The Housing Bubble

in Netherlands we have an even ‘better’ system now thanks to the socialists (invented by an idiot from my hometown who is too well-connected with the real estate mob):

According to socialist logic, every person over 65 is ‘entitled’ to live in not just an average home, but in a new premium home/apartment with lots of free additional services. These homes are built by ex-government housing corporations and cost EUR 1500-2000 per month to rent, which is at least double what most couples on retirement income can afford. No problem, if you can’t afford it the local government will pay your rent. So what do people do: before they get 65 they sell their (usually big and expensive) home, shift all their capital to their children and move into such a premium elderly home - bingo, you can have it all in this social paradise!

Currently this system is paid for by increasing the rents of other renters in the area; of course many of them can’t pay the increased rents so most of the money ultimately comes from government rental subsidies. The socialists (and no doubt the RE mob as well) were so enthusiastic about this novel idea that it will be introduced in the whole country this year

wow,
We have high taxes in the US and none of the socialist benefits. Just wars. oh well.

I must say, I was a bit surprised at the rather nasty tone of this post, and the wholesale dismissal of the boomer generation with a couple of paragraphs of disingenuous myth that began with the so-called Greatest Generation (as a boomer with parents from the Greatest Generation, I heard it all the time) and made its way into the media and has often been parrotted over the years. It has become something of a mantra for bitter Gen-Xers who seem to be struggling with the fact that someone moved their cheese. And perhaps it is karma. I was witness to the Gen-X destruction of a wonderful Michigan based manufacturer that was founded by a member of the Greatest Generation and expanded by the Boomer son and the wonderful team that father and son built together. By the time the Xer got through (with his slicked back Gekko hair) the place was largely outsourced within an inch of its life and a lot of smart and useful people put out to pasture pre-maturely.

Much was made in the media of “Flower Power” and “live for today”. The truth was much more mundane, but not told much in the media because it was sort of dull and didn’t sell magazines. Truth is, most boomers were just like anyone else, just trying to survive, go to school, get a job, get ahead, raise a family. And most didn’t really have the time to indulge themselves in “living for today” because they had to worry about tomorrow, no matter what the song said. No, I don’t have millions socked away for retirement. I never made millions. But I do have a plan and some savings. And so do most of my friends. My worst nightmare is having to be cared for like my parents. I hope I don’t have to retire, I don’t want to. Since I work for myself, it is going to be my choice.

I don’t know who all these profligate boomers are that everyone talks about, I’ve seen one or two here and there, but no more or less than in any other generation. I live near a retirement center full of Greatest Generation retirees. You should see some of the huge “investment” boners some of these folks have pulled. Just the other day there was a story in the local weekly rage about a whole bunch that got taken in by the former promoter for the Backstreet Boys. And that’s just one story.

I hope there isn’t going to be a thread on the sins of the “Boomers”, many of which are imagined and media driven. The boomer bashing I’ve seen on a thread or two over at Patrick.net made me think I’d wandered into a Neo-Nazi euthanasia support meeting.

I hope there won’t be a thread on this subject.

My mother retired on the profits of the sale of her house up North. 1.2 million. Sweet.

When boomers retire and start downsizing their homes ??

I live in a Cul-Da-Sac of approximately 10 houses…..All of the owners are retired except me….houses range in size from 2000-2400 square feet…..With many of them two stories, I have expected some to sell and down size to one story house…”Not Going To Happen”……They remodel the downstairs and create a master bedroom & bathroom downstairs and ignore the upstairs other than having a cleaning service go upstairs and dust…..So, in effect, they did down size…..The others in the single story homes aren’t going anywhere either, other than, feet first out the front door….Reason ?? Don’t need much other than food and just want to be left alone to live out there days….….

Combotechie,

I agree that he is correct to make the point that these devices are being used as a sorce of “income” however not once did I hear him mention this is a non prudent way to manage your finances. He is PATHETIC!!!

Don’t forget “Mommy and Daddy”.

LOL

Along with!!

Selling self for sexual services!

Yeah, that’s never going to work. You need to find some debt to saddle yourself with; and you need to find it ASAP. You’re skating on the edge of BK if you don’t improve your financial outlook.

Yes, they are wage earners. Just for someone else, not for wage earners #1 and 2.
Getting in debt to someone else, yeah, that sounds like a frigging good retirement plan. O_o

I believe the term, “liar loan” was coined the exact same day that the first no doc loan application was signed.

The increase in FSBOs is not only about Sellers balking at shelling out for Realtors’ commission but about Sellers’ refusing to accept recent comps on their property IMO.

Problem is the nature of FSBO’s is that it’s nearly impossible to get any kind of accurate data, so it’s hard to get a handle on it. I’m not big into anecdotal evidence - e.g. “well I see 5 of them down the street so they must be going through the roof”.

Probably the only way to get data like this is if sales #’s themselves were to break out what percentage of sales were realtor vs. FSBO. However I think they’re not normally done like that. Also sales #’s would be misleading due to what PP says above - often FSBO’s are due to sellers refusal to accept realtors’ comps, thus a large increase in FSBO’s might not be reflected in higher percentage of sales being FSBO.

Sounds like you really do your homework. My kind of girl - are you hot?

Though it would seem logical that FSBOs increase during a downturn, it’s often the opposite that happens.

During the run-up, it was easy to sell a house (we did it in one hour, flat-fee MLS listing). There were “Help-U-Sell” and “Assist2Sell” signs everywhere.

While people may originally try to sell FSBO during a downturn, they soon learn that…wait for it…YES, realtors actually can help sell your house (the good ones, and the herd is thinning).

I’ve seen delusional FSBOs trying to sell their house on-and-off for many months. Then, they give up & hire a realtor, and the house sells within one month.

It was predicted in the early days of this blog that we’d see sellers turn to realtors even more during a downturn. That’s definitely what I’m seeing so far in North San Diego County.

Is fixing the symptoms while not addressing the source, stra-teeg-ory, ignorance or stupidity? The Federal Reserve is a glass house built on land (with huge piles of perfect baseball sized rocks) next to an empty grass field in a neighborhood full of teenagers. Of course the ignorant, stupid, greedy, selfish teenagers are to blame from the resulting broken windows, yet over time, who is really at fault?

The credit booms and busts during the 1700’s and 1800’s encouraged, captured and ruined many in the so-called more educated generations (with the helping hand of government and government sponsored industries such as the railroad and mining companies) similar to todays generations, yet were more limited in scope without a Federal Reserve Bank. The more recent house price increases through the 1970’s, the 1980’s, the 1990’s and now, are all from the same Federal Reserve bubble pumping and deflating actions.

Currently, discussions are under way to increase the regulation of teenagers with rocks and those who would get rocks to give to others, to put an end to, or limit the want of having the perfect baseball sized rock, and of teenage boasting of the number of good hits. How will that change teenage behavior towards the perfect sized rock? Will ever increasing the monitoring and regulating increase the saftey and stability of those in the most secure place in the world… prison? Why would that model work anywhere else? Control is an illusion backed by the threat of force. It is amazing we can even push our carts down the grocery store isles without any specific grocery cart rules and regulations - a form of anarchy?

The whole scheme of getting the neighborhood to pay for the broken windows to be replaced is not an issue, nor is the idea of not having a glass house in the first place. A newly painted and freshly repaired three-log wooden fence (increased lending restrictions) around the rocks is all we may get? The system created 200 years ago gave rise to the Federal Reserve system, the argument then was the same as it is now. The limits placed on government to be limited do not work, the checks and balances have often been corrupted and have failed. From my recollection of reading the famous papers, the Anti-Federalist were correct in understanding the possible outcomes of the Federalist wishes - these writtings may also contain the solution.

Current consumer confidence and perceptions are partially based on the known unknowns. What happens when the unknown knowns become public knowledge in a finacially painful way on a large scale? That could be chaos… as experienced by Argentina, and the Eastern European slavic nations recently, not quite anarchy. Mogedishu has laws and rules that are followed (land ownership, marriages and commerce still occur) just no government laws or rules, that is anarchy within chaos, for the most part I think. I wonder if the murder ratio is lower than here? No statistics?

I am not limited to reading any particular group of writers, I am anti-slavery. All facts are reliant on my memory from reading many sources of offical and acceptable public records as well as the not-so acceptable, I should use more links. Forgive and correct any errors (esp. the 5a.m. rough drafts), ty for links and corrections, eventhough, the idea still stands. Trust, yet verify.

“…Under the new law the president can use the military in response to a natural disaster, a disease outbreak, a terrorist attack or “other condition in which the President determines that domestic violence has occurred to the extent that state officials cannot maintain public order.”…In 2006, the Military Commissions Act was passed which, in addition to legalizing torture, allows the president and military courts to declare anyone an enemy combatant without basic civil rights like habeas corpus….Plans for massive detention centers are already being prepared.”So much for FBs rioting or doing anything else.
http://www.inteldaily.com/?c=117&a=1431

“In my view the bubble was largely the result of the skewing of the risk/reward ratio.”

Risk is just another word for VOLATILITY. When volatility is high, leverage is low, and one would expect that the housing market would be largely devoid of the fraud, speculation, etc that has permeated through this market. This is why Congress needs to sit on their hands and do nothing. The implosion of the subprime industry, soon to spill over into Alt-A and prime, coupled to the high foreclosure rates is just the volatility needed to realign the market. Any other action will just deepen and prolong the agony.

maybe the FED should start encouraging crazy lending and teaser rates on plastic surgery and human genetic engineering; I don’t think there is any limit to how much you can spend on that, you can’t easily walk away from a breast implant or genetic modification and unlike housing it doesn’t even have to push inflation because of all the materials needed (maybe a bubble in silicone prices, but that’s a minor price to pay). I’m sure all those ex-wallmart, ex-realtor, ex-NEW employees can be retooled to fit this new business.

” Any asset class (and I do mean any) that had lending like this associated with it would wind up totally disconnected from fundamentals and in a massive bubble.”

Is there anything that was not bought with mew? aEverything is disconnected from fundamentals and in a massive bubble, the source is the Fed. That is why there will be deflation, the more so as Boomers retire and liquidate their assets they do not need, however; whatever the Boomer herd really needs will experience inflation in price. Double-whammy!

Could we immediately begin to import millions of eligible Chineese to purchase the increase in supply of assets and homes for sale?

“This broke the link between lender and borrower and allowed middlemen (New Century, Goldman Sachs, etc) to funnel money direct from lenders to borrowers without any concern for the ability of borrowers to service the loan.”

This has allowed ANYONE to print money. Think about it. Money out of thin air. When it comes to religion people have “their belief” and little faith ” but when it comes to buying monetized products for their financial health they have all the ‘faith’ in the world.

That’s probably it, in a nutshell, diemos.

Creating a distance between borrower and lender, and filling it with those who profit soley on volume, is what caused lax lending standards & all the risk layering. Didn’t hurt their cause that the Fed lowered rates to historic lows, either (coincidence? I think not!).

I wonder what would happen if we took out the middleman in all (or most) transactions. Let’s see…medical care without insurance companies, home sales without RE brokers, mortgage brokers, etc., car sales direct from the manufacturer (no dealerships), etc. Just think of all the money we’d save!

What is good news for people in their 20’s today? Being in that group (well, I will be 30 soon, but let’s just overlook that milestone for a moment) it seems like we really have a very poor economic outlook for my generation.

We were all raised on MTV and “Bling-bling” and it definately shows in the way we view money and wealth. The “get rich or die tryin’” attitude in my generation is pervasive, which is why so many of my confederates got pulled up into the crazy housing bubble.

I know lots of people my age sitting on over 1M dollars in morgages making far less then I do.

We are the ultimate extension of the materialistic society. We are convinced that the “old ways” to make money (investing in reasonable assets, working hard, saving) are for suckers. Real “playas” are investing in the riskiest assets and buying their 10th Escalade before they are 30.

I admire the sprit, but I truly think it is going to end badly for most of them. Yes, you can get very rich. But you can also get VERY poor, which is not even on the back of their minds.

Don’t neg-am loans go on auto-pilot reset when the LTV goes to 110-115%? It seems like a possibility that with values going down 10-20% these will kick in as well and the FB will have to start ponying up some principal or at least pay full interest payments.

Quirk;…Not to many on the board that remember all those…..You need to include 1974-75 also….

Well, either way (5% or 10%+), what will be the effect on the economy, if all these people suddenly have to start saving for a house. Clearly it will impact consumer spending. Will that be enough to tilt the economy into recession? My back of the envelope calculations don’t seem to make it seem likely, but then again, I’m hardly an economist.

I agree, as I’ve been preaching this same point for a good two years. What I am looking for is a sense of what people think is the pace of the bust. When should I expect prices to return to realistic levels? I realize this is all speculative, but I trust the wisdom of others on this blog.

I was dreaming last night…

Wondering what effect hyperinflation would have on all of those brobdingian mortgages?

So say you owe $666k on your bit o’ stucco?

If we endure the wrath of hyperinflation, it’s possible that houses won’t go up in value, as everything will still be on the basis of those one ply green, black and white pieces of toilet paper?

Anybody remember back in 85′, when the greenback dalla reigned supreme?

There was a short lived market for used European luxury cars, because of the favorable excahnge rate, one could buy a cedes’
and bring it back here and clean up. The only spanner in the works, was that the cars had euro smog and they had to be brought up to u.s. standards. They were called “Grey Market Vehicles”

Perhaps whichever country (Hello China!) emerges triumphant, from this debacle, will buy some cheap “Grey Market Homes” from us?

“Economist etc.”

Point taken. On reconsideration, I am guessing the FT is much like the WSJ — the newspaper of the financial elite. Nonetheless, there is a current subprime reporting gap between the coverage of the FT & Economist versus U.S. financial press.

nhz, I am reading some German newspapers on the web (faz, zeit etc.), and the subprime fear in the US and the real estate bubble (Immobilienblase) is frequently mentioned since the recent fall of the DOW. Maybe it is also due to the involvement of German instituitions like Deutsche Bank? Especially the lack of downpaymetns in US real estate transactions is described as a kind of exotic far-far-away-land - how can they do such things - well, they can’t.

“Why the PS?”

It was a preemtive first strike. Every time in the past that I have mentioned Frank, some idiot has hijacked the thread with perjorative anti-gay remarks.

I always try to anticipate the next poster’s comments when I decide which article to post

P.S. The flaw in the editorial writer’s (and quoted Economist Marney Cox’s) reasoning would be revealed if you looked closely at the composition of the jobs the SD economy has recently cranked out. Workers in Big Box Mart and the tourist industry just don’t earn what those old bricks and mortar economy jobs of thirty years ago paid. I am guessing if you compared the average incomes of those who recently left SD to those new arrivals that replaced them (including 27,674 in new births less deaths), you would again see that average per capita income has fallen on the extensive margin of population change.