The Housing Bubble

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Yet Another Way to Get Spendable Money From One’s Home

“Rex & Co. (Real estate Equity eXchange) will actually invest in you and your home. They hand you cash in exchange for up to 15% of your equity. This arrangement is not a loan, it’s more akin to an investment in your company. They participate in the upside when property values go up and share in the loss should they go down.”

http://www.altosresearch.com/blog/

“How much are the closing costs? The costs of obtaining a REX Agreement will vary, but include fees for: appraisal, preliminary title report, title insurance, credit report, natural hazard disclosure, tax service, flood certification, notary, wire, messenger, and recording.”

http://www.rex-inc.com/faqs.php

Of course, Rex & Co. will go public and you can indirectly sell a share in your home to the public. After you have signed a second mortgage to Rex & Co. for some money you will be approached by Wrecks & Co., in due course, to offer you some more money for yet another share and you will sign a third mortgage. God forbid, the prices go down, or Rex & Wrecks go bankrupt. Who knows what your rights will be when things go sour. How many Americans will read the fine print when someone is dangling money in their faces? And how many will know the full cost of being Rexed, or Wrecksed?

America – a land of legalized financial scams. Scamsters know that Americans are bred to be suckers, very thoroughly; they just need to scheme a new way to suck the general public and milk it for what it is worth before the scheme is made illegal. Scam Options, without expensing, during 1995-2005, is a case in point. Tech companies sucked more than a trillion dollars via the scam.

Jas

Toll Brothers expects revene to continue to shrink:

http://www.sun-sentinel.com/business/local/sfl-ztoll09feb09,0,2227250.story?coll=sfla-business-headlines

Quote:

“We’re adding people at a clip that is much greater than the ability to add supply in the home-building stream,” Toll said. “Supply has been stagnant since the 1970s.”

Is there any shred of fact to that statement? That seems pretty impossible to me, as it would mean that homebuilders really have not been doing anything in the 30 years prior to 2000. Where does a statement like this come from?

Take your equity and run…. Looks like we will have more ‘halfbacks’ entering our state of South Carolina. I hope they get stuck with their Florida shacks and have to stay down there, the bastards just keep our prices up. Please stay down there in gods waiting room.

http://biz.yahoo.com/brn/070208/21029.html?.v=1&.pf=real-estate

Opitimistically banking on future productivity gains, to increase future wages, floating all boats and as a replacement for wishful thinking and hope?
The President of the Federal Bank of Philadelphia really hammered the bears in his speech Feb. 7. His smooth disclaimer that economist are known as bad forecasters who cannot even explain the past failed to mention the Austrian economists who say they can explain the past quite simply, have present a clearer picture of where we are headed than does the Fed President and the followers of mainstream economics who can only guess, even when using the figures thay have at hand. The Fed President points out that for the last year the bears have been looking too pessimistic and downright wrong. The Fed President paints a nice average US economic picture of 3.4 percent GDP, 2.2 million new jobs, and 4.5 percent unemployment. The goldilocks economy gets murky when he says that wages increased 4.1 percent while the Feds different measures of inflation confusingly seem to indicate a rise by half that much or maybe more. I suppose that is localized and regional.
The Fed President talked about the rising and falling prices of oil and how it seems like the price dip currently could only be temparary in the same way the hurricanes were, as if the price of oil was not manipulated. The big three automakers are a central component to our economy and the only mention this sector recieved was that it is still competitive. How? Competitive at the race to the bottom?
The biggest statement to come from a Federal Reserve official for the housing bubble bears and bulls came with no exclamation point, “…we saw a boom and bust in the housing market…” This kind of contradicts his attempt to slam the bears. We should no longer see the statement, “there is no housing bubble” in the main stream media. Everyone who said there was not a housing bubble these last few years has just been slammed by the President of the Federal Reserve Board. What economist has more information than the President of the Federal reserve Board to say otherwise? The President of the Federal reserve Board said we had, “…a substantial downturn in the housing market…” everyone who said differently flat out lied or were ignorant. The Fed President still maintains that all real estate markets ARE just local markets eventhough he says their total averages are whats busting, which is why it appears not all local markets are busting. Got that? The excess supply of homes is not listed as a problem, simply a case of a need for an increase in demand to catch up with supply. However, the Fed President seems to imply that the home builders must stop building so many homes until demand catches a falling knife, ‘er I mean until demand catches up with supply. Are the home builders slowing enough? The Fed President says that, now, after the latest housing slump when home building slumped, housing starts have risen in the last two months as an indication that demand is catching up with supply and the turnaround is near. Is the rise in housing starts a little early to be a positive development? Not to worry though, he tells us that the inventory will eventually be bought and home construction will pick back up. Do not worry about catching a falling knife at this point, look at the Feds recent data. lol. An increase in new home sales Dec. and Jan. may mean the turnaround is already happening, disreguard the contradiction that new housing starts are rising. With home construction around five percent of economic activity, the Fed President admits that this sector can have more effect on other sectors and even make things worse for companies that have little to do with building houses. According to the Fed President, commercial construction picked up the slack from job losses in residential construction, it was a wash. We have had growth, we have created new jobs during this time, and he attributes some of this to the commercial construction side. The same commercial construction that sits empty everywhere, the result of the twelve percent increase in commercial investment created by the Feds previously loose monitary policy, not savings from income profits? Commercial vacancy rates would be key to understanding the sustainability of this sector of the economy and all those connected with it. Here is where I would place the chart showing GDP growth since 2001 minus home equity withdraws, that is, negative GDP. With consumer spending more than three fourths of GDP, price stability is supposed to maintain this spending? Is price stability within a certain range THE main public concern of the Fed? The question then is, how does that certain range adjust? If the Fed raises rates the reason seems clear, information the Fed uses to measure rising prices tells them to, but not until the info is collected and on their desk, thus the infamous lag.
The optimist uses the bulls favorite word of last resort, hope. The Fed President says there are, “…hopeful signs of an improvement in the housing market; robust growth in consumer spending…” Dead cat bounce all year long is more like it. There is no mention of the record seventy year low savings rate of consumers and how this will affect anything else. He does imply that growth in residential construction must pick back up and it is an area of concern. I’ll bet the big three auto makers future depends on this happening. The Feds outlook seems to be that price stability in housing will cause residential construction to pick back up. If we are not at the bottom of the housing bubble bursting, this should not occur and we will all know then, what is up with housing, eh, or is stagflation considered price stability?
Foreign trade is a part of consumer income, the Fed President describes that sector as small and encouraging, not quite exactly the stuff of sustainable consumer spending. He said 2006 had a 3.7 percent increase in spending because of a strong job market and rising incomes. That was then, this is now. He thinks these factors will continue and keep consumers spending at a, “moderate pace in 2007″.
In the Fed Presidents speech he uses a personal story in relating that businesses are finding it harder and harder to retain and attract good employees, that is, maintain employment levels. Wage rates, or the high cost of living in high density areas are not mentioned as a cause, nor is the depletion of our manufacturing base (along with the experienced employees since then retrained and employed in other fields) over the last twenty years. The Fed President also fails to mention how sustainable the 8.4 percent increase in exports is in relation to the economies of the world. Is China having a stock market meltdown? If our imports only increased by 1.2 percent that means the US is buying fewer imported Chineese goods? The Chineese manufacturer is exporting fewer goods to the US resulting in lower profits? Lower Chineese income results in fewer purchases of US goods, unless the dollar crashes? If the dollar crashes, how do more US consumers buy more, higher priced, imported Chineese goods to keep the cycle of trade going? Are all future US exporting increases to occur with Europe more than any other region of the world? Many Germans seem to be expressing distaste for the rise in the purchasing power of their currency contributing to the increases in US exports to Europe. There are reports of governments the world over masking the true level of inflation and other growth amounts, leaving the impression that an underhanded, shuffling around the world game of money purchasing power tag is taking place.
Like most mainstream economist, the Fed President focuses on the demand side. He must liken consumers to the, “Cargo Cult” when he implys that because peoples incomes grow, they tend to become homeowners rather than renters. From this speech, it appears the Fed considers income growth and price stability to be the sources of consumer demand for homes. The Fed President said that the number of owner occupied housing only increased four percent since 1995 and houses on average got twenty percent bigger, this is the trend he expects to continue, dependent on the increases in wage growth. The connection with the ratio of the cost to buy a home compared to wage levels is never made, only the stability of the supply and price level, much like the “Cargo Cult” who never made the connection of the difference between an operational radio tower and one made of coconuts - just use whatever looks like what worked last time.
The Fed President goes through two senerios he sees could happen in the future. In one of his Orwellian statements, true and untrue at the same time, he said, “…when market prices are free to adjust, resources shift to their highest valued use, allowing the economy to continue to grow…” quite an optimistic assumption. Resources shift as much as they can against manipulative forces but what if the highest valued use is not high enough to provide a profit and growth leaving only hope and an expectation of future gains? Get out the bulldozers? His last two months of data point to 3.5 percent increases in home price appreciation v.s. the last two years of ten to thirteen percent growth. This is not seen by the Fed as causing homeowner wealth to decline leading to lower consumer spending. You see, the stockmarket is doing well and everyone is having productivity gains both of which lead the homeowners, indeed everyone, to think long term income will increase. That is, the consumer thinks they can keep on spending because they think they can keep on making increasing monthly payment amounts and increasing their debt load and still adjust to keep up with their costs and standards of living. Think’n and a hope’n. .
Is the Fed President reading this blog? In the middle of his speech his statements mirror this blog years ago: “regional markets had different experiences when the housing market heated up. Now they will have different experiences as the market cools. And the areas where the run-up in home prices was most dramatic will most likely feel the adjustment process the most acutely.” What happened to the wage increases, the builders slowing home construction, commercial construction offsetting any losses in residential construction, and the bottom is here now?
The Fed President distributed the Bank’s fourth-quarter Business Review article by Tim Schiller entitled “Housing: Boom or Bubble?” I wonder what the content of that article was?
In typical Fed fashion the Fed President goes on to threaten the need to raise rates in light of past increases in inflation to slow the inflation he claims is a measure of how fast future (and desired) wage growth will be, unless of course the inflation is caused by productivity gains. How confusing. If past and future wage growth is accompanied by rises in productivity - well then - that wage growth is not inflationary at all according to the Fed President. The Fed President ends his speech by saying that the Federal Reserve monetary policy is the primary source of persistent inflation (suprise?) and that policy was too unrestricted during the housing bubble boom years of 2001 through 2005 (suprise again? the mortgage lenders accomplice?). The Fed President seems to be saying if they do not let the short-term interest rates rise, “with the market,” that action creates even more inflation. This must be different than when they raise the short-term interest rates against the market? Is the Fed trying to position itself in the publics eye as not to blame for the, “market” rasing long-term interest rates? Either way, the idea is that rising short-term interest rates in a growing economy is required to match aggregate savings with aggregate investment,… how can that be if we have no savings?
It has been a long time since I have read about how someone has to, “fight off their wife like a lion tamer” to avoid buying a house. Was there something in the smog or was that just a common herd mentality seeking a percieved position of safety from a fight or flight condition brought on by too much additional stress as a result of the occurance of, and the (known and unknown) possible outcomes of the WTC attacks and the Iraq War II as put forth by the mainstream media and our official leaders in truth? A mad scramble to buy houses that in hindsight looked more like a deer drive to the slaughter, financial and otherwise. What average J6P and Jane SoccarZim didnt believe The President of the Federal Reserve Alan Greenspan [when he proclaimed from Jackson Hole Wyoming that now is a good time to use an a.r.m. unless you are prepaired to loose money] leaving the impression that now is THE time to buy? Run to the ditch you stupid deer. I did. I did not think it was a good idea, but I believed it was, in part because there were no government or banking officals saying otherwise. To think otherwise got one branded a terrorist, or brainlessly crazy by the general population. Before Bens Housing Bubble Blog there were very very few internet writers sounding any type of counterargument to the housing boomers. The branding is wearing thin now and popcorn sounds good. - Jmho.

Don’t wonder if “it” (a fascist takeover of the United States government) can happen here. It has happened here. This administration can wage war when, where and how it pleases, for as long as it pleases, for whatever reason it wants and - under current conditions - there is nobody in America, within or without the government, who can stop it. The US Government is effectively a dictatorship in all matters of war and peace.- Michael Nolan

After yesterday’s HSBC and NEW bombshells, it should come as no surprise that the ABX indices took a pronounced turn for the worst, with most ’06 tranches plumbing 6 month lows:

http://www.markit.com/information/affiliations/abx

Note the pop almost all tranches enjoyed late last week, (Russ Winter’s Godfather Protection Racket?), gains which have now been completely reversed. Thanks, FCB’s, and don’t forget to grab a bigger bag on your way out the door.

Clark-with all due respect, try hitting the return key more than once to create a new paragraph.

my topic suggestion, with all the bad news in the sub-prime sector will we ever see a return to more conventional lending with the old school lending practices or are these garbage liar no doc, no money down things here to stay?

No fast money for ever and houses never fall

If you were lending the money and all these defaults happened would you ask for tighter standards?

Ladies and gentlemen, your predictions please:

The 1980s “greed is good” stock bubble ended in August 1987, and a couple of years (and a stock market crash) later the unraveling led to the sudden bankruptcy of Drexel Burnham Lambert.

The 1990s “irrational exuberance” stock bubble ended in March 2000. And within a couple of years, the tech bust was punctuated by the vaporization of Enron.

The early 2000s housing bubble peaked around August 2005. And within the next few months…

And for Valentines day: how will the housing bust affect romance?

Will be see personals that read “FB seeks GF to avoid jingle mail?”

Will an Option-Arm be as unattractive as a trust fund is attractive?

Will the perennial fight among divorcing couples — who gets the house — have a whole new twist?

What reforms will be driven by the housing crisis? and who will go to jail?

As we enter the insolvency boom, how long would it take disgusted FBs and specuvestors to regain their appetite and ability to buy homes and investments?

What about a discussion on private equity firms… These guys are flippers on a massive scale,using leveraged money to buy, “fix” and flip companies. What will be the endgame for these entities?

I thought Apple’s board had exonerated the CEO from blame in the options postdating scandal. Why won’t these stories just go away?
——————————————————————————————–
Pixar Pay Package to Lasseter Included Well-Timed Options
By Steve Stecklow
Word Count: 1,266 | Companies Featured in This Article: Walt Disney, Apple

Steve Jobs helped negotiate an employment contract with a top film director that included a large stock-options grant with an especially well-timed date, according to a person familiar with the matter.

The options grant, part of a 2001 employment contract reached between Pixar Inc. and noted animated-film director John Lasseter, carried the lowest share price of the previous year — on a date more than three months before the employment contract was actually signed. Mr. Jobs, then Pixar’s chairman and chief executive, signed the agreement on behalf of Pixar.

It remains unclear what role, if any, Mr. Jobs played in …

Absent government intervention, the subprime meltdown would most certainly lead to a hard landing, as home prices would need to fall by a large percentage across the US to rediscover the end-user bid. So a government bailout looks like it is in the bag. I am wondering what form it will take, and how they will communicate it so stupid people don’t realize they are being coerced into paying for other stupid people’s stupidity.

Long time reader, but less frequently since having a baby this fall. If this has already been discussed, my apologies…

How often do real estate agents have to renew their licenses? Is it yearly? Is there any way to track the number of lapsed licenses in the coming months/years?

My dad and I were discussing the costs that agents are incurring while not selling houses (newspaper ads, gas money, etc.). How many of them are going to walk away and not even keep their credentials up-to-date because they realize there is no real money to be made in the foreseeable future and instead they are losing it hand over fist?

sub prime implosion- no matter
stocks up- interest rate reaction= 0

A topic worth considering is a roundup of internet sites devoted to the housing bubble and how the internet is influencing the mass psychology of the RE market.

How about a discussion about those of us who are waiting to buy — I’m one of them and I am getting a bit discouraged. I passed on a great house (for me) that really wasn’t overpriced that much (and the person that bought it got it for 10% less than asking). By the time I figured out I wanted the house (I had just moved here) it was gone. I’ve also become so gun shy about buying that I feel like I won’t recognize a deal when I see it anymore. I know some houses are sitting on the market here with no one even looking at them, but the only two that I have considered both sold within a few months at about 10% off.

Any suggestions of criteria for fence sitters to get off the fence? If I were still in the SF Bay Area the answer would be easy — the prices are so ridiculous there I won’t buy again unless I hit the Lotto jackpot. But in less pricey areas, where there has still been lots of run up but the prices are much, much lower how do we make our decision of when to buy? [I'm in the midwest now.]

Also, what about building instead of buying? When does that make sense (assuming you can’t find an existing home that you like)?

I hope other people are interested in this topic and willing to put forth their suggetions, comments, insights.

Topic suggestion:

Potential bailouts. What will they do? Who will they effect (positively and negatively)?

Gold Haiku:

Four nines fine

purer than from the mine

you’ll save me, in these fiat times

Here’s my topic suggestion:
I am a renter in a good neighborhood in Los Angeles. There are many vacant homes in this area, some of them are probably flips-gone-wrong. A few of the vacant homes have recently had “for rent” signs out front. I am tempted. But if the owner bought intending to flip, and is now forced to look for tenants because he/she can’t sell, then the risk of foreclosure is high and being a renter in such a home is risky. I’d like to know what this group thinks. I know the laws regarding tenants in foreclosed properties vary depending on locale. I’ve heard some real horror stories - like long term stable renters kicked out by the bank after foreclosure, just to make the place easier to auction. Will we be seeing a lot of that this year? If the property is managed by a management company does that provide the renter with any extra protection? What if the lender has already imploded - who will be foreclosing and taking possession? However this plays out, it seems likely that the rental market will suffer plenty of collateral damage from the bursting of the housing bubble.

Topic: Where has all that money gone?
If this is as much a Ponzi scheme as most on this blog believes, where is that money that trickeled to the top? In the stockmarket? In hedgefunds? In private accounts waiting for the bust? In SUVs, flatpanels and Humvees?