laugh at the hard push realtors are making. Here is a sample of one realtors Website.
It’s a Buyers Market! Now is a great time to buy in Florida because:
1. There are many homes on the market so the selection is greater than it is during a hot market.
2. Buyers have more time to think about a home before they make the decision to purchase it.
3. A slowing market allows buyers to negotiate a better deal.
4. Interest rates are climbing, but they are still historically low.
5. Real Estate is likely to continue to be a good investment. Since the NATIONAL ASSOCIATION OF REALTORS began keeping records in 1968, the national median home price has risen every year. In a balanced market, home values typically rise at the general rate of inflation plus 1.5 percentage point (plus tax benefits).
As a buyer, all I’m hearing is “Buy,BLAH,BLAH,BLAH,BUY”! I also don’t see how this comment can be used for Florida real estate. Notice the comment”the national average”. This is a scary time to be moving. Guess we’ll be renters for a very long time! Still looking for good family neighborhoods in Sarasota if anyone has any suggestions. Thanks so much.
They use similar tactics here in DC. They will lure some fools, but not many.
Wait, didn’t prices fall YOY from 2005 to 2006? Or do we have to wait for this year to call BS on someone saying prices never fall?
What’s more, are they actually advertising that housing climbs indefinitely at a much faster rate than inflation, ignoring the fact that this is a logical impossibility? (If housing climbs at 1.5% per year faster than inflation, in a hundred years, how will ANYONE be able to afford buy a house? Who will all the buyers be whose incomes have risen without any effect on inflation? This makes me cringe…)
“Since the NATIONAL ASSOCIATION OF REALTORS began keeping records in 1968, the national median home price has risen every year.”
except for now.
Well 1,2,and 3 actually ARE reasons that the BEST time to buy is shortly before the market hits bottom. Of course NOBODY ’round here thinks that we’re close to a market bottom, at least not in dollar terms.
AP - U.S. stock futures sported a tepid rise on Tuesday ahead of speeches from Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke, with printer makers in focus on Eastman Kodak’s introduction of a new line.
I find it funny that Bernanke and printers are mentioned in the same sentence.
Both print money.
Has anyone seen this from the Washington post yet? A couple sued bank about getting snookered into an adjustable loan instead of a fixed rate. they thought the interest rate was fixed for 5 years at 1.95 percent then went adjustable. turns out it was only a teaser for a month then went up. (The writer described a neg-am option arm, but never really named it. oy. msm.) THEY WON. the judge cleared it for a class action involving possibly 7k other borrowers. damn them.
Oh, and of course the “I didnt really read the documents cuz we trusted our broker” crap.
http://www.washingtonpost.com/wp-dyn/content/article/2007/02/05/AR2007020501415.html
Sorry…I don’t want to read the article. It will just piss me off. The judge should have dismissed the case and scolded the plaintiffs for being STUPID and ask them why they thought anyone would lend them fixed money at 1.95%?
I’m not seeing anything about the following post in the US media about it but the news actually comes from America. It comes from Merrill Lynch who are giving a strong warning that the money punch bowl is now being withdrawn globally and telling their clients to switch investments.
In particular, the article (in the business section of the Brit newspaper The Daily Telegraph) states the UK is especially vunerable to problems as the punch bowl is withdrawn. Debt is now a very serious problem in the UK and government has done everything they can to try and soften the blow by introducing all kinds of “gimmicks” to help cash strapped Brits short of actually saying, “Okay. Let’s wipe that $200,000 off the books so you can start borrowing again tomorrow.”
The UK as a country is in worse debt than the US (hardly seems possible but true). Loans in the UK are 162% of GDP. By comparison, in the US they are 111% of GDP. At the other end of the scale they are just 27% of GDP in Poland.
In fact, the American Disease of easy credit (until 1970 credit cards in the UK were almost unknown and there were just one or two mortgage companies) has now made the UK the most debt ridden country in the world. If you take property prices, it makes US property prices look like chicken feed.
Merrill Lynch advises clients to seek positions in places like China (NOT the Chinese exporters but companies who make things for local consumption) where the massive population of increasingly well heeled upward moving young Chinese who want the latest “things” is a fast growing market. It says investors should also take a small position in gold. (Yeah, I know - buy gold now ’cause it’s going to $1 million an ounce and you had better buy a machine gun an 5 year supply of canned goods as the money system collapses. lol.)
Merrill Lynch also advises investment in eastern european banks. So, this seemingly never ending party of free money might have hit a wall. It always does and once again we come back to the old, well worn but well proven saying: “If it looks too good too be true - it probably is too good too be true.”
The article states that the lead time (from when the punch bowl starts to get withdrawn) to the actual happening is 12 to 18 months. Just in time for Bush to get out of office and pass the mess he and Greenspan made of the US and pass it onto the next (probably) democrat President who will take the blame for destroying the “goldilocks economy” (lol).
Don’t worry. I expect things to happen fast enough for Bush and the Republicans to be blamed for all the economic problems they are responsible for. And all the economic problems they are not responsible for.
Even if the recession comes really quickly, the pundits will just blame it on the Democrat party being in charge of congress.
Merrill Lynch is certainly aware of the sheer numbers of loans on which it is making demands for repayment. The MLN bankruptcy alone involves $36.56 million in Merrill loans for which repurchase was demanded. Multiply this by a couple of dozen originators and you start to get numbers which even Merrill might notice.
Merrill Lynch also advises investment in eastern european banks. So, this seemingly never ending party of free money might have hit a wall.
strange … just look at all the Eastern Europe (emerging market) funds that have been surging together with the housing bubble (especially in Eastern Europe!) and the latest stock/bond market craze. What do you think will happen to Eastern Europe banks when the punch bowl really gets taken away? I think they might drop even faster than financial institutions on the western front.
NHZ
Yes, it is strange and I have no idea of why they would say east european banks should do better than american/UK banks. It could be that they have room to grow whereas the US banks and the UK banks do not. I neglected to post that Merrill Lynch also says that Chinese banks are another way to invest. My feeling there (and what a lot of people fail to understand about China) is that they are almost like a country coming out of a depression as in the USA in the 1930’s BUT the Chinese depression has lasted for a few thousand years. Now they have the bull by the horns.
Others say that China cannot survive economically without the USA. I don’t agree. China can initiate the same kind of programs as FDR did if there is a world recession and the demand for Chinese goods dries up. China has enough work on hand for building roads, bridges, dams, etc, to last 100 years. Meanwhile, with the extra money printed up by the Chinese government to pay for these programs, their factories can make things for the army of workers to buy. Cars, heavy equipment, fridges, tv’s, etc.
I still don’t think the world (especially the USA) realizes the true strength of China……but they will as we move further into the century. I repeat what someone said about China a few hundred years ago: “When that sleeping giant called China awakes -the world should tremble.” That statement came from Napoleon.
Someone posted not long ago (still hanging onto the fantasy of US military power) that the China is no match for the US in military matters. They quoted something about the US navy (air craft carriers) cruising around the China sea to make sure China didn’t invade Taiwan. A few days after that posting, British intelligence stated that China now has 50 (count ‘em) state of the art nuclear submarines, fully armed and cruising around various parts of the world. I wouldn’t give the US navy much of a chance (especially air craft carriers) if 10 or 20 or 30 Chinese nuclear subs were around if the US attempted to stop China doing anything the US didn’t like.
regarding the Chinese depression: I think it lasted less than 200 years; China has always been a great empire, they just skipped the last 1-2 centuries.
regarding US (/Nato) military might: sure, can’t imagine the US invading China to force them to keep producing all those gadgets below cost and buying their worthless treasuries. Such an attempt would make the cost of the Iraq war pocket change (although I don’t doubt there are enough stupid US/UK/Dutch politicians willing to give it a try).
NHZ
You’re probably right about the last 200 year depression thing. I’m not very well read where Chinese history is concerned outside of knowing they have had some rough times (via Japan and the opium wars, etc.) However, I do know one thing. There are a lot of them and they are “hungry” to improve their lot!
Chevy Chase Bank faces Suit over Adjustable Mortgages
http://www.washingtonpost.com/wp-dyn/content/article/2007/02/05/AR2007020501415.html
With college costs looming for their four children, Bryan and Susan Andrews were looking for a way to cut their monthly expenses.
The sales pitch that came in the mail seemed perfect: A mortgage at 1.95 percent, fixed for five years.
“It sounded like a really good program,” Susan Andrews recalled recently.
But after the deal closed, in 2004, the couple realized to their horror that the $191,000 loan they got from Bethesda-based Chevy Chase Bank was an adjustable-rate mortgage. The rate has climbed to 8.3 percent and, because of the way the mortgage is structured, the couple now owe more than they did when they signed for the loan.
They went to court, saying they were deceived. A federal judge has sided with the couple and is allowing a class-action suit involving up to 7,000 borrowers against Chevy Chase.
A new FB joins the crowd: 1st = F’d Borrower, 2nd = F’d Builder, and now……3rd = F’d Banker. This market is going to take ‘em all down little by little. I can’t seem to find any empathy for all the FB’s out there………..
Allowing a class action suit is a long way from final judgement. Unless there are improperly signed documents from the “closing”, it is hard to believe that the bank did not offer full disclosure. And if they did not offer full disclosure, they will be in violation of the law and in this current climate bank officers would go to jail.
Well I think that the bank actually has a reasonable point here in that all of the “fraudy” marketing of this mortgage was the mortgage broker, not the bank. Now they certainly shouldn’t be able to claim complete ignorance, in exactly the same way that the borrower shouldn’t be able to claim complete ignorance of the paperwork that they signed. It does however look like the mortgage broker is the guiltiest party here, to include the “copying mistake” on the loan paperwork that turned “fixed payment” into “fixed.”
That’s ok. Let the court tell the mortgage company to give them a fixed rate mortgage at the 2004 rate for their fico score and they will still be in trouble because the value of their house will be down and they’ve probably got a large HELOC. Now who will they sue next and blame their woes on.
So this is how the FB’s will get bailed out … through the courts. This is my worst fear being realized.
The judge was very clear, according to the paper, that this couple was not entitled to damages - if the bank’s appeal fails, the couple will be entitled to a refund of all loan origination and closing fees, in addition to any interest they paid the bank. The couple will be expected to refi and pay back all principle, however. This according to newspaper.
That’s still a FB bailout. They got to live in their house interest free for how long? That seems extremely generous to me.
Gee, let me think? How long do you figure it will take for something like this to crawl thru the court system before it ends up in the Supreme Court? You know, the one which elected a phony President who has since made the Supreme Court even more right wing.
Another Geee…Who do you think the current Supreme Court would favor? The average daily grind American or the big banks?
Sounds like a no-brainer….but the lawyers will do okay. As usual in their win-win profession.
I think this is good and bad.
Good because it puts the banksters in their place for ripping people off and the money penalty will shut these crap loans off.
Good because shutting these crap loans off will drop the price of houses because people will only be able to buy when they can afford with a hard earned downpayment Skin in the game leads to responsible for actions.
Bad because these piece of $hit, no good a$$hole, dumb fu(king, moron, losers, inbred, etc….. get away with the oldest dumb move of life. If it sounds to good to be true, then by god it is. Any half brain can look at all those billboards on the 5fwy and see 1 pecent loan and must think “yeah right, what’s the catch”
Let’s hear an AMEN!! for Calex. I get irate when FB’s get bailed out — don’t try to kid me — they knew that was too good to be true; they knew, and they did it anyway cause there’s no debtors prison and nobody starves in America and besides, the courts pity those who only eat a box of stupid for breakfast everyday.
in the Netherlands we already can see the shape of things to come. Something similar happened here with a stock leasing scheme in the nineties where 5-10% of Dutch households were involved and lost money. The courts have ruled last month (pushed by politics!) that all FB’s (those who don’t have the money to pay back their debts) will be compensated. I’m sure this sets a precedent for the housing market when home values start declining. Many people don’t have any capital in their homes, they are speculating with OPM and they are assuming that government will compensate them if home prices decline. There is no way you can loose being a housing speculator!
NAR Rant:
I was listening to KFI 640AM while driving home this weekend from Orange County to L.A. and I heard an advertisement on the radio by the NAR, part of the “great time to buy” series. It was full of the usual nonsense that gets debunked on this board and others every day, but one thing in particular rubbed me really the wrong way. The format had, among other things, a segment of quotes from people who ostensibly benefited by buying from a Realtor, and one of them was a guy saying something to the effect that “it didn’t make sense for me to keep paying rent when I could buy a place for the same amount.” This put me through the roof - to assert that you can buy a place in this market for anything even remotely close to the rental value is shockingly misleading (more like double in L.A., or more). Not that anyone with half a brain couldn’t check for themselves, but this seemed like such a blatant deception that I nearly choked on my Propel. I wanted to call the radio station and complain, but given that they play mortgage lender and broker ads at every commercial break, I doubt I’d find an ear…
You complain about false advertising, but they probably have 2 ways to get around it:
1. You can buy a 1 bedroom condo for the same mortgage payment as renting a 3500 sq ft house.
or
2. Payments will be equal on equivalent housing units - for the first month. Then your interest rate will adjust and your loan balance will be higher than when you started.
Or if you put down a 60 percent downpayment or something like that.
““it didn’t make sense for me to keep paying rent when I could buy a place for the same amount.” This put me through the roof to assert that you can buy a place in this market for anything even remotely close to the rental value is shockingly misleading”
No money down, no closing costs, 100% financing, Option-ARM with a teaser rate…
Of course, his “banker’s rent” will have a nasty habit of doubling or tripling pretty quickly.
Anyone else notice the stock market turning down?
Ok, its only down ~10 each on the Nasdaq and Dow… but it could be interesting!
Got popcorn?
Neil
Does this have anything to do with an FCC probe into hedge funds?
FCC is investigating brokers who are tipping off hedgies regarding mutual fund trades. This allows the hedgies to front-run the funds.
The Federal Communications Commission? Do you mean SEC?
My God what times we live in that -10 on an index above 12000 is noteworthy. But its true, there hasn’t been a -2% down day in years and you used to see them a few times a year at least.
Exactly.
We haven’t had a real “red day” in too long. Thus… why any red is noteworthy.
Imagine what its going to do to market phycology once we do have one. Ok, the first few will be “buy on the dips.” But then… people won’t buy on the dips and that’s when we have a good old fashioned “correction.”
And its amazing how often I get reminded that high end housing tracks the stock market, not salaries.
Got popcorn?
Neil
Okay, here’s the Mortgage Lenders Network scoop from the PACER electronic filing system, Case 07-10146. There’s a lot to digest, and there are some very interesting issues here, but I’ll start with their 20 largest creditors. By far the largest issues here are repurchase requests due to delinquency. These include:
Merrill Lynch $36.56 million
Lehman Brothers $9.92 million
Goldman Sachs $4.71 million
Greenwich Capital $3.96 million
Credit-Based Asset $0.97 million
Countrywide $0.93 million
Freddie Mac $0.56 million
Total for the repurchase demands: $57.61 million. Yep. At least $57 million in loans originated by MLN went into early default or are nonperforming such that the servicers or MBS investors felt they had the right to demand repurchase. All of these folks will likely be stiffed.
There is an additional judgment debt to Wachovia IAO $7.65 million which is listed as disputed. This may or may not be Wachovia repurchase demands. That would bump the total up to $64.75 million if it were repurchase demands. Again, it is unlikely that Wachovia will actually get paid for this.
There is a debt called “MSR Financing” owed to Gary DiGiuseppe of IXIS Real Estate Capital in New York, NY IAO $25,000,000.00. Not sure what that’s about.
The next largest category is trade debt. Total there from the 20 largest is about $5 million.
The filings acknowledge that certain states obtained cease and desist orders against MLN for amounts of over $250k. Freddie Mac terminated MLN’s servicing rights on January 24, 2007. MLN terminated EMAX, their servicer, on the same date.
MLN asserts that it holds approximately $850 million of loans (unpaid balance of loans). It claims these loans have been repurchased by the warehouse lenders and will be transferred to the warehouse lenders (the money sources) within about a month. I think this is likely to be hotly contested as the loans seem to be the sole remaining asset and source of income for MLN.
Interestingly, buried in the pleadings, MLN asserts another debt to the master lender of some $443.9 million. I’m unable to find a total for all debts owed, and unwilling to take the time to plow through 400+ pages of unsecured creditors to make that determination, but it looks like a lot.
MLN cannot even afford to pay to keep the lights on during this transfer, so it is seeking an additional $3 million credit line from the master lender, who is charging points and interest on it. They are clearly contemplating a winding up process and are not planning on emerging from the Chapter 11.
Try http://www.trollerbk.com the next time you want to search bankruptcy filings. I like it a lot better than Pacer. I think there’s a free trial.
Thanks for the tip. I’ll check it out.
eh - $57 million in default? So what - there are plenty of exces who got more than that in bonuses last year. Who cares? Party on Garth, Its All Good!
$57 million is worthless paper. (Ok, maybe worth 40 cents on the dollar…) In our fractional banking system, that destroys the ability to lend what… half a billion?
Its showing what the cascade effect will be. No wonder Merrill Lynch is gun shy of the MBS market right now!
Got popcorn?
Neil
The problem is, a whole lot of folks have been relying on that “worthless” paper, and it has permitted massive leveraging and over-leveraging around the globe. When that all starts to unwind, when people lose their confidence in the paper, the derivatives of the paper, and the value of the things bought with the paper, we’re looking at a crisis of Biblical proportions.
Kia
The bad news is it’s a drop in the ocean for the Wall Street Gangsters. Any one of the Wall Street Gangsters could just forgo his annual bonus and pay off the debt. If not, ask that pig from Exxon who walked off with $400 million to throw in some money. Or Dick “See No Evil” Grasso. Or the CEO of Home Depot. All the Wall Street Gangsters have to do is some more manipulation and skim the 401k’s. Not hard for them and the SEC will cover them.
How big would that crisis be, roughly?
Alternative a) ‘Bout the size of the Bible. You know. Biblical.
b) Dr. Peter Venkman: This city is headed for a disaster of biblical proportions.
Mayor: What do you mean, “biblical”?
Dr Ray Stantz: What he means is Old Testament, Mr. Mayor, real wrath-of-God type stuff.
Dr. Peter Venkman: Exactly.
Dr Ray Stantz: Fire and brimstone coming down from the skies. Rivers and seas boiling.
Dr. Egon Spengler: Forty years of darkness. Earthquakes, volcanoes…
Winston Zeddemore: The dead rising from the grave.
Dr. Peter Venkman: Human sacrifice, dogs and cats living together - mass hysteria.
Mike: A lot of those folks ain’t gonna have those kinds of salaries and bonuses anymore when this unwinds…
Anybody in the Philly area see the commercial for the real estate agent that guarantees to sell your home in 30 days or less? That was on FOX no less.
No didn’t see it but haven’t watched too much TV lately.
Do you recall which agency it was? Whoever it is, there certainly has to be some escape clause in the fine print.
The good thing: if realtors are advertising ON TELEVISION for business, times be tough…for them!
http://www.mayorsam.blogspot.com/
When I saw 12th District Councilman Greig Smith speak out about the ridiculous LAX hotel living wage “compromise” I was pleased that our only Republican member of the Clowncil (before any of you dum dums start with me that our favorite motorcycle cop turned Clowncilman Dennis Zine is a Republican rest assured I’ve come to the conclusion that whatever GOP credentials the Z man had were lost when he came out swinging for the ridiculous Declaration of Los Angeles) was actually the only person making sense.
However this old, dead Republican mayor was quite shocked to see that Smith was ignoring basic economic principles when attempting to pander to NIMBYs via a local fishwrap, The Sherman Oaks Sun.
As anyone who knows anything about Los Angeles, the city is facing a housing shortage. However, there isn’t a lot of available land to build on. Coupled with the tremendous and growing demand for housing this causes the price to continually rise.
Given this, it makes sense to take former industrial and commercial land which is laying empty and unused and convert it to residential use. But Greig Smith is adamantly opposed to this. It makes no sense.
To be sure, Smith wants to continue to use the land for commercial purposes. Great, but its not like folks are lining up to build more offices and factories in LA. There are a lot of reasons behind this we won’t go into right now. Considering this fact, simple common sense says make use of the land for what it is its highest and best use, meeting the current demand for housing.
The other day my wife was taking one of our clients to meet with one of his portfolio managers (a managing director too boot) at one of the major I. banks in NYC. She had prepped the client and got the manager to talk about the residential housing market. He basically said there were no real problems and stated that there was a bubble in bubble talk, soft landing, no contagion, and so on. They then went out to lunch to continue the conversation. In the Taxi the client started chatting with the Russian taxi driver. You guessed it; in conjunction with several family members the taxi driver said he was invested in 3 “investment” properties around the city. My wife said the client smiled her and then jokingly nudged the manager with his elbow. In defense of the portfolio manager, he’s been a very good stock picker, but he spent the rest of the day studiously trying to avoid having to make any more general predictions or comments about the future. According to my wife, this was a big change in the manager’s demeanor. How’s that for a Joe Kennedy moment!
I have a question and I am sure there are plenty of folks on this blog that can offer some opinions. What is smarter when buying a house: paying cash/no mortgage, or putting down say 20% and having a mortgage.
Let’s assume that you can get 5.5% on the cash (low risk) and that a 30 year mortgage would be 6.5%. I assume the only other factor would be the tax implications. Pls offer any insight.
Take out the mortgage. At 6.5%, plus the mortgage interest deduction, you should be able to find a suitable investment for your money to make it worthwhile taking the loan. If you don’t like the idea of a long mortgage, go for a 20 year fixed. IMO. Then again, owning a home outright feels great and provides a really stress-free existence, so there’s something to be said for that, too.
I have always paid cash. I realize it is a lot harder to look at 70’s house pricing/70’s salary than todays pricing/salary. Cost of inflation, but I have gone as long as 3 years without income and it is nice to know the house was one less bill.
–
Forget the mortgage interest rate. It makes no sense to buy at the current prices. Wait until prices go back to where they were in 1990s. No, there is no shortage of housing in LA or any place in the US. There is overbuilding almost everywhere during the current bubble.
Take that 5 - 5.5% return on money while you wait.
Jas
Aha! The Kobyashi Maru problem. In fact, there is no good answer. Prices are simply too high. You can pay too much at a low interest rate, as one poster suggests. OTOH you could not buy, and earn 5.5% interest while inflation is closer to 10%, while risking further price movement against you (not likely). Welcome to the hell of inflation where you all choices lead to impoverishment.
IMO, never have a house payment more than 25% of your take home pay on a 15 year fixed mortgage, whatever that translates into as a down payment. The whole tax benefit of a mortgage is overrated. Why live your life a slave to the banks. Another way to look at it is if you owned a house free and clear, would you borrow 80% of the value and invest it? I know I wouldn’t.
” Another way to look at it is if you owned a house free and clear, would you borrow 80% of the value and invest it? I know I wouldn’t. ”
Thank you for a short, clear answer.
Most people are not aware of the reason that over the last thirty years or so, our dollars have been buying less and less, thus dooming much of what used to be the middle class to poverty.
Since the internet is still neutral turf (unlike TV, newspapers, and radio), the internet is the only means our group (which includes some very prominent politicians, as well as many Chicago-area bankers) has available for getting the following message out to the masses:
It is said that fewer than one in a thousand people are aware of what our true monetary system is. The vast majority of people have been kept in the dark about this by our bought-and-paid-for media, so they still believe that our monetary system is the dollar. The entire world’s (including the U.S.) monetary system is called FRACTIONAL RESERVE BANKING — or FRACTIONAL RESERVE LENDING. The reason it is a difficult concept for people to understand (even the ‘experts’ have yet to make heads or tails of it), is because it was deliberately set up back in the early part of the Twentieth Century by the top one percent on the economic ladder (read: Rothschild, Rockefeller, Warburg, Morgan, Schiff — did I miss anyone?) to swindle and impoverish the masses in order to make themselves rich and powerful beyond belief.
In 1916, just three years after the Federal Reserve System went into operation, President Wilson (among many others) suddenly realized what a virtually uncontrollable power monopoly had been vested in the nation’s new Federal Reserve System. He wrote:
“A great industrial nation is controlled by its system of credit. Our system of credit is concentrated [in the Federal Reserve System]. The growth of the nation, therefore, and all our activities are in the hands of a few men…. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world-no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of small groups of dominant men.” (Quoted in “National Economy and the Banking System,” Senate Documents Co. 3, No. 23, Seventy-sixth Congress, First session, 1939.)
The American Monetary Institute (as I have already said — the group is comprised of many Chicago-area bankers as well as some prominent politicians) will be meeting again this year in Chicago for four days at the end of September. Anyone out there who wishes to be part of this rapidly growing movement toward monetary reform is welcome to attend.
In the meantime, I found a link to a very simple explanation of our nation’s (and world’s) corrupt lending system. It’s a video done by a University of Vermont student. He looks like your average college kid, but he is very intelligent, and has found a creative and simple way to explain a monetary system that even confounds many bankers. Here is that link:
Jake Explains the Fed
An update on that house that I attempted a 30% reduced priced bid on last week or so…
Before I could contact the owners directly, they decided to drop the ASKING price by 13%. This at the start of The Spring Selling Season ™. It will be an interesting spring…
Your patience has already paid off! Congratulations!!
arroyo-
For submitting an offer 30% below asking price…you rawk!!!!
Sounds promising, ag.
For those of you who prefer more conventional ‘messengers’, here is a link to another video that’ll open your eyes:
Not Federal; No Reserve
inflation adjusted housing chart:
http://www.idorfman.com/Charts/ShillerHousingIndex.gif
Makes me laugh when I hear someone calling the bottom.
Tax lien news from Tucson:
http://www.azbiz.com/articles/2007/02/06/news/news11.txt
i can’t help thinking about the myth of the wall st. bonus and how it ups the sales figures in and around manhattan. when i do the math, it just doesn’t add up. i mean, aren’t “rich” people rich because they are careful with their money?
just today, i saw a house, exactly like my rented one (1 family, 3br-1 bath, attached, no back yard, garage) just up the block from mine, on sale. the asking price? 789k.
let’s say a buyer spends 769k on it. they put down 20% (thus no pmi). the taxes are $3500 yearly. this would put their monthly payments at $4000 a month. some, if not all, of the tax deductions will have to go to water, heat, etc.
my exact same house rents for $2300 (no tax, no water bill, just heat). why would i buy to pay almost twice as much, and that after my “tax savings?”
that’s the bottom line.
A lot of people are woo’d by the mortgage interest tax write-off deal. That’s where the mantra “paying rent is throwing money away” comes from. But they don’t understand the bigger picture.
http://realestate.msn.com/Buying/Articlebankrate.aspx?cp-documentid=687267
http://www.bankrate.com/brm/itax/news/20060608a1.asp#1
BayQT~
7% is in the bag (or not).
Watts forecasts 7% gain in O.C. house prices
Gary Watts, the Realtor-economist who forecast the downturn of the 1990s, then foresaw the housing boom just ended, believes prices will rise slightly in 2007.
Although his 2006 forecast was overly optimistic, Watts remains confident that local house prices this year will increase 7 percent and that condo prices will go up about 4 percent.
…
The 2006 median price for a single-family home was 6.1 percent above the 2005 median price, according to DataQuick Information System figures, he said. The median price for a condominium was up 4.6 percent.
…
Watts, who is delivering his forecast in a series of speeches to Realtor groups this month, originally forecast that Orange County home prices would rise 15 percent to 18 percent in 2006, then revised that forecast down to an increase of 8 percent to 9 percent.
He said he was surprised by a huge increase in the number of homes being offered for sale last year, which held prices in check…If the inventory of homes listed for sale balloons again this spring and summer, Watts warned, the market won’t appreciate as expected.
“We’ll just have to see and hold our breath for the inventory numbers next spring and summer and see if that explodes again,” he said.
http://washingtondc.craigslist.org/nva/rfs/274454988.html
If my math is correct, this is $667 per square foot. I believe this is just NW of Chain Bridge Rd. in the center of Vienna. Vienna is nice, but 2 blocks off of Chain Bridge and it starts to look like rural VA - lots of properties like this one.
You can’t be serious about anywhere within 25 miles of DC looking “rural” anymore. Either that or you haven’t spent any time in rural Virginia. I like to call central Virginia “the place where the roads don’t have lines on them” for obvious reasons. I’m pretty sure that’s not what you see two blocks off of Chain Bridge Road.
I just went to Zillow for some comic relief. My house went up $33k in the last month. Meanwhile a house 1000 square feet larger got dropped $8k and is now worth about the same as mine (I can see the house from my porch, so it can’t be location). I wish I could do a one for one swap, the folks had their house up for sale last summer (took it off unsold).
There’s somthing haywire on that site.
Interesting note. I have been looking on & off for a rental in LA for the last several months. Just a week or so ago I started seeing something new. “Priced Reduced” on the rental listings. I entered 0-100000 w/0+ bedrooms to see what happened in the for rent drop down w/reduced in the search field. I got 48 hits. Anyone else tried this? Here’s my search
http://www.safehaven.com/article-6849.htm
So you sell your house, get lots of cash and then hope for deflation?
Well what if you get inflation and a weak dollar? Above link to Article offers some advice. I don’t know if its good advice or not however, I’m not that smart… although I have a bad feeling it may come to pass just as the link says.
After the biggest credit bubble in history, I’m confortable with cash. Those who feel we can avoid a subsequent fall is betting against long odds.
For Sale By Owner (FSBO) market - lending tightening up?
http://forum.brokeroutpost.com/loans/forum/2/92148.htm
“Is anyone finding that lenders are backing away from fsbo’s cutting lvt or tighting up guidlines? I was told there was “huge fraud” issues and buy backs that were killing the fsbo market. Say it aint so.”
“Down here FSBO’s are getting their appraisals cut moreso then a property on the MLS, and the lenders are getting strict on them w/ some changing their guidlines just for them and not offering certain things. Just happened to a buddy who was working an FSBO, had it witha couple lenders and the just like Freemont above they capped him at 90ltv, which made him look bad as he had fliers made up for the seller for 100% financing etc and different options. Luckily somebody ended up putting money down and he did the deal at 80ltv so…, think he closed it then with Wells Subprime.”
“We will allow for a fsbo. But, the seller cannot hold a 2nd. The seller must be on title for 12 months. The times they are a changing.”
“The reason lenders don’t like the FSBO deal is the same reason that lenders don’t like the relative to relative sale. They feel more comfortable that the buyer and seller didn’t know each other prior to the deal.”
“Yes FSBO’s are more likely to default and are also more likely to be a straw buyer. No, this certainly is not always the case, but this is a risk which HomeView, and other lenders are trying to avoid. I have NO problem with them, can’t over ride the man though!”