Bits Bucket And Craigslist Finds For February 22, 2007
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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speechless…….watch this stock move
Dax 7000 / german stock market
pe plus cash view comparison with 2000
http://immobilienblasen.blogspot.com/
If an Option-ARM lender can claim negative loan amortisation as profit, can the borrower claim it as a mortgage deduction?
If so, doesn’t that mean that some of these loans with ridiculously low teaser payments could actually be cashflow positive over the course of a full year?
(Until, of course, the reset from Hell when the principal hits 115% or whatever.)
no, the reason they claim it as profit is because it comes up as a receivable on the balance sheet and you need a way to account for it. in the post sarbox age you just can’t make up financial statements as you want them to appear. funny thing is that a lot of these banks might be paying taxes on this phantom interest if they are recognizing it as revenue and profit and if pop goes the weasel they may be out of a lot of cash to uncle sam. not a CPA so don’t know the details
I know personal taxes (and believe corporate taxes) are all done on a cash basis, rather than on the accrual basis that GAAP accounting is based on.
Interest, which this is, is always accrued. Go ahead, buy some zero coups and see what happens
At what point does the SHTF on the (non-existent) phantom interest? Because ghosts aren’t real, right?
when people start foreclosing
you will have to get rid of the receivables as people foreclose and that means charges against earnings. Not like cash trades hands but you have to account for why some numbers are changing on a quarter to quarter and YoY to basis.
I might have taken my finance classes at univ of phoenix, but you can figure out a lot of interesting things simply from the limited public information that companies have to release. you may not catch fraud right away, but after a few quarters you can notice a trend. One clue is cash flow. Ideally the free cash flow should approximate earnings. you can figure out the cash flow from the balance sheet and earnings statements. i forgot the exact formulas, but they aren’t too hard. you just look at the changes in revenue, earnings, payables, receivables, cash etc on the earnings statement and balance sheet.
with the subprimes they can report all the phantom earnings they want, but at some point the day of reckoning will come because you can’t pay salaries and benefits with paper earnings and at some point the deferred interest or whatever they decide to call it will vanish and they will have to account for it. you just can’t report a huge drop in accounts receivable or some other asset that you might put it in without explaining why. any UoP accounting 101 student will figure out there is trouble.
One of the first lessons accountants have to teach everyone else is that you can’t spend retained earnings.
Most likely when they start to notice a trend of higher than projected forclosures (and more importantly larger losses on their foreclosures because the capitalized interest is also being written off), they’ll bump up reserves, it will be interesting to see if they write down the uncollected interest on other loans at that point.
I blame the complexity of accounting on it’s development prior to (and inability to adjust following) the invention of calculus. The income statement is collectivly (and most of it’s parts are individually) the first derivative of the balance sheet. Because accountant’s aren’t taught how those relationships, work, they stumble around (very similarly to high school students in physics without calculus-but for a whole career).
You’d have to take an income loss to reduce the value of a recievable, and one of the first lessons of financial statement analysis is if operating cash flow doesn’t equal, or exceed and trend with earnings you should find out exactly why and better be exceedingly comfortable with the reasons for the difference.
DBA and BLuto, you are both correct. It will be a debit to Unrealized Income (thereby reducing that) and a credit to Interest Receivable (also reducing that account). I believe that the writeoff mus occur once they have a reasonable belief that the interest will be uncollectible (i.e. the loan enters into foreclosure). So sometime this year you will probably see many quarterly reports look real bad, and that is their stocks will dive and Wall Street will have to report and then the credit game is over - no one in the secondary market will want to buy the paper then.
Question: At the time of a neg-am foreclosure, the bank has to stop booking the fully amort amount, and then they have to account for the sudden drop from ~$2K –> 0 from Q2 to Q3. Got it.
But what about the 2-3 years before foreclosure. Do they have to “un-book” that phantom income, saying oops we didn’t make that money last year either? I keep hearing about “revising” books and adjusting accounting mistakes..is that this stuff, or something else
It’s the built up interest that we were talking about. At the point the recievable becomes uncollectable, you would reduce your receivables with a loss, although whether it was a restatement of prior period income or a higher credit provision loss (one impacts current results while the other impacts prior years) isn’t a subject that I’m familiar enough to comment on.
A good example is Lucent a few years back, they had to several times reduce their recievables (usually taking pretty large losses) for equipment sold on loan to dot coms that failed. Another example is Nokia and Motorola in 2004 who could not collect on a loan to Telsim, but about a year later collected a portion of the loss (so they reversed the reversal).
Revisions are usually for things done incorrectly. This is not bad accounting but bad loans (accounted for correctly)which is a business decision.
Also, it might not be when the note is foreclosed, the write down is supposed to occur when management (or the auditor) believes that the note is not collectible which could be well before foreclosure.
They book the negam as income for GAAP purposes but pay taxes on a cash basis . Which is why I suppose that the AP reported; “After the company’s stock imploded on Wednesday, losing about a third of its value, NovaStar issued a press release [3] correcting the near-universal impression it had warned it would not have any profit to speak of until about 2011. The new story was they had been talking about not receiving taxable income profit, but still expected GAAP earnings. AP corrected”
Still somehowI think the employees and the light company will not wait until 2011 for their cash!
They will probably be changing their name to SuperNova, ( the stage at the end of a star’s lifetime, when its nuclear fuel (cash) is exhausted.
Some time ago someone on the blog posted a comment about a specialty watchmaker in Europe somewhere that also went insane…I remember pulling up the link and the watches were really cool and probably expensive…They were woman’s watches I believe…I thought it was tchick that posted it but it was not….Anyone recall ???
Scdave, the watchmaker was Frank Muller. Expensive but very cool watches. Wiki has a description and some links. I was under the impression Muller was more famous for his men’s collection than his women’s.
http://en.wikipedia.org/wiki/Franck_Muller
I Thank You, and my wife Thanks You very much Popper…….
“Where Credit is Due”
http://tinyurl.com/2b66js
This is a great piece from the Baltimore local free weekly paper, the type of investigative reporting that is usually seen in major dailies. It’s long, but well worth the read. It’s all about a shady mortgage broker in the city. I’ve also blogged about it if you want a shorter version (click on my name), but I highly recommend you read the entire piece. The conflicts of interest involved are unbelievable–this guy has made some bad deals, and to top it off he’s leveraged to the eyeballs on his own properties!
(the type of investigative reporting that is usually seen in major dailies.)
Or that used to be seen in major dailies before downsizing and budget cuts, and is now more likely to be found on blogs.
My favorite comment from the piece…”At one point Carey (the broker) starts to describe his loan customers as unqualified, but on Palaigos’ (his lawyer) advice amends it.
” ‘A lot of borrowers that come and do private finance are not credit-or asset-worthy to go and put 20 percent down, or get a more aggressive rate,’ Carey explains. ‘And, therefore, I look at, you know, I meet the person, I look at their budget, I take a look at the property, and if I believe they can make money, I do it–at a very high risk to myself. . . . All of this money that I lend privately, a certain portion of it has to be put up by me, and the rest personally guaranteed by me.’ “
Who would have thunk that all these vacant houses would be such a boost to the farming industry:
http://www.ajc.com/metro/content/metro/stories/2007/02/22/0222metpot.html
Another indoor pot farm busted in Hall
By ASSOCIATED PRES
Published on: 02/22/07
Authorities in Hall County have discovered a professional marijuana-growing operation in the basement of a new three-bedroom house — the second such operation found in the same area this week.
Agents found 173 marijuana plants at the house Wednesday at the house in the Georgian subdivision in south Hall County.
“Grow houses” are all the rage now in Port St. Lucie, Florida.
Better quality control if you grow indoors under lights with hydroponics.
tomatoes and oregano that is…
NEW YORK (CNNMoney.com) — Toll Brothers reported a sharp drop in earnings and a mixed outlook Thursday, as the luxury home builder said the battered market for new homes isn’t set for a rebound yet.
When is the market going to punish these idiots.
The trend is your friend, even if the trend is to drive off a cliff.
At least you’ll have friends.
Punish them????/
TOLL Bros. stock is “”UP”" this morning in Europe
We must be somewhere near the bottom NOW, with only 2.1 million empty houses out there..Just think of all the wet-backs it could provide housing for???
My research on Toll Bros and other Home Builders on Yahoo, found the majority of their stock is owned by major mutual funds and governemnt retirement like CALPERS. These “big boys” are not investing any of their money, and since the flow into mutual funds is strong, and other stocks in their portfolio are doing well, its easy for them to cover up the bad news on these HB’s. It seems to me, the whole market will have to tank before these
mutual funds finally have to stop propping up these lousy stocks.
I agree the huge flow of money into mutual funds and pension funds allows the big boys to thinly distribute poor stocks into Joe sixpack’s mutual fund. That is one of the reasoms why I do not invest in mutual funds, and control my own pension fund. Here mutual funds are extremely popular as perceived low risk, and high return.
Expect the Dow and NASDAQ to soar today. It is inevitable. Here were the headlines I saw on CNBC as I ate my Apple Jacks this morning.
- TOL announces Q1 numbers and revises downward for full year ‘07. The endless march of downward revisions continues. Why won’t these builders just admit that they will NOT make a profit this year? We all know that is where they will end up.
At these elevated levels are the long-term ITM puts a good buy? Ooooh, so tempting but I’ve been stung by that bee this summer.
- Subprime is melting down. They mentioned that 5 subprimers are set to get downgraded. They are New Century, Novistar, Ameriquest, etc. etc. They did a segment on the subprime meltdown but don’t worry Becky Quick and the guest concluded that the world economy is very strong and we should get through this okay. The even mentioned, “some jerk going by the name of GetStucco” that is overly pessimistic. Too bad they didn’t mention that the subprime market (debt, debt and more debt) is what has made the world economy look strong. I’m more frightened than ever.
There was good news in New York City this morning. Nobody on the 2 & 3 train had pooped their self this morning. Have a great day all my fellow blog losers.
Take a bow, GetStucco.
i did that one time on the train, let out a silent but deadly
also, Paulson and his Goldman gangsters will need some extra firepower today to cover their gold shorts … let’s see how much dollars BB can come up with today.
Congressman Ron Paul of Texas is proposing legislation to abolish the Federal Reserve. The Goldman gangsters would mess their “gold shorts” if that happened. Ahh, we can dream, can’t we?
sure, Ron Paul is one of the few sane politicians left in the US, at least when it comes to finance/economics and most of the foreign policy. Too bad these ideas don’t have any chance of being realised.
What does Paul propose to put in place of the Fed?
http://www.house.gov/paul/congrec/congrec2002/cr091002b.htm
Digital gold is my guess.
“e-gold is, according to their website, “100% backed by gold”
e-gold is, according to their website, “100% backed by gold”
Unlike fractional-reserve banking, DGCs (such as e-gold and GoldMoney) hold 100% of clients’ funds in reserves with a store of value. Proponents of DGC systems contend that deposits are protected against inflation, devaluation and other possible economic risks inherent in fiat currencies. These risks include the monetary policy of countries or territories, which are perceived by proponents to be harmful to the value of paper currency. It is also theoretically much harder for governments and/or creditors to seize or confiscate digital gold currency from someone, as most DGC companies are incorporated in offshore financial centres.”
The problem of having a currency backed by gold (or any other commodity) is that the supply of the currency is limited by the supply of the gold. An expanding economy needs an expanding money supply to finance its growth; Only a new gold strike would allow for this expansion.
I’m not arguing the case for fiat currency, just stating the limitations of gold-backed currency. Ideally the amount of currency created should equal the amount of goods and services this currency can be exchanged for.
(In a perfect world. ha ha.)
What is wrong with a form of money whose purchasing power increases over time? Not intended to be a trick question. The answer is that it would force banks to charge for their services versus generating income via interest on money they create.
It also means that politicians would actually have to tax to fund their projects. That is the true root of the problem. It would force honesty and accountability in actions.
If money increased its value over time then there would be no incentive to spend it. It’s not only the amount of money in circulation that matters, its also the rate of its circulation. Dollars stuffed in a mattress don’t circulate, thus aren’t available to facilitate the movement of goods and services.
Helicopter Ben wants a two-percent inflation rate. This inflation rate will tend to induce people to think of currency as a medium of exchange rather than a store of value.
I understand your point, but disagree. One of the characteristics of money (or at least one that has a long lifespan) is that it stores value. When it doesn’t, it will eventually cease to function as a form of money.
When the citizens of a state determine that their currency no longer is a store of value, you would have things like a negative savings rate. Why save if it doesn’t store value? You state that money that increases in value results in no spending. Does that imply that citizens no longer consume anything?
That is essentially why I disagree. I’ll still spend money, because that is why I save–to defer consumption until a later date. The best part is that I don’t have to waste time trying to figure out where to put my money so that it doesn’t lose value. The disadvantage applies to money managers who no longer can earn a living by taking a cut from my savings.
Two percent inflation? Helicopter Ben knows inflation is 10%, and at that rate money is definitely not a store of value. Unfortunately, it is also becomes hard to use as a medium of exchange as it loses value rapidly. Ask Argentina, Zimbabwae, etc. Dollars will be trash in Weimar America.
One of the major problems of the Great Depression was the increasing value of money as the money supply shrunk. Thus those who had money weren’t spending it. It took WW2 and the ensuing government spending programs to pull us out of this Depression.
This lesson was not lost on our current FED chairman, thus his statements about dropping money from helicopters.
I,too, save money; but I don’t save it in the form of cash. I instead lend it out to institutions, who lend it to somebody else, and I get rent on this money in the form of interest. This is a role of money as a medium of exchange. If I were to instead stuff this money in my mattress in an effort to use money as a store of value then I would lose some of this value with the passage of time due to inflation.
Combo,
Again, I understand your point, but disagree. Technically, they don’t lend out your money. That would be a system without fractional reserve lending. The lending institutions create appoximately 90% of the money they lend from your money. Due to the fact they are creating money, they pay you rent and a depretiation factor (interest) based on how much you both think others are creating.
Do you see the problem it creates? In theory, if you had a good gauge as to “exactly” how much was being created, it would be a store of value. Unfortunately, our inflation statistics don’t include stocks, real estate, or bonds as some of the more important ones.
That is another characteristic of a long-lasting form of money–one that is difficult to create. It allows for a stable store of value. Fed Reserve Notes in theory could do the same, but I think numerous instances in history indicate otherwise.
Combo,
You are losing money on the money you lend the bank. Real interest rates are negative; that is the ugly truth of inflation, and a key part of the gold attraction.
‘The even mentioned, “some jerk going by the name of GetStucco” that is overly pessimistic.’
You can’t be serious? If MSM commentators are starting to feel the fictitious world views they set forth are threatened by the still, small voices of a few anonymous blog posters, then I am frightened as well…
You see, GetStucco, you disturbed “The Matrix”. That’s a NWO no-no. And for anyone who thinks the NWO is some tin foil hat theory, ask yourself why the markets are so gamed that up is down and down is up.
LMFAO. I bet GS just about had a BM when he read NYCityBoy’s post! Keep an eye out for the black helicopters GS! Good one!
GetStucco, copyright your name.
I was actually joking. I love your anti subprime stance, Stucco. I was just honoring you. I think you have shown as much insight into this matter as anybody. I wish they would mention you by name.
Thanks for clarifying. I was scurrying about the house hunting for my misplaced tinfoil hat, but now I can relax again…
Hey GS Ben Txchic NYCboy et al:
This blog has helped me a lot, not only laughing at my dumb friends buying these overpriced condos, but personally keeping my spirtis up in this horrible economy.
Txchic, great insights its so rare to get so many smart people together on a blog, and for the in depth discussions and still remain civil.
Ben i will be sending you a donation once i get a real job again.
Check out Calculated Risk if you haven’t already for great information about current economic data and how mortgage lending works.
You got me. Good one.
Has anyone else noticed how often people in the MSM referring to falling prices use qualifiers like ‘actually’ or ‘even’?
E.g. “Price appreciation could slow or even turn negative.”
“Prices have stopped appreciating, and in some cases have actually fallen.”
etc, etc.
Very good, sharp observation. MSM are such blatant liars, perhaps the use of these words signals their own surprise that lies don’t match reality.
The other story on CNBC this morning was about Luxury Homes in California going down in price for the first time in xxx number of years. I think they said 2 but that’s hard to believe. The prices are ridiculous but the thought that the high-end will stay at a permanently high peak is pure and utter bull$hit.
Yeah, they are probably down 1%. I lived in the South Bay (Torrance) for 3 years. I keep an eye on prices in the 90277 and 90254 zip codes, and I barely see any downward prices. They will be significant, but probably not before 2010. For now the South Bay has outstanding weather all year, jobs, cleaner air than most of LA and especially than the IE, and a heck of a lot of great conveniences. Manhattan Beach and Redondo Beach have some of the best taxpayer-funded schools. Such things help keep prices up.
Prices are poised, if not already, dropping in the South Bay. I have been keeping an eye on some new homes that have been sitting on the market for 6 months +. I pop in on one particular Open House on the weekends with one of my kids (so they can playfully pick out what room they want game) just about every week…
Realtor and I chat… I emailed him last week with the message that while he might find someone who will pay close to the asking, if the owner wants to sell I would entertain placing an offer around 35% below current list. He responded “Thanks, I’ll definitley keep you in mind.”
I recently started tracking wishing (list) prices on homes in a six-zip-code area of SD which includes Rancho Santa Fe (92067), which is one of the highest-per-capita income zip codes in the country. The median list price in Rancho SF has actually increased from $3.550m to $3.725m over the past three weeks. Of course, with the median, you cannot tell whether the increase reflects a better quality mix of homes coming on to the market over time, or increases in the price of comparable-quality homes. (I would have a better idea if I tracked entry and exit from the market, but I do not…)
I recently read an article about the expensive merchant houses in the inner city of Amsterdam. It’s not New York, but I think the situation is comparable in many ways,if only because they are both financial capitals where the money keeps pouring in these days (these are also the homes that the ‘Herengracht Index’, used by Shiller et al, is based on). Around 2000/2001 there was some panic in the Dutch housing market (minor recession, overextended housing market ripe for the plunge etc.). Despite the panic and some severe cuts in asking prices, average sales prices for the country did not fall for more than a month or so, but these expensive houses plunged by about 30% within a year (erasing just a small part of the gains in the prior 10 years). But when the stock market started bouncing back after 2002, prices quickly recovered and prices for these trophy homes are now nearly 100% higher than in 2001. This kind of homes is too expensive for the general public and their price is far more dependent on the performance of the stockmarket than on rates or easy lending - so prices may behave much different than the average home price.
Here’s that article…
Luxury home prices decline, helping to balance the sector
From Bloomberg News
February 22, 2007
Luxury home prices in California, the nation’s most expensive real estate market, fell for the first time in two years as potential buyers waited for prices to fall and fewer sellers received multiple offers, according to a survey by San Francisco-based First Republic Bank.
The average price of a luxury home fell to $2.9 million in San Francisco, $2.35 million in Los Angeles and $2.15 million in San Diego, First Republic said. The bank’s survey covers hundreds of homes in places such as Atherton, Los Gatos, Orinda and Tiburon in Northern California and Beverly Hills, Pasadena, Malibu, Del Mar and La Jolla in Southern California.
“The housing market is softening from its runaway pace and heading toward a balanced market,” said David Lichtman, chief credit officer at First Republic, a private bank that has surveyed California luxury home prices since 1985.
Maxine Golden, a broker with Re/Max Real Estate Services in Newport Beach, said a client last year listed a three-bedroom Irvine town house for $1.25 million. The woman received several offers below the asking price before taking the home off the market in November. She listed it last month for $950,000 and it sold in a week, Golden said.
“Buyers stayed away and sellers pulled their homes and said they’d put them out in the spring,” Golden said.
First Republic’s Lichtman said that with fewer people looking to buy homes, “now there is a normal give-and-take in negotiation for price, terms and close of escrow.”
Bill McKeon, a Marin County real estate agent affiliated with Sotheby’s International Realty, noted that potential home buyers are “pickier because they have more advantage in this market.”
Fourth-quarter prices for a basket of high-end homes tracked by the bank’s own index fell 1.5% in the San Francisco area and 1.3% in the San Diego area. That’s the first quarterly drop in those cities since 2004, First Republic said. In the Los Angeles area, prices declined 0.8%, the first drop since 2002.
First Republic tracks prices, not the number of transactions, so the bank could not say how many sales occurred in 2006. The bank’s index tracks a basket of San Francisco-area homes that cost about $600,000 in 1985 and a group of homes in the Los Angeles and San Diego areas that averaged $1 million in 1985.
Rising housing prices on Galveston Island forcing residents to leave the city:
http://www.chron.com/disp/story.mpl/headline/metro/4571804.html
Galveston’s a small island and during the next hurricane this real estate bubble will deflate in less than 12 hours.
Unbelieveable. My husband got into medical school at UTG. I couldn’t stomach the prospect of living there for 5 years. Hopefully this is the year that a nice Cat 5 rolls in and takes out all that garbage they’ve built. Of course, that means my sister and her family will be bunking with me again but we bubble sitters need to take one for the team, I know
Then they saw a real estate flier advertising homes in League City. “We grabbed one of the fliers and realized we could afford about twice the house in terms of quality and age for the same price,” said Nicci Obert, 31, who works at Texas A&M University at Galveston.
“When we coupled that with the Clear Lake school district’s much better reputation, it was kind of an easy choice at that point, even though we wanted to live on the island,” Obert said.
That’s actually a viable option. LC is about 30 miles away but there’s no traffic going that way in the morning (or wasn’t when I was there) and it’s not a bad drive. The CL schools are way way better. Niki just needs to be sure she doesn’t catch Astronaut’s Disease.
The thing that kills me about all these new condos and rehabbed historic houses: No one is living in them. It’s crazy stupid.
we could afford about twice the house in terms of quality and age for the same price,” said Nicci Obert, 31
——————————————————————
Lets see: she is planning on getting pregnant REAL SOON, so now they will have at least 1 more mouth to feed, while she quits her job to be a mommie, or works part time or has to pay for full time day care because of the 60 mile a day commute.
Hubby is ticked off because now they are always broke, and why did we buy such a big house when 1/2 this size would have been fine, and the money we could have saved would have made it so easy for her to stay at home.
I see big trouble ahead for them if she gets pregnant.
“Hubby is ticked off because now they are always broke, and why did we buy such a big house when 1/2 this size would have been fine, and the money we could have saved would have made it so easy for her to stay at home.
I see big trouble ahead for them if she gets pregnant.”
Hubby needs to lay in a good supply of Trojans.
A secret vasectomy is a word to the wise.
When I lived in the Clear Lake area a few years back, a friend from Galveston used to say, “If you live in Galveston and your house has never been robbed, the criminals just hadn’t gotten to it yet.” Of course, she also referred to the place as Galvetraz Island.
Regarding taxes on 1099 reported income due to short sale; I heard an ad this morning for a tax attorney that blasted another tax attorney’s ad regarding “settlement for pennies on the dollar”.
It made it sound like the settlement process doesn’t normally help the deadbeat very much. Does anyone have experience in this regard? How much relief will the average short/foreclosed FB get?
I am an attorney who used to work with IRS problem clients but gave it up because it was mostly useless. It varies district by district but in mine offers in compromise are a waste of time. It costs the IRS $5,000 each to process them so they are ticked off from the start, they consider it a waste of resources.
Yes the pennies on the dollar people are scamsters.
So we may indeed end up seeing a goodly number of FBs in debtor’s prison, charged with tax evasion.
That pennies on the dollar ad has been so pervasive in recent years, and it plays to the same audience that listens to the 1% mortgage scam.
Dude
Where Cali’s going to put all these new criminals? We haven’t got room the ones we got now. Arnold’s plan export our criminals to out of state prisons just got nixed.
House arrest.
HSBC booted Bobby Mehta and Sandy Derickson
Who are these people (and why should we care
)?
Mehta was head of HSBC North America and Sandy Derickson was president and CEO of HSBC Bank USA and HSBC USA Inc.
Thx…
I was thinking this morning about wishing prices and inventory. It seems like sellers are stuck in the mindset of 2005, when homes sold above list price in bid wars. Does this ever happen any more these days?
My guess would be “no,” as when buyers have many choices, they no longer feel the need to outbid (nonexistent) rivals for the homes which particularly interest them. Further, while sellers may have had a degree of pricing (”market”) power back in 2005, any seller who tries to hold out for a higher price in the current inventory flood is unlikely to ever sell, as buyers who can pay the overpriced figure can find a better quality home for the same price, or a comparable quality home for less.
Which brings me to the question of why sellers don’t get it, and keep their homes on the market for over 1-year at prices where they will never sell? (Not making this up — I have seen many examples on ziprealty.com…)
Nobody evers wants to admit they made a “mistake”, It’s the same psychology during the dot.com bust where day after day stocks that were selling for $200 a share were dropping 5% to 10% a day, and my next door neighbor was watching his $1.5 million dollar portfolio drop to $30,000, and yet he just couldn’t call his “friendly” stock broker to pull the trigger, especially when Cramer and CNBC kept bring up the next “guru”
that predicted a temporary decline, and then the stocks would rebound to new highs in a few months. Hope Springs Eternal !!!
Hee Hee! I am watching my treasuryDirect portfolio of T-bills and savings bonds grow. Also nice to see my AZ muni bond fund returns me more and more interest each month (which I reinvest). Buying Precious metal bullion on the dips has been helping. Gold spot price $609 in early January and spot price $658 on Tuesday (plus 4.5% commission).
I remember people at a big defense company I worked for back in the late 90s bragging about their Yahoo stock going up, up, and up! I left that group for another project in early 1999. I would have loved to see what they were discussing in 2000 at the water cooler!
It seems logical that the stock bubble snared a heck of a lot of greedy investors, but those were not the same group as the ones snared by this RE bubble. How could it be the same? The stock people who were bit had no money to put down on RE.
So the combination of two huge mania bubbles bursting in the last 7 years is taking out a whole lot of people from the economy, maybe from the upper middle class as well. Any of you thought of this too? Methinks the rankings of the middle class and upper middle class are declining in numbers (unless we are importing them from other countries).
it would be interesting to know when these people who ‘don’t get it’ purchased their homes, and how much room they have once home prices start falling seriously (it that ever happens).
I think I mentioned before that in my area there are many expensive homes that have been on the market for 5 or sometimes even 10 years (relisted 5, 10, 20 times). Most of the owners are sitting on tons of profit (often more than 400-500% appreciation) but they don’t think about lowering their asking price. Guess they all believe that if they wait long enough their dream buyer will arrive (which happens from time to time, but not in significant numbers). Of course, it’s easier here because of extremely low rates and still climbing prices but still …
“Which brings me to the question of why sellers don’t get it, and keep their homes on the market for over 1-year at prices where they will never sell?”
I think it is partly because many people have no savings and they are counting on equity as their main “investment” for retirement. They are hanging on to the belief that their home is worth more because the reality of the situation is difficult to come to terms with.
“hanging on to the belief”
These people are the housing-market version of cargo cultists.
http://en.wikipedia.org/wiki/Cargo_cult
The general public doesn’t seem to be aware of the fact that the 100% loan borrowers (that will pay any price ) are not going to have that option anymore with the sub-prime fall out .
We have about 70% ownership in the United States already and the REIC already borrowed from the future in getting people to buy based on “get in now before prices or interest rates go up more “. All this urgency buying used up alot of future buyers ,including uqualified buyers ,so it will take years to absorb the excess inventory .
Look ,its pretty clear that the volume of sales dropped off by about 30% ave. abruptly in early 2006 on it’s own ,without help from the MSM ,so it tells you that the buyer pool went down before the market went south .That same buying pool has backed off more now because of the market conditions .
In fact ,the sales and crash should of been more extreme in 2006 IMO had it not been for the cash back and bogus incentive deals and massive fraud that kept the party going .
[i]These people are the housing-market version of cargo cultists.[/i]
Now that’s scary!
On a forum I visit, there is a person that goes on and on about how much debt her family is in and that they are barely surviving on her husband’s $41k per year salary. They have 3 kids whom she homeschools because the schools in the rural California town they live in are “horrible” thus she cannot get a job because she has to stay home and homeschool her kids and besides, she has very little work experience and only a high school diploma so any job she could get would probably not pay much more than min. wage, so why bother? Meanwhile, I’m shaking my head that she thinks she can teach her kids any better than the schools with her poor grammar skills, lack of education, and total lack of financial skills. They want to move to a “cheaper” state (Tennessee) where they can buy two houses outright - one for them and one for her retired and very financially unsecure mother - and not have mortgages. But to do that, they “need” to sell their (admittedly very nice) manufactured home on 10 acres in the middle of nowhere in Northern CA for no less than $459k even though they bought it for $145k in the late 90’s.
We all told her she was overpriced and that’s why her house isn’t selling. She says she won’t sell it for less than it’s worth just to get out. Other comparable houses have sold (2 years ago) for more than that; why should they take less? “Besides, the market is so slow it won’t sell no matter how low we price it.” We could never get through to her that her mother could live in a small condo or even retirement trailer home which would be cheap, they could buy a house in a decent school district so she could work, and they could still be out of debt at a lower price instead of staying where they are and running up their credit cards for living expenses because they can’t really make ends meet. They feel “entitled” to sell for what they “need” not for what the market will bear.
Jen, thx for your comment…
For future reference, use (w/o blanks between ) to open italics and (again w/o blanks) to close; similar rules apply for other punctuation tags.
Let me try again: Use “less than” i “greater than” to open italics, and “less than” \i “greater than” to close them…
Thanks, getstucco. Noticed that after I posted, of course. Oops.
GS, from what I’ve noticed, I think people also tend to think in terms of the appraisal. I have a friend who recently sold a house in LA and was pissed off because he had to practically “give it away”. When I asked him what he meant, he said the house had gone for close to the appraised value of the land, and that mean he had “given away” the house itself. To me it looks as if people are thinking that the “value of the land” is the absolute bottom.
Many won’t deal until a sale is “forced” by any number of reasons, e.g. divorce, job loss, relocation, ARM reset, expiration of teaser rate, etc.
Because they never had the discipline to save and invest their equity in anything other than a mortgage payment. Thus, their house is the lottery ticket that will fund their retirement. Sometimes they win, and sometimes they lose.
GS and Joe6pack, I think the main reason these prices stay at wishing levels is just what J6P said. Most of these people have no savings. However, I would add to that they also have a ton of debt to pay off and want a chance to get rid of it while getting a windfall. For those of you who know my story that is just it. However, we undercut the market by about 15% in Jan ‘06 and sold out. Cleared all the debt and banked a chunk of change and even took a nice month-long vacation across the US by car so everyone could see the country.
The problem is most of the 35-45 somethings have no savings, but a ton of debt, which they hope the home they bought for 150-250K will now go for 650K, so they can pocket about 400K. Out of that they can pay off the other 100K of CC and Escalade debt they have and still put 300K down on some overpriced PoS in another state that doesn’t want them there. The problem is they find out life is a lot different from where they just moved from.
They are also worried about little Johnny’s college fund, which if you used the comunity college system (here in Ca) and had Johnny work, and apply for these off-beat scholarships, you might be able to pull it off with minimal damage to the savings. However, no one wants to go that way, requires to much work and who wants to go to a JC for a year or two? They are just for dumb kids. I’ll tell you who, the person who doesn’t want to end up with 100K in debt after getting a Bachelor’s. Unfortunately, they all think Johnny is going to get the football scholarship to USC or the BBall schollie to UCLA. Yeah right, and I’m going to be the first person to walk on Mars! You might also go the route of a trade school, which I think in the next 25 years may come in handy, if you know electricity and plumbing, esp. in Ca where the threat of the “big one” is always present.
But I digress. In the end, all of that requires too much planning by the family or person. It is easier to listen to all the sheeple and end up with 100s of Ks of debt and be a slave the rest of your life. Me and my wife and kids will not go back to that. It is funny how going to the mailbox isn’t even an event anymore since we only get about 5 bills (the utilites and cell phone) each month. Heck at a shade more than 1 a week we should tell the mailman to come just once a week. However, most people are trying to pay off the bills they get everyday, therefore the high wishing prices.
100k in CC debt?
My God!
I’m debt free now and it took me a long time to get there. I can’t imagine trying to pay that down.
You make a good point about trade schools being a good first step going foward. I was trying to make this point to family members: start with a good trade and then pay as you go for the bachelors and higher degrees. I got blank stares back at me. I do know this though, I’m 40 with no kids. Most of my friends have them and there is no way saving for college is an option with the escalation in prices of the basics, including housing. Even those who have no debt!
“Most of my friends have them and there is no way saving for college is an option with the escalation in prices of the basics, including housing. Even those who have no debt!”
Baloney. Somehow my husband and I are making it work, and we are a one-income family. I hate to sound simplistic, but if you shun consumer debt, pay yourself first, and invest prudently, it is possible to put aside enough money for college and retirement at the same time. But it means living differently from the masses. Driving a brand-new Escalade and eating out 5x a week are not God-given rights.
You’re making it work now, but consider this…
I’ve got two very small children, and I put away some money in 2003 for their college funds. Since 2003, tuition costs (in state, TX) have risen at 9% per year. This is why the Texas Tomorrow Fund - prepaid college tuition – has been closed. When I dropped $10k each into their funds, that $10K represented some percentage of what tuition cost - let’s say 100K for 4 years, or 10% of what they would need to not have take out debt/job.
That 100K figure has gone up at 9% per year. Has the 10K I put in their college savings, gone up 9% per year? After Taxes, (lets leave 529 funds out for now, although the Pension Protection Act of 2006 did make their tax exempt status permanent) Not quite.
So, the value of my contributions - all of them, in terms of how much tuition it pays for, is shrinking as time goes on unless my invested contributions rise in value/produce dividends/whatever at a rate equal to or greater than tuition price increases. That’s a receding horizon situation — unless I keep increasing the amount I invest as time goes on, I won’t get there as originally planned.
Ok, that’s cool.. I’ll add larger amounts as time goes on. But.. I sure hope the amount I have to increase their college savings by grows slower than my wages. For a lot of people, I don’t think that will be the case.
I read something – a short quip really, on Mish’s blog that has stuck with me: Things that can be outsourced, like much of things on store shelves (now made in China), have gotten cheaper, or risen in price slower than wages. Things that can’t be outsourced – medical care, College tuition, and other services, have risen in price faster than wages. That statement has stuck in my head ever since.
If college tuition increases faster than wages for the long haul, something will give.
Things that can’t be outsourced – medical care, College tuition, and other services, have risen in price faster than wages. That statement has stuck in my head ever since.
Interesting point. However the bright point is at least medical imaging is being outsourced to India. I read it a few months ago. Ever notice Indians comprise a big percentage of Phds? That will probably bring down the price of college or public schools. In college I took satellite courses a couple times. It worked. Why can’t Johnnie take Satellite courses from Indian teachers at home? oops - I digress.
“However, no one wants to go that way, requires to much work and who wants to go to a JC for a year or two? They are just for dumb kids.”
Your post suggests that the JCs may be a beneficiary of the bursting bubble, as more bright kids will end up in their classrooms when mom and pop can’t afford to ship them out east…
JC worked for me. Transferred to the state university for the BA and MBA. Same 4 year degree on the diploma no matter where the first two years were. Saved big bucks.
g s did you read erics post@ 14:26:36 yesterday? would be interested in your comment on it.
On which thread (or better yet, provide a link)?
GS, It is the same phenomena in all bubble markets. People bought Cisco at 95 then watched it go to 85, then 50 etc. without selling until $10. Since housing is far more illiquid than stocks and bonds, this phenomena is going to be the reason that the real estate collapse will take another 12 years.
there IS a big difference for many homeowners, especially those who purchased in the last years or took out lots of equity: their homes are ‘margined’ (and leveraged) severely, so they can’t sit it out until the bottom. Most people who purchased stocks could wait all the way down without getting a ‘margin call’. I guess politics and the FED will try to prevent the ‘margin calls’ for homeowners as far as possible, we will have to see. But I agree that the downturn will probably take at least half a generation anyway.
“why sellers don’t get it?”
Equity Limbo dancers get it. The problem is: They cannot go lower. They cannot lower the price bar below the loan amount. They are not financially limber enough to absorb the loss without a banker’s approval. What’s more, their lenders are equally inflexible. As a result, Equity Limbo dancers will leave the price bar up high and pretend they are still in the game.
What might cause foreclosure counts to be so statistically low in some states compared to others?
Here’s RealtyTrac’s January foreclosure press release:
http://www.realtytrac.com/ContentManagement/pressrelease.aspx?ChannelID=9&ItemID=1907&accnt=64847
It contains foreclosure counts as well as the number of households for every one foreclosure. Multiplying the number of foreclosures by the number of households for one foreclosure gives us an estimate of the number of households in a state.
Not wanting to compare states with greatly differing number of households I will go with Maine and Nevada.
Maine has 9 foreclosures and 74,432 houses per foreclosure, resulting in a total of 651,888 households.
Nevada has 2,397 foreclosures and 362 houses per forclosure, resulting in 867,714 households.
The odds of going into foreclosure in Maine are 0.00138% (1 divided by the number of houses per foreclosure). The odds in Nevada are 0.27624%. Dividing the Nevada odds by the Maine odds we find that a household is 20,000 times more likely to go into foreclosure in Nevada than in Maine.
Comparing Nevada to Vermont (2 foreclosures and 147,191 houses per foreclosure resulting in 294,382 total houses – about a third of those in Nevada), a household is 40,000 times more likely to go into foreclosure in Nevada than in Vermont.
What major factors contribute to this wildly different statistical situation? Concrete information would be appreciated if available.
Incomplete or flawed data collection?
Complete lack of real estate speculation (resulting in no price run ups)?
Tighter loan standards/lending practices?
Finally, why are foreclosures so low in Washington, DC?
Oh yeah, want to get the RealtyTrac chart into Excel (I can’t get it to cut and paste dependably)? Do the following:
1. Right click, choose View Page Source
2. Find the that contains the data, as well as the which closes it.
3. Copy and paste the … part into Notepad.
4. Save as an HTM/HTML file.
5. Open that file into Excel.
Foreclosures in Nevada? Home prices are driven up by people from out of state and incomes in the state don’t provide enough for most people to pay the higher prices.
Mortgage brokers, for a while, would give a loan to anyone that had a job and just about anybody can get a job here in Nevada for minimum wage or a better.
An unsophisticated work force, subpar education system, and video poker on every street corner can’t help the matter.
…Age of construction.
I think the biggest factor would be age of construction…
I know the data for MN is wrong. The chart says there are about 160 REOs statewide. I have been watching the inventory for a local REO realty company and they have 550 REOs in the twin cities (up from about 350 in Sept). Every week another 30 or so are added.
Lenders told foreclosure picture grim
By Emmet Pierce
STAFF WRITER
February 22, 2007
Mortgage professionals who are struggling with a national spike in residential foreclosure rates were warned yesterday to expect more of the same in 2007.
Unemployment, mortgage fraud and speculative buying are among the factors behind the recent surge in filings, experts said at a conference of the Mortgage Bankers Association.
And this year $1 trillion in adjustable-rate mortgages are due to reset before Dec. 31.
“This is really a wild card,” said Rick Sharga of the Irvine firm RealtyTrac. “We don’t have a precedent.”
Sharga said he was worried by the fact that 13.6 percent of residential mortgages are in the riskier subprime market.
Mortgage attorney Daniel D. Phelan echoed Sharga’s concerns.
“I personally think we are at the beginning of this cycle,” he said. “It is going to get worse before it gets better.”
http://www.signonsandiego.com/uniontrib/20070222/news_1b22loan.html
Wow! Did someone steer Douglas Duncan to this blog?
“Unemployment, mortgage fraud and speculative buying are among the factors behind the recent surge in filings, experts said at a conference of the Mortgage Bankers Association.”
‘Unemployment, mortgage fraud and speculative buying are among the factors behind the recent surge in filings, experts said at a conference of the Mortgage Bankers Association.’
Gee I wonder why they didn’t mention toxic mortgages to anyone who could fog a mirror.
These clowns make me laugh. Except in a limited number of cases, the fundamentals have been 20% down with a 30-year FIXED RATE for years for a reason. Banks, in the past, knew that those numbers worked well. 20% down was a way to make sure the home debtor, er, I mean buyer wouldn’t just walk and that they had a chance to pay off the mortgage. Run the numbers, using a 150K house. 20% down = 30K, meaning the mortgage is now 120K, which at 6% for 30 years is…….720 per month. Heck, at 160 hours a month of work, that comes out to about $4.50/per hour of work going to the mortgage. That, my friend, is very realistic, since minimum wage is higher than that. HOWEVER, the REIC and homedebtors got greedy, or, as posted above have no savings and a ton of debt, which has forced them to up the ante, making home ownership a dream right now for most of us. BUT, that is ok. Renting is fine. I know what the monthly budget is and I sleep a lot better.
Right — every gambler knows that you play your hand differently when you have no skin in the game…
OC Dan,
I never actually thought of it in terms of a dollar per hour rate for my home. Thanks, I’ll have to keep that in mind for the future.
OCDan:
Excellent, excellent post. I copied that into a Word doc to use in further argumentation.
Justin Lahart is doing a great job of keeping the subprime story in the spotlight.
From his column today (Ahead of the Tape, p. C1 of the WSJ):
Why Investors Still Get Caught in Subprime Trap
Novastar Financial is the latest player in the “subprime” mortgage market to catch investors off guard. But by now one has to wonder why investors keep getting surprised by the subprime turmoil.
…
Numbers May Suggest Chances of Broader Fallout
THE BIGGER QUESTION on subprime mortgages is whether the shakeout is a broad threat to the economy. That depends in part on the size of the subprime market — and the answer isn’t always clear.
Federal Reserve governor Susan Bies said in a speech that subprime adjustable-rate mortgages originated in the past 12 to 18 months account for 7% to 8% of total mortgages outstanding. The sector is troubled, but it is just a “sliver” of the broader mortgage market.
———————————————————————————————–
As in “The State of California is just a sliver of the broader country.”
As mentioned, if you reclassify people based on their financial situation AFTER the mortgage, not just before, then subprime is much bigger. There are those who were subprime, and those who will be subprime.
“…those who will be subprime.”
Is the Fed as clueless on this issue as their press releases suggest?
I’m tracking the SFV in Los Angeles County. If anyone else is….could i get a second set of eyes to confirm what i saw yesterday? Did San Fernando Valley inventory actually climb from 5,200 to over 7,500 in one day? I’ve never seen anything like it if it’s true.
jmf
they are merging mls’s this week. so you are seeing that, there is no crazy spike.
thank you. i thought that was too good to be true.
they are merging mls’s this week. no crazy spike.
crisnet is now with socalmls
There were comments on this yesterday. My track on 93552 had a big spike yesterday as well, but has backed off today. There must have been a SNAFU at socal MLS
I went to an interesting seminar put on by my local appraisers group,REAA of the north bay yesterday,the subject was “Appraisers Liability” 2 hours long.the speaker was Cynthia Hamilton JD,an appraiser from Alameda ca.turns out a couple of growing appraisal frauds are altered appraisals,and outright ID theft,where the loan broker goes to a state website,pulls a name and license #,and simply forges an appraisal.she also mentioned that Pamela Crowley now has a website where suspected appraisal fraud can be reported “MortgageFraudWatchlist.org” which tracks suspected fraud nationwide,by address.lenders subscribe to her service,and a reported fraud can trigger an appraisal review.so if you see something hinky,drop pam a line.BTW they are nailing most of the fraudsters on wire fraud,because they use the internet.
by Noelle Knox, USA TODAY
Here’s an alarming fact about Sacramento’s housing market: About one of every five existing homes on the market is a “short sale.” That means the home is worth less than the value of the mortgage, and the lender is willing to accept less than full repayment of the loan to avoid foreclosure, says Tracey Saizan, president of the Sacramento Association of Realtors.
http://www.usatoday.com/money/economy/housing/2007-02-19-close-sacramento_x.htm
I use my tire dealer as a domestic measure of the economy. Been going to him for years. Yesterday dropped in for tire work and he looked extremely dismal. I asked how business was and he said, “SLOWWWWWWWWW”. Why is that I asked. He stated that 65% of his work is fleet vehicles for contractors such as plummers and sheetrock guys. He said his best client had parked 63 vehicles and laid of 3 men per truck this past month and his other big account had 46 trucks parked with similar layoffs.
He said he had no repair work as the guys were canibalizing parts from parked trucks in their yards.
He also reported that the mutiple credit cards for a tire purchase is in full swing. A$75 here and $85 there and so on.
It is getting hairy out there.
Where are you reporting from Dimedropped?
Orlando, fl
That’s scary.
Not to beat a dead horse, but here comes the debt card in play. It just shows that not only is the economy going to get whacked because 70% of it just plain consumerism, but that debt is fueling all of this now. I know that using the CC isn’t bad in and of itself since you can earn rewards, but when you are using multiple cards for one transaction I have to question your ability to pay back that debt.
Dimedropped, I can beat that story, not to get into a pissing match, but this one is funny and scary. I admit, I collect baseball cards. Well, about 6-8 months ago I was in a store, by where I live and a 40 something, about my age walks in. He decides he has to buy some overpriced crap that gives you 5 cards for around $100. He pulls out CC #1, EHHHHHH…declined. Well, let’s try CC #2, EHHHHHHH..declined. FInally asks the owner, do you take checks. Yes. However, he asks if he can post date to Friday when he gets paid. All I know is that DUDE, if 2 CCs failed, you better not be putting the house money on baseball cards. You have much bigger problems.
If you cant come up with $100, you’ve definitely got bigger problems than buying baseball cards. Like you said, its going to get ugly soon in The OC and a guy with no money and low-paying job is in trouble.
plumbers….more coffee please
Chicago Association of Realtors released it’s bi-weekly market report today…
It says that the National Association of Home Builders is projecting a “first ever” overall decline in home prices for 2007.
A great quote:
“Freddie Mac’s Nothaft advised builders to look past national figures and study what’s going on in their own individual markets. “National numbers obscure local trends,” he warned. “Some markets have really crashed, but others are holding up fairly well.”
At the same time, he said that if a local market is not doing well now, there’s little chance it will get out of sick bay before next year.”
http://realtytimes.com/rtcpages/20070221_endbumps.htm
I suppose most Realtors are not going to be mentioning this part of their market report to their clients. Think the MSM will be reporting too much about it?
On another note, I was just thinking about all the rosy quotes and projections coming from the NAR. I am now thinking that they are perhaps just trying their best to influence things in any way possible for another few months. The Department of Justice filed an antitrust lawsuit against the NAR way back in 2005 and earlier this year a Federal judge here in Chicago cleared the way for it to go to trial. Once the trial starts, I am guessing that reporters are not going to be interested in what the NAR has to say about current markets.
Shadow Government Statistics update:
http://www.shadowstats.com/cgi-bin/sgs/archives
Monthly Commentary: January/february 2007 Feb. 20, 2007
Economic Activity in Rapid Decline as Miracle Recovery Fades / Central Bank Dollar Holdings Exacerbate Hyperinflation Risk / Stock Market Euphoria Misses Economic and Political Realities / Dollar Sell-Off, Gold Boom Lie Ahead / An upside blip in economic reporting from unseasonably good weather spiked some December economic data, and market expectations for the economy soared. The U.S. economy, however, does not turn quickly without warning, and early January data showed the recession not only to be very much in place, but also to be deepening rapidly. Although inflation will continue to rise without a further oil price spike, sudden indications of renewed possible terrorist attacks and rumblings of a possible U.S. attack on Iran hold the potential for a rekindled surge in oil prices. Under these circumstances, the U.S. financial markets remain in peril, with higher interest rates, lower equity prices, heavy dollar selling and significant gold buying on the horizon.
I think Williams is dead on, but most people see all this “liquidity” sloshing around and figure we can’t possibly be in or near a recession.
Before the government started actively massaging the statistics people had a better grip on reality, i.e., they could see the cliff coming. Now they’re already over the cliff without even realizing it was there.
Could Tremors in the Subprime Mortgage Market Be the First Signs of an Earthquake?
http://knowledge.wharton.upenn.edu/article.cfm?articleid=1664&CFID=3711685&CFTOKEN=87598350
When I saw this quote, I thought txchick57 would get a good laugh out of it:
“While there is debate over how matters will unfold, there is little doubt that changes in mortgage lending have created risks that cannot be gauged precisely. Wachter notes that the heavy use of aggressive loans is so new that data on which lenders and investors base their risk models is incomplete. “There is the potential for model error. The models are untested in a down market.”"
You think?
Of the 105 homes listed as “Houses Added This Week” on CNYhomes dot com 25 of them had photos showing green grass.
As our recent weather (outside Syracuse, NY) has made national headlines for its record snow, I guess we know these are relistings.
One clever homeowner in my town did have photos updated with snow. I wonder how many others from other towns I could have included in my “gotcha” number if I had only recognized them.
12.5% (287) of what’s listed on that site now is new construction. I’m going to track this number going forward. My ex-realtor shared new construction is mostly what’s selling around here although I did see 2 sold signs on “used” homes yesterday.
I thought one was way overpriced. It was only on the market about 6-8 weeks. I’m gonna have to see if the buyers are from out of state or down state (and mesmerized w/seemingly lower prices w/o checking market values)
Something else I noticed: We seem to be experiencing a large number of homes that were purchased less than 12-18 mos ago going back up for sale again. Realtor insisted there aren’t too many flippers around here. Perhaps ARM resets or I/Os rearing their ugly heads?
In a press box at a recent sports event, I overheard a relieved attendee explaining his flipper home had just gone into escrow. He said he barely broke even and never planned to try that again.
Mistakenly posted to another of yesterday’s threads…my apologies
Of course there is no gauge or model for this because never have so many been (unworthy) have been given so much (credit) by so many (creditors)..to borrow and rephrase from a once great man. This thing has a life of its own and there is no precedent for it. On top of that it is part of a much larger and greater credit bubble that has serious implications for every one, inc. those of us who may own free and clear and/or have no debt. I now you guys think I border on, if not ouright own, a tinfoil hat, but when this pans out don’t be surprised if the damage done makes the great depression look like a picnic at Disneyworld. You can only run an economy on debt for so long. At some point the creditors want their money. On top of that, the big boys (banksters) want their fat commission checks. I agree that we should all be prepared, pay off debt, get the savings in order, and diverisify. However, in the end, when this thing finally bursts, no one is going to be immune since we will all know someone who gets hurt or we will be effected by services that no longer operate in our area. In the end though, this is what needs to be done. Not to sound to religious, but we need a financial cleansing in this country. Too many lazy people. Too many people not taking responsibility. Too many idiots runing the asylum. Too many people biting off more than they can chew. Too many people not planning ahead. Too much easy money sloshing around. AND WAAAAY TOO MANY PEOPLE THINKING THAT TEXAS HOLD’EM IS THE WAY TO INFINITE RICHES. For cryin’ out loud people, it is time to get back to the hard work and ingenuity that made this country great once. Speaking of that, I better get back to work.
“…On top of that it is part of a much larger and greater credit bubble that has serious implications for every one, inc. those of us who may own free and clear and/or have no debt…”
This is an elegant piece of writing and will be the theme of many future economic courses. “How the debtless got reamed in the credit bubble collapse.”
Perhaps a little levity is in order:
http://www.dailymotion.com/video/xt0c6_snldontbuystuff
Two units in my building in the South End of Boston (02118) are for sale:
Unit 203
MLS #: 70524948
List Price: $559,000
916 sf 2/1 per notoriously inaccurate zillow
Sale history: 11/02/1993: $110,000
Unit 204
MLS # 70514691
Listing Date: 01/22/07
Sale History: 06/08/1993: $120,000
960 sf 2/1 per zillow
Price Reduced: 02/11/07 — $629,000 to $579,000
Price Reduced: 02/12/07 — $579,000 to $549,000
Price Reduced: 02/13/07 — $629,000 to $549,000
Looks like they’re going with the “PRICES SLASHED!!!” strategy.
It’s a 19th-century church rehabbed into condos in 1989 by the Boston Redevelopment Authority on a low budget as part of the Villa Victoria project. About 30 units, with a percentage set aside for moderate income. These units on the front have their bay windows facing onto Tremont, which is major street with buses, trucks etc.
Yes, the South End is gentrified but these people are out of their minds. Zillow may not be correct about their square footage, but these units are not over 925 square feet. Muggings for cell phones in nearby streets are commonplace and not just in the middle of the night. Last summer we heard gunshots on a fairly regular basis.
Recently someone tried to sell 2 parking spaces in the basement for $50k each.
Psychotic. This state needs a wake-up call.
Hmm, South End rents were topping $800 around 2000 (maybe it was 1999, but they only went up from there). Back at the time, I thought this was astronomical. (I never rented for more than $350 in No. Va.)
However, even $1000 rent doesn’t translate into $500,000 sticker price. I guess we’ve all gotten inured to these crazy prices. But a drafty old church? Get out! There are WAY nicer properties in the South End.
what do you guys think of this?
Corn Farms Replace New York Lofts as Hottest Property
Farm Bulls
Jim Rogers, the hedge fund manager who predicted the start of the commodity rally in 1999, said global warming will hinder crops and has advised purchasing farmland for at least a decade.
“Because of the disruptions, agricultural prices will go through the roof,” he told reporters in Melbourne on Feb. 7. “I am extremely bullish on agriculture.”
To be sure, farmland has seen rallies before that were halted by surging interest rates or plunging commodity prices.
In the three years ending in 1975, prices rose more than 30 percent annually in Iowa, when the cost of fuel surged during the 1973 Arab oil embargo and the former Soviet Union bought record amounts of U.S. corn and wheat to make up for domestic crop losses. U.S. farmers bought more land with borrowed money.
Iowa farmland more than tripled from $482 an acre in 1972 to $2,147 in 1981. After the Federal Reserve boosted interest to 20 percent in 1980 and again in 1981 to curb inflation, farmland prices plunged more than 60 percent from 1981 to 1986.
http://www.bloomberg.com/apps/news?pid=20601109&sid=aQZ5eJo0T7b4&refer=home
J L, I posted my rant at the same time as this appeared. Jim Rogers has a history of being right (when he makes the trade - often, the conditions are not exactly to his liking - no trade). The converse is that as states such as Nebraska gear up for increased corn production, states that receive water from the Ogallala Aquifer will be getting significantly less. Expect Texas, Oklahoma, New Mexico, Kansas, Colorado. These states are marginal corn producers withoutr water, with water (and corn prices this high) the depletion of the aquifer will accelerate. Sorry El Paso et al.
I guess my rant got lost in cyber space. The gist was the recent runup in grain prices will not show up in inflation numbers for several months. Expect 100% increases in poultry, beef, pork, sodas, farm raised fish etc. Expect water costs to rise dramatically. These numbers are not used in core CPI calculations.
fortunately most CPI calculations have special provisions for products that get too expensive: if poultry or beef gets too expensive and people buy something else for their dollar, the statisticians assume that consumers value the replacement product just as much as the poultry or beef, so there is NO inflation. They use that trick in the Netherlands all the time, I guess the manipulators in the US do it just as well.
Another option is to dilute the product, e.g. by increasing the water content; good trick for products like milk, ham, poultry etc. Charge the same by weight but less cost for the producer. As far as I know the CPI always compensates for assumed ‘quality improvement’, but never for this kind of fraud. They can get away with that as long as water costs do not rise too much …
nhz, you’ve got a point. I’m a really picky consumer and I notice this type of thing is happening. It irritates me to no end.
Silly example: I’ve been buying the same sponge cloths for the kitchen for years. I usually buy them bulk at Costco, so they last me years. Last week I needed to get new ones, and I found that they come a little smaller in size and much thinner than before. I can tell because I still have one of the old ones. Same thing, same brand, but I’m getting less for my money.
Another example: a friend of mine liked the spring mattress she had bought at Costco last year for one of her kids, so she sends her hubby to buy another one for her second one who is growing out of his crib. Her hubby comes back with the thing, only now it has springs ONLY ON ONE SIDE, which means you can’t turn it and use both sides, which means you bought HALF the mattress you had bought last year for the same price. I know this is OT, but it really drives me up the walls. Sorry.
If farmland/corn appreciation was based merely on a historic net revenue to acre formula, I think it would be fairly priced and a result of increasing commodity prices. However, my observation is that the price of farmland increased as much or more as a result of the hyper land market (caused by homebuilder demand) than by the income generated. Therefore, as general land prices now fall due to lack of homebuilder demand, farmland prices will fall, too. The extent of the fall, however, will be tempered, unlike non-income producing residential land, by any increase in crop prices.
I think you probably have to be very smart and buy real farmland, not land that is just outside a city that will just be sold to developers.
Mid week rant about inflation: My apologies!
The numbers were so poorly skewed for the CPI and core CPI. I trade commodities and when corn is trading over $4/bushel, the impact to future inflation is not correctly accounted. Corn is a primary staple in every food group. Aside from its primary use as feed, it is used in sodas, candy, plastics, etc. Expect a hit, when Pepsi and Coke report earnings due to corn syrups price increase; General Mills, Conagra, Kelloggs, Cargill, Bunge cannot raise prices fast enough to cover buyer resistance. These price increases will start showing up in the late summer. I was upset last night when I went to buy a couple of Cornish Game Hens and they were a $1.50 more each than last week. Next fall expect Beef to be either “grass fed” or very expensive. Chicken, pork, farm raised fish any food using grains are going to jump.
For those of you not familiar with the price of grains over the last 6 months see the Chicago Board of Trades graphs by clicking on the graph symbol on the link.
http://tinyurl.com/uxvwj
I can remember when Corn had a quarter of a cent range for a year. This is inflation.
Thanks
Thanks for giving us a heads up on the corn market. I guess with those corn prices US farmers wil be ready to pay big bucks for Russian ammonia.
Actually ammonia prices are about the same as last year though there are expectations March will be higher. Presently about $360-$367 per ton cfr in the US Gulf and $282-$285 per ton fob Yushny.
U.S. News and World Reports recently did an article on ethanol production. Because more and more are investing in the technology, USNWR predicted corn prices would skyrocket…perhaps that’s what’s behind this.
HELP PLEASE…. i put the following ad on Craigslist and it was flagged down within 10 minutes…
READ BEFORE YOU BUY! 30% OFF ASKING PRICES.
BUYERS LET’S JOIN FORCES…. WE CAN BRING DOWN PRICES TO AN AFFORDABLE LEVEL!!!
If you are looking to buy on Long Island, OFFER NO LESS THAN 30% ASKING PRICES. Recent articles tell us “NOT TO BE GREEDY” and that we “CAN OFFER UP TO 10% OFF”. That is absolute B.S.!!!! The Real Estate MACHINE has added over 20% year after year recently onto the prices of homes. Sellers didn’t mind the GREED when prices were skyrocketing! They have OFFENDED us buyers for several years now…. IT’S TIME TO TURN THE TABLES!
Don’t be swayed by recent articles such as:
http://money.cnn.com/2007/02/20/magazines/moneymag/homes_buy_orwait.moneymag/index.htm?postversion=2007022111
Shills like that are just puppets for the industry trying desparately to keep buyers “IN LINE.” and to keep us from lowballing!
There is a stalemate right NOW between sellers and buyers. The Real Estate industry had colluded with lenders, realtors, bankers, apraisers and even local officials. Let’s break this stale mate in OUR FAVOR!!!!
Remember, if you need to take out an unorthodox mortgage YOU CAN’T AFFORD the house. Place bids accordingly and let’s make Long Island a place where our kids can once again settle down and start their own careers and families.
How can i spread the word to Long Island Homebuyers? ANY SUGGESTIONS?
Well, I’D TURN OFF THE CAP LOCK, FOR STARTERS! JUST A SUGGESTION!
This thing will take as long to play out as it takes. Agents are trying to play both sides (don’t ask too much/don’t lowball) — but their survival probably is not served by helping to grease the skids on the market’s way down.
Sellers can lounge on their denial and not sell, unless they really, really have to sell, in which case they may not be able to sell and cover their loss. That house may be yours after foreclosure, or after it forecloses the 2nd time. (It will be a little worse for wear, but finally priced right.)
But maybe you shouldn’t pin all your hopes on Long Island. I’d love to go back to San Francisco, and I know that market will have a world of hurt, but that doesn’t mean it’s going to go back to being affordable. “Please bid low so that I can enjoy a return to the economic realities my parents knew” is just the flip side of “Please bid high so that I can unload this POS and retire to the Caymans.”
NCUA Year-End Figures Show Mortgage Delinquencies Spiking, CDs Surpass Regular Shares as Largest Savings Category
ALEXANDRIA, Va. — NCUA’s 2006 year-end data showed credit union mortgage delinquencies skyrocketing while, for the first time, share certificates surpassed regular shares as the largest savings category.
Assets of federally insured credit unions rose 4.61%, increasing from $678.7 billion to $709.9 billion over the last year. Loans increased 7.88% to $494.3 billion from $458.2 billion, according to NCUA. Delinquent loans also continued to decline and net charge-offs dropped 11 basis points.
However, mortgage delinquencies over two months shot up 41.31% while first mortgage real estate loan charge-offs expanded 34.01%. At the same time, first mortgages grew 10.04% and other real estate loans were up 15.03% as well. Similar to Federal Reserve findings, credit union real estate loan originations dropped 5.23% over the year.
Additionally, new auto loans overtook used for the first time since 2000.
Even though investments declined 9.14%, more favorable market conditions permitted investment income to grow 18.84%.
On the flip side, shares increased 4.08%, and, for the first time ever, share certificates grew 23.81% to $189.0 billion surpassing regular shares to become the largest share category.
“In addition to continued increased lending, credit unions reported an average return on assets of 0.82% and a net worth ratio of 11.54% at year-end 2006,” NCUA Chairman JoAnn Johnson said. - scooke@cutimes.com
This guy did a darn interesting graph on obesity and houses (in the USA). He fully admits it’s not exactly science, but it does make one think:
http://tinyurl.com/7g2yp
From Time.com. This has to be one of the wackier articles I’ve read about the housing bubble topic. The theory is that internet searches are a sign of sentimient, the housing market is driven in part by sentiment, and therefore the decline in searches using the term “housing bubble” suggests that the bubble is not bursting, but if the searches go up it will be a sign that sentiment is changing.
I guess under that theory Britney Spears’ popularity is way up.
http://www.time.com/time/business/article/0,8599,1592751,00.html
Is there an intersection point at which is makes more sense to jump on a “fogging the mirror” loan to secure a nice house above market cost rather than wait for sensible prices and risk tightened lending standards that effectively prohibit you from buying the house? Assume I will stay there for years and can make all the payments. I worry that by waiting for a correction there is a “floating margin” of houses that will be blocked to me (for example snagging a $500k house while they’re giving away mortgages to dead people vs being denied a $400k mortgage under tighter lending standards). I currently make $90k and have no debt. Am allocating 1/3 income to savings beginning today.
A house is not an investment. The house depreciates, while the land–on average–barely scrapes along higher than inflation. Of course, there are peaks and dips, and we’re heading into a dip.
If you have a lot of money to invest, there are plenty of places to invest it other than in an overpriced $400K home.
Okay, I’m calling a top in the stock market. Or damn near. LOL
http://dallas.craigslist.org/com/282912638.html
Joking aside, this thing is getting pretty scary:
http://tinyurl.com/25t3s5
“NEW YORK (Reuters) - Everywhere, it seems, the “animal spirits” are returning. Not only has the Dow Jones Industrial Average (.DJI: Quote, Profile, Research) and the Russell 2000 index (.RUT: Quote, Profile, Research) continue to set new records recently, but so has margin debt to leverage the purchase of stocks.
Margin debt on all stocks owned by clients of New York Stock Exchange member firms reached an all-time high of $285.6 billion in January, topping the previous record of $278.5 billion in March 2000, which was the month the Nasdaq Composite Index (.IXIC: Quote, Profile, Research) hit its all time high.”
See my post in the California thread on inflation. Borrowed money now being used to speculate in stocks and commodities. Ten years ago, I’d have played along and maybe had enough brains to get out when it started to tank. Today, I”m just sidelined with some index puts. There’s no way I have the guts for this. When it breaks down, I’ll be back in the game.
Found this in a craigslist listing:
Does the Changing Real Estate Market have you concerned?
Information is POWER! Get the information - you need - to succeed.
TWO NEW websites - Special BUYER & SELLER presentations
“What You Should Know Before SELLING Your Home”
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Bookmark these sites.
Tell a friend !
I’m running into a new wrinkle, something I haven’t seen before. Many of my investor clients and friends who have listened to what I’ve been saying about the market have been lowballing sellers. I don’t think they’re going low enough, but the are sophisticated individuals and can calculate the risk level they are comfortable with.
Now suddenly two different brokers have “refused” to take the offers to their clients. Mind you, it’s written into the Code of Virginia that a broker must - *must* - take all offers to their clients. A third broker has come up with a ridiculous 9-page set of documents requesting detailed financial information about the purchaser despite the fact that the purchaser is pre-approved through their own lender, and he claims that the contract is “not complete” without that additional information.
I take this as a concerted effort on the parts of the brokers to keep their clients from learning how sour the market really is. Currently, although the brokers are acting illegally, I am only recommending that offended clients file their complaints with the Department of Professional Regulation in Richmond. If this continues, and prices drop, I expect to see a lot of disappointed sellers suing their brokers in six months saying “Why didn’t you tell me about that offer?”
Meanwhile, my buyers are being stonewalled. Has anyone else seen this yet and what are your thoughts?
Still have faith that the geniuses in New York or Greenwich will pull our collective bacon out of the fire? They were suckered in a hedge fund fraud to the tune of more than $7 million by a kid who didn’t even have a driver’s license: http://www.wtop.com/?nid=104&sid=849417