The Housing Bubble

I dunno. The tradition from contractors that I hear is: “The price is x. If you want to watch, the price is x+. If you want to give advice it’s x++. If you want to help it’s x+++.”

I would tend to think that right now most contractors would be willing to allow the customer to watch if it meant the difference between obtaining a contract for work - and not obtaining said contract. Just a thought.

They all work together, you know.

It’s the perfect conspiracy because it seems so impossible…

paul

As a beneficiary of advice from a stock analyst who follows the company my husband works for, I have learned a very important lesson. Are you ready?

All economists have to rely on the information they’re given. Wether they’re high-level economic analysts that interpret government data, or micro-level stock analysts that interpret company data, they are all standing on shaky ground. Here’s my example:

My husband’s company has publicly said that they will have a great new product out by the end of this fiscal year (September). However, he works there and knows that this will never happen. The product hasn’t come close to working in any useful way, much less in the fantastic “complete with bells and whistles” way that the company claims.

The stock advisor guy calls in to the investor meeting thingie, and they tell him all about this great technology on the near horizon. He believes them because what the hell else is he going to believe? Then he writes his newsletter and tells everyone that the current obstacles faced by the company are nothing compared to the outstanding technology that will be released in a few months, so we should all be buying, buying, buying.

Now this guy is pretty smart. He’s hip to the whole credit bubbe/housing bust/China’s going to hell in a handbasket/We’re outsourcing our country philosophy. But nevertheless, he is standing on shaky ground.

Granted, his ground is probably a bit firmer than my own, so I still value his advice, but I just have to be aware of my level of certaintly (and his own).

An attorney or an accountant, but it’s difficult to get them to give off the cuff advice unless they are a relative or a neighbor. Malpractice if they give advice without investigating all the background, which is expensive.

An attorney? Knowing investments? Never met one.

Accountants? Everyone thinks accounts know investments and some do but many only have an understanding of fixed income.

A “CFP”‘ designation can be meaningful or useless. Often they are simply salesman and have no meaningful understanding of markets.

I’d ask for a someone’s resume (for economics or finance) and talk to them about their experience in business, investments AND life. The key to surviving is making as sure as possible your investments are reasonably diversified and that you are hedged for certain extremes (high inflation, deflation and prosperity). Your advisor should be able to look at your portfolio and be able to tell you how you should expect to do under various economic scenarios. If you can’t find someone who can’t explain those relationships of asset performance on a historic basis you might as well keep plugging away yourself or go to Fidelity, Vanguard or some other mutual fund where they have do it yourself formulas for diversification.

Frankly, they aren’t all that bad…they’re based on history and give you something to start with if not use.

What you have to decide is how active you will be involved and how much you want to control (as well as how much risk you wish to assume).

There are no great secrets to investing; nothing works best all the time. However, if you know where you stand with regard to various economic developments and their impact on various investment categories you should be able to make better decisions as to what you want to do at a particular economic moment or financial period in your life.

I would have a feeling that a good attorney would be more valuable than a financial planner. Would those on this board agree?

You are kidding right? The last person you want to handle your money is an attorney, unless you are drawing up a trust/will.

Out of the attorney’s I know most are financially illiterate when it comes to investment vehicles. Not an exaggeration, I’m sure there are exceptions.

Go to a fee based planner or a trust company if you have the $$$.

“not attorney’s” sorry for the poor punctuation.

I agree about some Phd.s. I met some who are very arrogant but clueless. I met others who are humble and would never put a “Dr.” in front of their name. My ex-girlfriend has a Phd. She is very intelligent. Not clueless.

PHD Stands for PILE HIGHER & DEEPER.

Moral Hazard

Targeting asset prices is anathema to the current generation of monetary-policy guardians, who invoke the risk of moral hazard — the danger that investors will throw caution to the wind in the belief that central banks will always bail out their risky adventures by making money cheaper.

“I do want to emphasize that we have not shifted away from an inflation bias,” Bernanke told Congress. As the crisis engulfing the subprime mortgage market worsens and the contagion threatens the wider U.S. economy, though, the Fed chief may find he’s damned if he does cut, damned if he doesn’t.

PHD Stands for PILE HIGHER & DEEPER

Or as some of my liberal arts PhD friends call it when they’ve finally hit the job market looking for real work: “Post Hole Digger”

When I bought in ‘99 my realtor specifically refused to give ANY advice on my bid. In principle, the conflict of interest is so strong that’s a good policy.

Most answers to questions about the future are unknowable. An honest answer to such a question should be “I don’t know”.

But economists don’t get paid big bucks to answer a question with an “I don’t know”, thus we get stuck with hearing a load of BS from these guys.

Ah, incorrect assumptions! I like to explain it thus: The ancient Greeks had a model which explained that Helius (later Apollo) drove his fiery chariot across the sky every day and took it back to the stables at night to rest the horses. The model worked just fine: it predicted that the sun would rise and set every day with 100% accuracy. It was otherwise completely and utterly wrong as to causation, assumptions, and every other aspect of the model. It took over 1600 years to get a proper model based upon observation and science.

“And mathematical modeling of social systems is very difficult.”

Actually it’s impossible unless human behavior can be predicted with 100% accuracy. It can be correct 99% of the time, but that doesn’t make it a law.
No offense, but anyone who thinks modeling social systems is merely “difficult” is ignorant.

The model worked just fine: it predicted that the sun would rise and set every day with 100% accuracy. It was otherwise completely and utterly wrong as to causation, assumptions, and every other aspect of the model.

The convergence of Fourier series guarantees that with enough epicycles, Ptolemy’s model is “correct” in that it models with 100% accuracy. It is not, however, simple. With that said, I have colleagues that claim has been made (with some seriousness) that if the Greeks had computers we would never have switched to the Copernican model.

Models are about prediction and prediction only. You should take care to not talk about them in terms of “causality” as that implies some metaphysical truth. They provide no such thing. The Copernican model won out because of aesthetics (and Occam’s Razor), not truth.

To be fair to the Greeks, educated people during the height of Hellenic influence did not believe that fable about Helios. They believed that the Sun, as well as the Earth and all celestial bodies, was a perfect sphere, and nothing would shake them from that faith.

It took almost three thousand years for science to finally catch up and say, “Euuuu, no.”

Old adage applies: “Where you stand is influenced by where you sit.” [could we change to "where you get your paycheck?].

“Nonlinearity means that the act of playing the game has a way of changing the rules.” - James Gleick

“It is difficult to get a man to understand something when his salary depends on his not understanding it” — Sinclair Lewis

2 years ago when we on holiday in New Zealand, a young woman in her 20’s was shot and killed with a gun.

It was front page news in the national newspaper for 4 days running.

Obviously, life is very dangerous in New Zealand!

Thanks for the great info on Keisel.

PimpCo is right!

“Similarily, predicting at exactly what point an obviously unbalanced economy will melt down is also not possible.”

That’s right. And economists tend to be consistently early, exactly because they do see the imbalances well before they have registered on the radar screen for members of the general public.

So, pretty much, the entire nation will be giving their house back to the bank? Are you on medication?

It’s been a hidden secret, a shame really.

We’ve been living la 3rd world debt vida for a long time now.

There are more people involved than you’d ever know.

Houses=Piggy Banks

PV Tom…

Perhaps you can relate to this tale~

http://www.maxwelldemille.com/air-raid.asp

Not far away from you, in fact all around you, in early ‘42, el lay lost it’s mind.

16 inch shells fired from Fort MacArthur, aimed at nothing, blew out 100,000 windows in Long Beach.

History in which you can glean nothing good out of, is forgotten history.

aladinsane,
You may be right. Like others on here, I would never think of extracting money from my house to buy something, UNLESS it was to add to the value of the house (something I’ve been thinking about doing maybe 5-10 years down the line — put on an addition to expand the square footage).

I realize I am probably not a “typical” American though. I prefer to live within my means. I have a mortgage which was originally about 2x my income, and I really wouldn’t want to have it any higher than that.

It’s scary to think about how many people might have been using HELOCs to extract equity from their homes’ values.

Extracting money from a house is as “smart” as extracting money from your 401k to buy a house.

A buddy sent me a link about the wages having gone up 6 tenths of 1 percent in February. The article implied that it’s why the Fed this week did not seem to suggest rate cuts are in the near future. However the bottom of the aricle mentioned that February was the 23rd consecutive month that the average savings rate was negative. So Joe sixpack is still spending more than he’s earning. He took that 0.6% raise and spent it all, and borrowed beyond that.

I drive an 18 year old car to work every day. Of course, it does need some work now and then ($1500 or so a year), but it’s still running. However, of course I agree with you that financing it for 30 years would be moronic.

You’re right, I’m still working on the first million. But don’t misunderstand me, I have tremendous admiration for entrepreneurs. All I am saying is that at some point, the desire for industrious growth gets replaced with a more conservative desire to protect wealth. Maybe my belief in a satiation point is misplaced, but I do think the S curve representing the value of a dollar to an individual relative to net worth becomes asymptotic somewhere.

Great front page article in the WSJ Wednesday discussing exactly what you speak of. To expect the middle class to adapt to the new paradigm without a training period in excess of six months was pretty foolish in retrospect. Hell, anyone I knew who found themselves or industry’s shipped overseas ended up in the RE business! I think shortly we’ll find out the true cost of our rush to globalism.

They’ll need a lot more than six months. For starters, there won’t be much they can do without a college degree. Globalism will indeed pull down American wages unless we do something about it. Comparative advantage theory still applies, we just need to better identify what the remaining (or new) American comparative advantages are. Strangely enough, agriculture is one example.

I wish we had attempted Globalization with a fair playing field. The idea that the the playing field is fair because the free market place will set the rules is assanine (Free Trade/Fair Trade debate).

The lobbying groups and international policy have more to do with the trade laws than any market condition does. This is where the Globalist argument capitulates and thier Zero Sum Game fails miserablly.

The World’s standard of living is going up while the U.S. standard is going down. To believe that we all had to balance to eachother and that the U.S. would not have to retrace as the other economies rose was the worst kind of arragant thinking. The worst part is it has justbegun, I guess the good news is that if we have enough pain from Houseing that Joe and Mary Six Pack may actually start useing their voice again and take an interest in U.S. policy. I know,I know, kind of a crazy to think the sheeple would pay attention to their surroundings but hey im an optimist :).

A huge amount of time, effort and capital has been squandered in the last two bubble “circle jerks” that have not produced much if anything of value. Once we get back to trying to innovate our way to prosperity and happyness and stop trying to screw over our neighbors and countrymen (including women).

I am embarked on this course myself - working to invent and bring to market a new means of software and system integration. We try to create amazing systems for our customers at a very agressive price. So far its been enough to keep the doors open. I know several folks trying to innovate their way to success. I know far more who would rather screw over someone else for “free money”.

But all of this will change - it’s a big cycle and we are coming off one of the apex points in the “wrong” direction. Things will get better from here. (my outlook)

I agree…

Anybody with half a brain can see that we need to start over.

You’ve got that exactly right OCBear. The world does not have enough resources for 6.5B people to live like north americans. Once globalization reaches its end state, factory workers in Bangalore, Shanghai and Des Moines will have exactly the same standard of living. The Chindians will be better off and we will be worse off. I fear the social unrest that will come once the american working class realizes they’ve already been tossed over the side of the lifeboat.

People who talk about american workers just needing to “adapt” are living in a dream world. There is nothing unique or special about americans that guarantees that they will always be able to grab the lion’s share of the world’s resources. The chindians have abandoned their self-destructive politico-economic systems and are eating our lunch as fast as they can.

” I fear the social unrest that will come once the american working class realizes they’ve already been tossed over the side of the lifeboat.”

I agree but it’s not just the working class–add in the majority of the middle class. The housing implosion is what may alert folks to their changed situation. And with social unrest comes political unrest. A middle class majority provided the economic and political stabilty that will be increasingly absent in the future. A number of provisions under the Patriot Act could be used to quell domestic unrest, as well as using unchallenged executive privilege to sidestep the Constitution and Congress. There is no happy ending to this mess.

Thanks for closing my italics!

Reasonable people adapt themselves to the world. Unreasonable people attempt to adapt the world to themselves. All progress, therefore, depends on unreasonable people.
-George Bernard Shaw

It’s not that they all refuse to adapt it’s that we didn’t give them enough time to adapt. I’ve read all about your success as a consultant and I guess you can pat yourself on the back if you’d like. But don’t call all Americans “fat and lazy.” You haven’t done that well. Personally, I agree with all you say regarding the ability to adapt. It’s just that things are a whole lot more complicated than you make it sound…

I see that “Adapt” is the buzzword now being used to some up and somehow justify a failure to protect this country’s own industrial complex. So, it is basically the workers fault that they are fired and not adjusting to earning a fraction of their pay: How ridicules. Adapt from a high margin manufacturing economy to a low margin service industry and maintain consumer spending: very good.

Are you not able to see that stagnant wages are going to impact the economy as consumers have less to spend as normal inflation continues. You are part of the problem, not the solution.

PV Tom, thanks. I have accomplished more than my goals I set when I was 20 years old. So relative to my hierarchy of values, I am successful and that is what matters to me. I don’t give a hoot about your own evaluation of my success (or lack of). My point I wanted to convey was that there were two generations of people since the early 1960s when we got this big massive war on poverty program. That war is still continuing 1.5 trillion dollars later. So people had time to take the opportunities and educate themselves. Instead we had the LSD era. Minds were squandered. Not mine. I took the ball and ran. You make things seem more complicated than what they are (just throwing that back at ya).

“The middle class is dying because they refuse to adapt to the changes in the labor market.”

You make it sound like a steelworker could learn to write HTML or PHP code so easily. The problem is generational. In today’s information-based economy, we have nearly an entire generation of Americans who are literally afraid of the little beige box that sits underneath their desk.

I was writing HTML back in 1994. It’s no biggie. I don’t do that much anymore since that is not where I earn my money. My sister has a business degree and she taught herself HTML, web design, PHP, Flash. It’s a matter of taking the opportunities. I would not learn that stuff these days. I specialize in things that are not outsourced. If they do get outsourced, I will find something else. I bailed out of being a mortgage slave back in 1996. Back in the 1990s a colleague showed me an article about people in India doing what he and I were doing here in the USA. From then on, I worked to bail myself out of a mortgage without tarnishing my credit, then saved like crazy the last 11 years. Newspapers were full of information. Too bad most Americans were too busy getting hammered instead of reading the print of what’s happening outside the U.S. 11 years and Wham! We have free markets in China and India? They were headlong on the way to that in the mid-90s while American grasshoppers fiddled. And Now Jubak wrote a column yesterday saying we are giving them everything. Interestingly he did not talk about how we can compete - by drastically cutting entitlements - I mean RADICALLY. and then cut taxes to below Russia’s 13% flat income tax. The wussy way to compete is by protectionism, the same deal that got us into wars and the great depression. What did Santayana say?

I remember in the 1970s, when I was in college in New York, watching a TV program about laid off autoworkers in Detroit, one of the unemployed auto workers commented, “I gotta get me one o dem computer jobs”. Preparing him for a computer job would not just entail retraining, but reeducating and then retraining. The same problem exists today.

Nothing personal, but some of the most ignorant people I have ever met live in Arizona, especially in the Phoenix Metroplex. These people make moving society backward a virtue. I was transferred there, and thought it the most backward place I had ever lived. Arizona is locally known as the Mississippi of the West, although I now think it is more of an insult to Mississippi.

The, I don’t give a damn about anybody but “me” attitude in Arizona is a real problem. Of course, if many of them stopped listening to the Rush Limbaugh Comedy Show it might help.

Luckily, I was transferred out of Arizona and sold all my RE holdings in the state at the end of 2005 for a significant profit: all sold to California flippers who could not recoup the price they paid me if they sold today.

How some Americans have lost the true values of this country, and spout the opposite opinion of themselves, is beyond reason.

Another war has been continuing for only four years and is approaching a Trillion Dollars or more on deferred credit. The only thing this country will get from that is even more problems and deferred costs.

What a great discussion. This is why I love the HHB. I also feel that the American worker must Adapt if we are going to compete globally. That is why I encourage young people in the upper midwest and Rust Belt to move to warm employment centers. Inspector C. I agree with you that high paid professionals can be very happy and comfortable in the midwest. Your income puts you in the upper 1% of the area and you have wealth and respect. However, on the coasts, you become one of the masses. Fellow professionals are third generation in the same field with family trust funds of 8 figures. It is humiliating to live in a neighborhood with people of lesser pedigrees(education). (I must add that I am not in this position. If I had the Inspectors money I would throw mine away.) Happiness is determined by how you think you compare to the people around you.
We live in the Phoenix area and will use it as an example. Out of area flippers/investers(?) own an unbelieveable percentage of the houses in this place. This may be a good thing since good near new SFH’s are available to rent at reasonable costs. City leaders and ASU are constantly brainstorming to bring jobs to the area. A growing city has oppurtunities for new people that a tired older area does not. We need young people with a fire in their belly to move to areas of like minded people to keep this country competitive.

No American can adapt to 25-cent an hour wages. This is just some new justification to make a lot of people poor to benefit the few, and make some Americans believe it is just fine.

Arizona has been looking for a way to bring high paying jobs to the state for decades: they never have, they never will. The entire Arizona economy is fueled by construction and low wage jobs; it has been for 60 years.

The reality is that the climate is lousy in Maricopa and Pima counties, hot and humid for months, with a few exceptions like the desert plateau, but there are even fewer quality jobs there. There is no culture, no one has any roots, education levels are low, ignorance levels are high, the government is called a Kookocracy due to unusual legislation it produces, it is just not the kid of place an educated person would want to be, nor a place a blue collar worker can really afford.

Arizona continues to produce (60 years) a lot of low quality, low wage, and dead end jobs. Only now, at least since 2004, the housing is relatively expensive, and unaffordable with the low wages. Do you plan to by a $500K McMansion on your 25-cent an hour wage?

There is nothing to recommend this state to anyone.

The client I work for in Phoenix has been having a very tough time finding qualified engineers. The starting pay for those out of college is $80,000. Senior engineers earning well over $100,000. There are high paying jobs in Phoenix. Maybe you just have not hobnobbed with people in the right industries here. I was earning $60 per hour in 2000 in Phoenix. Then went to the east coast (same rate), then California and moved up to $70, then $83, and now back to Phoenix. I think you generalize too much. Some people really lay on the prejudice thick and dream up all sorts of untruths when they find one fact they hate about a person, place, or thing.

Find some more narrow anecdotes that you think somehow prove you uneducated and pedestrian general points. Clearly you are not able to understand the weaknesses of your arguments. So, I’m sure you will persist.

Bill, you’re just another Arizona idiot, only you are dumb enough to share your ignorance in a public forum.

The statements you make show your true colors. Especially the phrase “just another Arizona idiot.” I should not waste my time arguing with you on Ben’s blog. But I admit I complain about seeing a lot of meth addicts here and idiots who do not know what a turn signal lever is. But I get upset when people generalize others, based on observations of just a few. That is ignorance. I think there are redeeming qualities in all cities. It is either immature or stupid to knock an entire population just because of sampling a few people. What category do you fall under - immature or stupid? And I am a California native. Lived there 40 years of my 47. I love California and I love Arizona.

Good.

“Some people really lay on the prejudice thick and dream up all sorts of untruths when they find one fact they hate about a person, place, or thing.”

hey, you do this all the time. can’t you drop that “blame the lib” thingy?

I posted before that I am an extreme social liberal, probably much more so than you Jose. I happen to be an extreme fiscal coservative. There are many things Democrats are in favor of that I like. There are many things Republicans try to cram down our throats that I don’t like. You just haven’t read enough of my posts to understand my viewpoints - hint: google “the shortest political quiz.”

Frankly, there are several people on this blog, and Ben, himself, who live in Arizona. Tortius started off easy on Arizonans, then laid it on thick, insulting everyone of us, including Ben.

Wow, you said a mouthful there, and as a person who has a “hole in the resume” (self-inflicted), I also struggle with finding a permanent job because most places view me as over-qualified.

I think what you’ve summarized above, reflects the poor state that human resources has become in our corporate society today.

“Back in the day” story here, I have a friend who’s 57 now and chronically under- and unemployed. He had an undergraduate degree in linguistics from Tulane, then served in the Coast Guard during the Vietname War. He was hired (30 years ago) by an insurance company to become a mainframe programmer because they knew he had the requisite intelligence to learn how to program. So they taught him programming once he got on the job. He was a loyal employee of that company for 12 years (I’m not sure why he eventually moved on). The HR practices at that time encouraged these types of “creative” hires. But not anymore.

The scenario I briefly described above, could NEVER happen today. HR uses what I refer to as a “cookie cutter” approach to hiring (someone probably has a better metaphor for it, but that’s what I call it). They would rather go down to the local Technical college if they need a programmer (probably not mainframe anymore), and hire someone who has a 2-year associate’s degree. Or someone with a BS in information systems. But they WON’T hire someone and train them themselves. The problem is these people (pre-trained) have no job loyalty and generally leave after 2-3 years or less on the job.

OR, as alternatives and to prove how smart they are, the HR guy (or girl) in charge of MIS will source the whole department out, and use temporary and/or contract labor to run the whole department. No job loyalty there! Also, no benefits for the employee but that’s another story.

OR, if they’re a really sharp cookie, they’ll outsource the whole thing to some off-shore company in India, and they’ll run the whole thing from Bangalore. Then, when you need tech help with a system, you have to call India and speak to a guy named “Elvis” (not his real name, it’s just an English pseudonym that he selected because he thought “Elvis” was actually a first name used in America). The guy doesn’t really understand you when you speak, nor do you understand him. But that’s okay, because he’s only making $20k per year and he gets no benefits.

What a bunch of penny-pinching, greedy bastards Corporate America has become, with little or no regard for the people who do their work or the communities in which they reside. They do all this in the name of “competitiveness”, but really what they’re doing is ruining the moral and social fabric of the society in which they reside….

One of the problems here is that “HR” never used to be a career, until the late 80’s. But then managers decided that they wanted others to wrangle insurance companies and edit employee handbooks (hard to blame them), rather than do it themselves. Colleges followed suit and offered degrees in it, and employment became subject to professionally-credentialed bureaucrats.

That’s just an obscene analogy…

Like later dude…

There’s a gnarly no interest loan set coming up and I don’t want to miss it.

Serf’s Up!

Serf’s going to up for some time.

And you can see those sets here (CSFB’s “Exhibit 42: Adjustable Rate Mortgate Reset Schedule” (month 1 is January 2007; all the way to January 2013)):

http://bp2.blogger.com/_aYmx3hE2E8E/RgicK9AdWBI/AAAAAAAAAGg/9WZEReBoRbo/s1600-h/arm_resets.JPG

I’ve never been faithfully able to include the words “High End” and “Corona” in a sentence…

Until now.

So true PV TOM . I am finding myself lucky that the tract I bought into (a older tract ) does not have a high turnover and the investors ignored this tract in favor of new home projects . Still ,the prices have gone down in my tract because of the over all decline in the entire city area .

“Entire neighborhoods will not get hammered because of one forclosure. Older neighborhoods will have more stability due to the strength of the homeowners.”
Unless the older neighborhoods have been heloc’ed to the hilt to obtain sailboats, Hummers that don’t fit into the garages, and as down payments on spec properties.