Bits Bucket And Craigslist Finds For June 4, 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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http://www.nytimes.com/2007/06/02/business/02charts.html?_r=2&ref=business&oref=slogin&oref=slogin
Good article.
Note that the long housing downturn of the early to mid-1990s was not a bad time for the economy all told. Sure it clobbered the consumer economy of the coasts at first, but so did other thigns, and I think the 1980s boom actually did more damage by making people house poor.
A much bigger bust might make for a bad year or two, but it’s better than the alternative.
As the accompanying chart shows, that index also hit a peak in October 1989, and went into a decline that lasted a long time. It was not until January 1998 — 99 months later — that the index climbed above the 1989 peak.
Is the author illiterate? The accompanying chart shows nothing of the kind. What it does show, as the caption itself clearly indicates, is that the year-over-year CHANGE in the index did not reach its 1989 level again until 1998.
One would have to plot the integral of this curve to see how long it took for the price index itself to recover in nominal terms, and one would then have to adjust the plot to reflect inflation in order to make an apples-to-apples comparison.
In the areas of LA that I’m familiar with, 1989 prices were not reached until around 2000/2001. Over 10 years to reach peak prices again.
Difference is…they didn’t have nearly as many unqualified morons back then as they do today. Buyers actually put 20% down…and still lost their homes. They also had to document income, unless you had plenty of money in the bank (verified) or 25% down.
This time will be much, much worse, IMHO.
In the area of NoVA I’m familiar with, the peak was about 1989. Prices climbed above that peak by 1995 or ‘96.
I bought my condo in NOVA in 1998 for 25k less than the ‘89 peak price. In late 2000 units in my complex returned to the ‘89 peak price. By mid 2004 they had more than doubled he ‘89 peak price/2000 price. By Spring 2005 they jumped another 15% above the 2x ‘89/00 price. By Spring ‘06 they dropped back down to the 2x ‘89/00 price and they are waivering at that price point. Condo fee has doubled, and quality of the area has slipped, glad I sold and moved.
I guess you have pretty much concluded that no bailout of unqualified morons will pass through Congress or, if that fails, move forward anyway behind the backs of the media and the voters?
I just got a letter from Sen. Kyl. It was in response to the “no bailout” letter I had written earlier. He’s in agreement with my position.
If someone qualified for a loan on the basis of a teaser rate, but cannot afford a fully amortized payment, then there’s really no way to alter the loan terms to change the fundamental situation. I suspect that this is the case for nearly everyone facing foreclosure right now. At best, they might be able to hold on a little longer, but eventually they’re going to lose the house.
Moreover, in my opinion, even if we could wave a wand and everyone suddenly COULD afford their payment, now that prices aren’t going up anymore people are throwing away 2 to 3 times per month what it would cost to rent. The rational thing to do at that point is to walk away and rent instead. So this market is toast either way until prices and rents reach something resembling the historical norm.
“…then there’s really no way to alter the loan terms to change the fundamental situation.”
What’s to prevent a change of rules to allow this sort of forbearance?
What’s to prevent a change of rules to allow this sort of forbearance?
I don’t think I was as clear as I tried to be. What I meant was this: if a borrower owes a lender $500k, then that part is not going to change - the government isn’t going to wave a wand and say, sorry lender, the borrower now only owes you $250k. This would be outright theft and breach of contract, and I would think any court of law would overturn such a ruling.
So given the constraint that the borrower owes $500k, say on a house that’s now or soon to be worth $400k, one can only dance around the problem for so long before the borrower has to face the music and start repaying that $500k on some kind of schedule acceptable to the lender. As we’ve seen, even with 50-year or 100-year payback periods, the payments don’t go down much, because they asymptotically approach the interest-only payment. Many of these borrowers can’t even afford *that* at the actual interest rate (as opposed to teaser rate). So what wiggle room is left?
And for those who theoretically could afford a 50+ year mortgage, eventually they’re going to dimly recognize that they are essentially paying rent to the bank on a depreciating asset, whereas they could pay rent to a landlord for a fraction of the cost and none of the depreciation risk (or maintenance or property tax or any of the other headaches).
Another way I view the problem is this: many FB’s (at least in California) have borrowed 8-10 times their annual income, for example a $60k earner with a $500k house is quite typical. Once you take out all the other expenses a $60k earner has - income tax, car expenses, food, utilities, and the rest - what’s left won’t even total $500k during his entire working life, certainly not if he is also saving any money for retirement. So the situation is simply untenable in the long term. Eventually he will have to let the mortgage go, either by selling the house if he can, or otherwise by defaulting.
“So what wiggle room is left?”
One potential area of wiggle room is to offer FHA financing in the form of taxpayer-financed & guaranteed fixed rate loans at below-market rates to replace ARMs which have reset at household-budget-busting levels. This gets the lender and the FB off the hook by transferring the liability to the U.S. taxpayer.
I apologize in advance to the U.S. taxpayer if I have given any unscrupulous Congressmen a bright idea here.
“And for those who theoretically could afford a 50+ year mortgage, eventually they’re going to dimly recognize that they are essentially paying rent to the bank on a depreciating asset, whereas they could pay rent to a landlord for a fraction of the cost and none of the depreciation risk (or maintenance or property tax or any of the other headaches).”
And that is precisely what people should think about BEFORE buying the house.
“This gets the lender and the FB off the hook by transferring the liability to the U.S. taxpayer.”
I agree and hope they don’t do some kind of scheme like this. I don’t recall any kind of bailing out of the DOTCOM bust, and although this one is bigger in every sense of the term, I don’t expect an outpouring of sympathy to clean up the mess for many of the same people driving Hummers’ and complaining about $3.50/gal gas and spending $32/gal on Starbucks coffee!
“I don’t recall any kind of bailing out of the DOTCOM bust,…”
Key political difference: People of color are disproportionately represented in the borrower side of the subprime equation. If politicians (esp. D-crats) left matters entirely up to the market resolve the situation, the political fallout could be quite devastating. Of course, that would be poetically just, as D-crats were big supporters of these lending programs to help low income borrowers buy homes they cannot afford.
GS,
Unfortunately, I agree that the potential for a bailout attempt (failed though it may be), is rather large.
Watching like a hawk, hearing too much chatter, but seeing it die away for the most part. Been writing the pols and editors, and hoping beyond hope that the taxpayers do not have to take the hit for the FBs.
Lots of political pressure, I agree.
If politicians (esp. D-crats) left matters entirely up to the market resolve the situation, the political fallout could be quite devastating.
Not necessarily! If the market is clearly in the tank by mid-2008, they can blame Bush during the campaign, and make vague promises to fix things. Then once they are in office, they can do nothing until 2012, by which time there might be signs of life again in the housing market, at least on the national level. (I think California will still be stagnant at best at that point.)
CA renter,
One of the directors at my company just happened to be a manager out in LA in 88-89. He bought a house in Hunttington Beach right about then. The dude transferred/promoted within the company and ended up having the house as a rental until 2002 !!! He mentioned that him and the wife threw a huge party when they finally sold the place…I would hate to be upside down for 11/12/13 years on a place…
Chris
I would hate to be upside down for 11/12/13 years on a place…
And then to end up selling just before the largest appreciation in the history of California real estate! I hope his track record as a director of your company is better than as a real estate investor!
“And then to end up selling just before the largest appreciation in the history of California real estate!”
Don’t confuse luck with skill.
Reminds me of a former manager, who drained $75,000 out of a 401(K) to purchase an investment property (McMansion) in Wesley Chapel, FL, a snotty, distant exurb of Tampa.
Also, the emphasis on comparing year-over-year changes in the index for this bust versus the last one masks the HUGE factor (unmentioned in the article) that this time around, house prices doubled or tripled over a 7-year period in most of the markets under examination.
This is completely without precedent and would have been obvious if they had plotted the index itself, rather than the delta index, over the past 20+ years.
It’s almost as though the author were deliberately trying to distract the reader from the elephant in the bedroom.
I agree. The charts at the bottom comparing the progress of the two recent downturns are interesting, but the right “main” chart would’ve been Shiller’s familiar long-term chart with the bizarre-looking runup 2000-2006. Maybe just not “newsy” enough for this reporter.
Another thing about the graph. Even though the downturn can last years. And some here correctly feel this bust could last a decade. The biggest drop comes early on and relatively quickly. While the true bottom might take years, prices reach near bottom within 18 months. This was also true of Japan,s bust.
Chinese Stocks Tumble 8.3 Percent.
http://biz.yahoo.com/ap/070604/china_markets.html?.v=4
via Hussman
guy tells his broker to buy a stock at $5. “Buy as much as you can.” The next day the broker calls back and says the stock is at 6. The guy says “keep buying.” The next day the broker says “the stock is at 7, do you want to sell?” The guy says “keep buying.”
Finally, the guy calls his broker and says, “Sell everything at 9.” The broker says “to who?”
I’d feel good about it if Europe was tanking. Nevertheless, this will hit our market at some point.
exactly, no matter what news from the US these days, EU markets keep rocketing higher; the credit bubble is still growing. And of course, real estate is still doing well in Europe too, with yoy increases in the 6-10% range in most countries (and much higher in newer EU member states). Keep in mind that official inflation in Europe is 1-2% and rates on savings accounts or deposits are usually between 1.5 and 3.5%.
I do hear a bit more complaining from realtors and their customers about homes that are not selling, and some realtors are now saying that it is ‘a buyers market’, but what can you expect with prices that are 500-1000% higher than 15 years ago … something has to give.
This means it’s never been a better time to buy stock.
“This means it’s never been a better time to buy stock”.
I am buying every Chinese stock I can as soon as I sell my Tulip Bulbs, my Beanie Baby dolls, my Dot Com stocks, and my south Florida CondoHotels.
You’d better hurry and snap up all the plummeting Chinese stock shares you can leverage yourself to afford before private equity and hedge funds beat you to the punch.
This drop, AND another 10-15% drop, is already priced in to the US market.
Chinese govt has been doing everything in its power to cool their equities market. This has been known for some time. I can’t honestly think of a single investor who is either surprised or concerned about these drops.
With China it is “different” somewhat this time because:
1. foreigners can’t invest there.
2. they can’t invest here.
3. their market is strictly controlled and everybody knows this.
4. their market often has little to do with their economy. (it is even less correlated than our economy is with the Dow).
In many ways, this will come as a relief to many investors. If China can cool its equities market, then they can go back to business as usual- the peg.
IF they can’t cool the equities markets: then the peg will need to be dropped sooner, which will end the little game we’ve all been playing the last decade or so.
the US stock market will fall… once the spigot of money is turned off. Not a second before. M3 is going up day after day after day. That money has to go somewhere.
Could there be some connection between this and China’s current heavy military build-up that Gates (Sec Def) is so concerned about? LMAO! I’ve heard of collection agencies, but this is ridiculous!
“1. foreigners can’t invest there.”
My neighbor will be surprised to hear this. He works for a hedge fund. Part of his job consists of making fairly regular visits to China in order to negotiate real estate purchases for U.S. clients.
Sorry: I should clarify:
Foreigners cannot own “A” class shares in the Chinese stock market. Therefore, the gyrations of the Chinese stock market are less correlated with ours, as non-Chinese ownership of those equities is not allowed.
Thanks — that is comforting. I guess the U.S. and Chinese markets are completely uncorrelated then. (Never mind the symbiosis, w/growing currency imbalance…)
GS:
That’s not what I’m saying and you know it.
The biggest threat to the symbiosis at this point is that the Shanghai Stock Exchange is going into “meltup” as they call it. If this continues, the Chinese will be FORCED to break the peg: thus symbiosis is dead.
Both economies want this symbiosis at this time, thus breaking the peg is “bad” for them.
(it is of course a “good thing” from your and my point of view to break the peg, to kill this unholy situation, but we are peons who do not matter).
You can’t have it both ways. If you believe that the Chinese Stock Exchange is a good indicator of the Chinese economy, then you must also agree that the US stock exchange is a good indicator of the US Economy.
I personally believe that the DOW has little to do with the health of the American Economy for various reasons (the # of people who participate in equities, the net worth of those who participate vs those who don’t, the role of the institutional investors and hedgies, direct manipulation by the govt. to name a few).
I believe that the health of the shanghai composite is similarly disconnected from underlying chinese economy, EXCEPT for the fact that the dollars flowing into their economy are being cycled through their stock exchange causing the meltup effect. this cannot be allowed.
However, I see little money that is involved with BOTH the US and the Chinese Stock markets, as the key players are DIFFERENT in both groups.
The cause for the meltup in the Chinese market is the imbalance of trade and the peg. The cause for the US equities rise is increased M3 and flight of money from RE to Equities.
I am not arguing that the DOW/S&P are “fair valued”. I am arguing that their correlation with the Shangai is much weaker than that of other markets, due to the unique rules of the Shangai market (such as no foreign ownership of A shares)
“GS:
That’s not what I’m saying and you know it.”
Please don’t take offense. I sometimes throw out comments to elicit further discussion. I appreciate your posts.
GS
thanks GS… none taken.
“I sometimes throw out comments to elicit further discussion. I appreciate your posts.”
The signs of a good conversationalist who provokes thought. Good job.
IMHO Chinese stock market rising is not due to Chinese foreign reserves being put into play in the Chinese stocks.. nor due to the US dollar - RMB peg rate. It’s a known fact that the Chinese have a 50% saving rate and most of that is kept in local low interest bank accounts. Until the recent stock market upturn about 3 years ago most locals didn’t even know what the stock market was. This sudden mass plunge into equities reflects a overdue financial market maturing process. The Chinese bubble is just warming up.
Would “everything within their power” include allowing a true float of the renminbi?
The Chinese will break their peg ONLY when they feel that they have sufficient in-country demand to replace the American consumer, and keep their economy growing. not a second before.
The Chinese NEED the peg to keep their economy chugging, to keep the peasants from rioting (at least, keep them from rioting more than the 100’s of thousands of riots they already do)
The US NEEDS the peg to pretend to be rich, so that we can buy cheap stuff and feel rich… thus lulling the populace into feeling wealthy and keep them from realizing that they’re getting poorer and poorer. IT’s the same reason we’re trying to import cheap labor from Mexico.
This is why the Shanghai composite rising is China’s #1 threat right now. The Chinese govt cannot let it continue (or they’ll be forced to prematurely break the peg). They have done a lot to try to reign the Shanghai in, and finally they MAY have succeeded. the trick: did they go too far?????
this is why you’re not seeing investors get too rattled in the States… The drop in the Shanghai is seen as a GOOD and NEEDED correction. And it has been expected for months.
Instant credit! Boy what a mess is brewing.
http://biz.yahoo.com/ap/070603/cash_for_credit.html?.v=9
These people paying $900 for this “service” are morons. I know a lawyer who can get you these accounts for $200/tradeline. I agree though that it’s scuzzy but also find it funny that people have found a way to game the FICO system. Should undermine it eventually.
BTW, it usually takes at least 45-60 days for one of these tradelines to appear on your record so it isn’t exactly “instant” credit.
Judging by the article, the 45-60 day rule would apply to deleting tradelines(which I do agree with), now when it comes to adding tradelines (authorized users) it remains on your file forever and the tradeline is used to compute your score. I’ve seen this happen so many times working for a credit bureau. If a person has too many tradelines it can be likely to miss a trade (account) that would be a authorized user. I knew eventually that this loop hole would eventually be exposed.
10 to 20% is coming, the only cure
10 to 20% what?
I think he means 10 to 20% of a complete sentence will be the only cure to his posts.
LOL!
“find it funny that people have found a way to game the FICO system. Should undermine it eventually.”
I find it funny, too. I especially find it funny when those who protest the most are those who are making hay with their own gamed system. When someone games the gamers, I love it.
Well yeah. I would argue that for the most part only morons NEED this service.
“Company upgrades credit score accuracy”
http://www.fortwayne.com/mld/journalgazette/business/17321350.htm
Incredible. Almost everyday I become more cynical and disillusioned, but this just pisses me off. Makes me want to become a cyber-vigilante to bring down websites like that.
Funny you say that as I went to check out the site and it is down.
This is just wrong on so many levels.
The ironic thing is - Fair Isaac as a *very* large vested interest in not letting this happen. I’m sure the lending agencies pay a fair amount to acquire credit scores - if these scores are now suspect many will cease to do so, and Fair Isaac’s revenue stream will plummet. Good to see that they’re apparently doing something about it.
Considering the many people who have been made miserable by identity theft and other glitches that can mess with a good credit score (which can take years of misery and effort to fix), if “UnFair” Isaac gets boned, good on ‘em. As long as their revenue stream wasn’t affected, little did anyone care about how ID theft and bogus reporting screwed with the lives of people and no one bothered to fix the system. Oh, but now that it directly affects “UnFair” and other entities that make hay off this, folks are up on their hind legs braying like donkeys for regulation. I’m shocked, I tell you, shocked! Oh, the “UnFairness” of it all.
If you indeed are a victim of identity theft I’m pretty sure that they provide ways to restore your score - i.e. ways to remove the negative parts caused by the theft. I don’t have the info in front of me but I remember reading it.
Granted I’m sure it’s a royal pain but probably do-able. In this case and most others I’m sure the primary driver isn’t wanting to restore their credit due to identity theft but rather to have access to credit that they otherwise should not have.
Oh, sure, they provide ways to restore your credit score, if you’ve got a good 1-5 years to dick around every day, calling people, writing letters, being frustrated, ignored, etc. Not to mention fielding vicious collection calls. And if it gets really bad (as if that wasn’t bad enough) and you can get hold of a sympathetic ear, Social Security will actually issue you a whole new number.
There are no real protections for consumers against this and it is becoming more prevalent. And the entities involved in the system really couldn’t care less. But, oh, as soon as it affects them, the horror of it all.
It’s like the pharmaceutical companies that scream about free markets, but want Americans to be locked up if they dare to purchase medicines in Cananda.
There are many cases where people have had to sue both the CRAs and the various scumbags who report to them. I’ve seen six figure recoveries but it is a long and arduous process.
See http://www.myfaircredit.org
Testify, txchick. In the interest of full disclosure, I have not (to my knowledge) had an identity theft. But I know two people who have and I also watch the news stories about it. People’s lives are literally shredded. The way they are treated by the system is disgusting.
So, if various entities who made hay off the system get boned, I’m breaking out the bubbly.
Hey, where’s Brother Sammy? I propose we have Schadenfreude Parties.
Took me over 4 years to clear my credit from id theft - got a new ssn, and the fraud transferred to the new # ….my credit was ruined for years, and the criminal was never caught … absolutely no protection for consumers/victims …
They make money because there is a correlation between the score and paying bills. It seems like Alt-A may be showing cracks in this correlation. They need to act before there is no more correlation between credit score and paying bills. (Unless credit renting becomes so prevalent that score to payment becomes a negative correlation, then they can just apply a minus sign in a revised formula ;))
I read this article yesterday. I was wondering - if you gave someone access to your account for credit score purposes, then can’t they call the bank and request a card. The person with bad credit can then go shopping on your dine.
Exactly.
I might consider “renting” my credit if there was someway to guarantee that the renter couldn’t actually access any of my credit lines. But I’m not going to expose myself to greater chance of identity theft for just $150, especially when adding them would probably eliminate most of the ID theft protections available, limited as they are.
What I want to know is, when will someone come up with a way for people to “rent out” their American citizenship?
You mean the “marriage of convenience” loophole?
It’s called a green card marriage. They busted a big ring operating in Arlington VA last year.
In the declining days of the Roman Empire, such things were perfectly legal and quite profitable for families who needed the income. The Roman Citizenship was a commodity to be bought and sold.
Unlike Rome, however, US CONgress and the administration has managed to completely degrade and devalue US citizenship into a liability.
Instantcreditbuilders.com, or ICB, helped Estruch boost his score by arranging for him to be added as an authorized user on several credit cards of people with stellar credit who were paid to allow this coattailing. Parents also use this practice when they add their children to their credit cards to help them build solid credit.
This works great until the parent stops paying the bills, thereby trashing the “child”’s credit rating as well as his/her own. This happened to my sister years ago, and I too was being dragged down until I hired a lawyer to force the credit card company in question to remove me as an “authorized user” (I had been added as one while still a university student) - and the only reason they backed down is because I never signed anything permitting such authorization. My sister wasn’t so lucky.
This company, however, seems to be paying people to add random strangers as authorized users on their accounts. Why would anyone in his right mind consent to that?
“Instead of spending several years repairing his credit rating, which he said was marred by two forgotten cell phone bills and identity theft, the 37-year-old real estate agent paid $1,800 to an Internet-based company to bump up his score almost overnight.”
Are mortgage lenders still turning a blind eye to fraud these days?
Of course they are GS… i find it funny that people are all up in arms about this article. let me be the first to say that’s not even the tip of the iceberg for manipulating FICO scores, hell the y haven’t even scatched the surface. The whole reporting system is the biggest con on earth. I’m surprised places like TU, Equifax and others are still in business.
“I’m surprised places like TU, Equifax and others are still in business.”
This infuriates me. Equifax et al could end much identity theft, but it would cut into their profit. How hard could it be for them to allow you (for free) to add an annotation that tells any CC company that you do not want any cards issued in your name? Why can’t they send you an email every time there is an enquiry on your account? Instead, THEY are the ones who facilitate card issuing AND THEN they want to charge you a big fee to ‘monitor’ any activity in your account. They are using identity theft as an addition to their profits.
Forbes Magazine
Paper Chase
Friday June 1, 12:42 pm ET
By Bernard Condon
You’re in luck. Your mortgage lender has flipped, sliced and diced your loan–and now no one knows who holds it.
In 2006 Michelle Tucker, a 35-year-old UPS package processor and mother of two, was hit by a one-two punch. Her husband had surgery on his shoulder and was forced to stop taking construction jobs around town that helped pay the bills. Worse, the adjustable mortgage with the low teaser rate she took out on her three-bedroom home in Jacksonville, Fla. adjusted, now to 10%, nearly double her old rate. She defaulted. Soon after, the lender filed suit to foreclose.
Something’s not right there - why does it state only that *she* was hit by a one-two-punch? Why not both of them?
Sorry this may sound cynical and cold but - that’s what rainy-day savings are for. Long-term disability should pick up most of the slack - if your company doesn’t provide it, and you haven’t saved up enough $$ to afford to take some time off work, then you shouldn’t be buying a house - especially one with an ARM that adjusts to 10%.
We’re all on your side, packman. These sob stories are so familiar from [rags like] the L.A. Times. Wonder why Forbes is running them? (No longer a subscriber, don’t know what the point of the rest of the article was.)
Actually read the article:
the article isn’t about her sob story, rather that the owner of the mortgage CAN”T evict her based on a technicality.
One sentence later in the article:
“She defaulted. Soon after, the lender filed suit to foreclose. Then a stroke of luck: A Legal Aid lawyer, April Charney, got the foreclosure withdrawn after discovering that the company that filed to foreclose didn’t own the Tuckers’ loan.”
Yeah I was more just responding the situation they allowed themselves to be in, and the weird statement presenting only her as the foreclosee, than the general gist of the article.
Look at the link.
http://newjersey.craigslist.org/rfs/344010826.html
What do you guys think?
If they’ve got to flog them on Craigslist in this risk hungry environment, that tells you all you want to know.
Did you save it before it was deleted?
Flagged for removal.
email this posting to a friend
REAL ESTATE NOTES FOR SALE — 38% - 60% LTV!
Reply to: hous-344010826@craigslist.org
Date: 2007-06-03, 2:36PM EDT
We have pools of notes worth $24m for only $6m. They are performing and non-performing notes. Please e-mail me your contact # for more info. Thanks.
* it’s NOT ok to contact this poster with services or other commercial interests
Well, I’d be happy to sell $24K of perfectly performing 9% notes for only $30K. [yellow smily face] Jeez, does the “m” in the CL ad mean millions? So weird that someone is hawking 24-million-dollar “securities” on CL !!!
So do these ads tell us the values of the collateral are much lower than they appear?
What was it??
I wonder how long until we see these types of things on eBay.
I have the side of my basement wall papered with BRE-X shares. What’s the color of these “certificates”?
LEND bought for $15/share by private equity firm.
Who says the bubble is dead. And who was it that wanted to keep shorting subprime lenders?
Wow - talk about throwing good money after bad.
So question - presumably shorted positions are forced to cover when this happens right?
(No I haven’t shorted LEND or any other subprime, but I do have some shorts on builders and CFC)
I have short positions on CFC and AHM.
Who says the bubble is dead. And who was it that wanted to keep shorting subprime lenders?
no kidding. Until the credit dries up, I wouldn’t dare short ANYTHING.
Up above someone posted about China possibly bringing our markets down. I doubt this.
what will bring our market crashing downwards in a hurry will be a reversal in credit.
One thing that could trigger this would be if the 10 yr treasury gets and stays above 5%. That is what most of Wall St. is truly worried about…
I’d say that like the bubble itself, the bursting of the bubble will manifest itself in different areas around the country at different time offsets, in some cases as much as 2-3 years. Areas like western FL and San Diego are getting hit hardest first, whereas other areas like NC, NY, Miami, etc. are lagging quite a bit. Likewise the credit bubble is doing the same for various geographic areas and credit types.
What this means is that this whole thing is going to drag out a lot longer than most expect, with a lot of localized and a lot of subtle “dead cat bounces”. For this reason I’m “long” on my shorts - I think many of the real-estate-based companies will have a long and painful fall in stock prices, unlike the tech stocks of 2000/2001. That’s really why I ask my question (unanswered yet) about public companies who get bought by private equity firms - if the shorts are forced to cover then that blows the whole “long short” thing for that stock. Also I’m curious about the same question if a public company is bought by another public company - do the short positions translate into short positions for the buying company, or are the shorts forced to cover?
outside the US the credit bubble is still growing, probably faster than ever before. And even in the US, maybe the party that is going on in financial markets is more than enough compensation for the credit crunch in the housing market.
In the Netherlands many households lost huge amounts of money after the 2000 stock market bust (Dutch stock market lost about 70% from the top). But the average household more than made up for this with stellar gains on the value of their homes after 2000. It all looks very much like a deliberate attempt by the new ECB to inflate away all market risk. Now that home prices are no longer growing at double-digit rates in Europe, the stock market is on a tear again (many EU markets have gained 20-30% yoy for the last five years).
Maybe the FED has decided that now is a good time for switching from home equity gains to stock equity gains?
IT’S OFFICICIAL!!! Minto Homes has advertised homes in Olympia for “2004″ prices. After a little research, the starting price of these bunch is really in 2003 mode. Since the place didn’t exist pre 2002 I wonder what they’ll advertise when they drop prices further.
“Minto Homes”
Wow, are they still around?
Look at this,
Do you think it is legit?
http://newjersey.craigslist.org/rfs/343354316.html
Whether it is or isn’t the price is still not right. With all the units rented the owner should be able to cover costs and put something in the bank, these rents are not going to cover the costs for that price when you add taxes and insurance.
It’s probably really for sale. Price seems a little high. You might get shot collecting the rent. That’s a very rough hood! They have billboards there asking for people to stop the killings in Newark.
Probably, but it’s in Newark. If you have a flak jacket and only collect rents during the daytime, you’ll probably be okay.
Ride with a realtor and leave them in the car alone out front ;), then leave by the back.
Number of unprofitable WI savings banks tops 21% for first quarter:
The number of unprofitable banks in Wisconsin jumped in the first quarter, part of a national trend in which a challenging interest rate environment and lagging mortgage market are squeezing bank earnings.
http://www.jsonline.com/story/index.aspx?id=613610
Good news elsewhere, but still waiting and watching in Brooklyn. Downstairs neighbor at condo where I rent just put his smallish, 1st-floor 2-bedroom on the market for (egads) $789K. Same sort of unit on 3rd floor where I rent was asking $725K last spring. This is in Carroll Gardens and NOT in the good school district.
How much could you rent said apt. for? Well, we’re paying $2500, lol.
joe stop throwing your money away and buy that apartment and build some equity!
sincerly joe realtor
Might be slightly cheaper to be priced out forever.
My dad has a eight family on President st & Clinton st where some tenents are there since the 70’s & 80’s ( rent stabilized) paying paying six hundred a month . Do you think they are going to buy soon?
Debthater, Great for them, sucks for your dad. The gross inequality in the city can make you a tad cynical, eh? When we owned in a co-op on the West Side a few years ago, there were a couple of rent-controlled tenants on our floor. They were paying about $250! And were waltzing out the door everyday in fur coats, etc. Nope, don’t think they’re sweating the market either.
Now we live on President as well, a few blocks east. And have seen a couple of crude, handwritten FSBO signs on a couple of townhouses on the street in last few days. Think the word is out, despite the kool-aid still being swigged, that it’s last call for cashing out on top.
Or so we hope. Twins getting bigger, another on the way, and right now the dream of owning a 3-bedroom abode is still an impossible one, despite income in top 10% and some savings. Well, we all know it’s nuts …
Great for them, sucks for your dad! I live on President down near Bond … and walking up the street the past few days I’ve seen a couple of crude, FSBO signs, hunting for “pre-approved” suckers. Think the word is finally out, despite kool-aid still being swigged, that it’s last call for cashing out on top.
As for those renters … damn, I remember a couple on our floor in co-op we owned on West Side before we procreated and got banished to Brooklyn. These folks were old-time rent-control … I’d see them waltzing out the door in fur coats everyday. They paid about $250 a month! They sure don’t need to read this blog.
You’re gonna love this one:
http://www.southflorida.com/news/bal-flip0604,0,3226880.story?coll=sfla-entertainment-headlines
I once saw an episode with that guy. You could tell from the first minute that he was full of cr@p. Just talking too much about himself and how “successful” he was. He was embarrassing.
There is a big auction in Sacramento at the end of the month. US Home Auction.com Advertised “opening bid” prices are 50% of 2005-2006 selling prices. That seems interesting until you look further.
Buried deep in the auction terms and conditions, you will find there are undisclosed reserve prices. Plus this: The Auctioneer may open bidding on any Property by placing a bid on behalf of the Seller. The Auctioneer may further bid on behalf of the Seller, up to the amount of the Reserve Price, by placing successive or consecutive bids for a Property, or by placing bids in response to other bidders. If no bidders meet the Reserve Price, the Seller is under no obligation to sell the Property.
This is the same group that had the San Diego auction last month. It is not an auction. It is a “test market or greater fools bidding event”. There is no downside risk for the lenders selling these properties. What a joke. There will be open bidding by the sellers against the bidding buyers.
Many auctions have reserve prices, the scamsters latched onto the game about 20 years ago, in a big way…
The flavor of auction making the rounds in attempts to sell houses is no different than the flimflan motor city used to do, enticing people to buy chariots, such as:
rebate
0% financing
cars @ employee cost…
Shills Happen
aladinsane,
You may be missing the most important point. The auction house, on behalf of the seller, will open the bidding and keep bidding against the buyers until the reserve is reached. There is no indication of what the reserve prices are. Calling this an auction is rediculous. It is a one day “come and hope our reserve prices are low” selling gimmick. It is just another flim flam method to sell houses, just like the sub prime BS.
It’s just another fancy way of saying it’s indeed a “reserved” auction…
Every last one of these events that has inventory straight from the home builders, is more than likely the very same gig,
Mission Statement:
We the house builders of our country, will do anything, by any means possible, to get rid of our inventory.
Is that legal? I remember reading about a similar scheme in Australia (where most house sales are auctions). The government cracked down on it, some auctioneers lost their license and got fined. It would be fairly easy to recognize the 3-4 straw men, wouldn’t it?
They actually stipulated in their terms that yes, they’ll be shilling the prices upwards, to get the desired result…
Good western novel from the early 60’s about a Yankee who almost got lynched after talking a trail boss into trying a new fangled “sealed bids auction” for the herd. (Best offer made in an envelope, ny high noon.) They got a good deal and were happy, but then the local bad guy walked in just after the bidding was closed with 20% more in gold dust. Hence the threatened lynching ;0 To make a short novel instant, the bad guy was lying anyway.
Moral of the story: More ropes and sealed bids are needed
Accredited Home Lenders to Be Sold to Private Equity Company for $400 Million
Lone Star will pay $15.10 per share for the company, a 10 percent premium over the stock’s closing price of $13.76 on Friday.
http://biz.yahoo.com/ap/070604/accredited_home_lenders_lone_star_fund.html?.v=1
Right, posted by txchick57 about 2 hours earlier, see above. I know, I know, you were so excited you skimmed everyone else’s posts … !
Doesn’t it seem premature for all of these “private equity firms” to be “snapping up” subprime lenders, before anyone has even had a chance to assess the damage of the subprime collapse? It reminds me of promises to commit $200b into rebuilding NOLA in the days following Hurricane Katrina.
It seems like a smarter plan would be to first figure out the ultimate damage tab before getting bailouts underway, but I suppose there is some advantage to keeping these behind-the-scenes-efforts to shore up subprime out of the MSM’s probing eye.
P.S. Before someone accuses me of tinfoil-hat theorizing, let me cut you off by mentioning that I already know this is a tinfoil-hat theory. I just tossed it out there to reflect the considerable risk of behind-the-scenes manipulation in a world full of lazy thinkers who assume away such possibilities a priori.
Hrm, how bizarre, guess the chuckleheads at Farallon are grateful to get this implosion waiting to happen off their books… and at a decent value no less. Amazing.
“MSM’s probing eye” is parked outside a jail in LA tonight, so it’s OK.
this is a big FATTY MCFAT TAX DODGE.
Private equity rolls up a huge money loser to offset major gains elsewhere……
Pretty funny that they are worth more dead…
I had an intersting experience this weekend. I got home from work and there was a sign on my door saying the city had turned off my water for non-payment. Since I’ve never been late a day with payments I called the city and demanded to know what the hell happened. It turns out they made a mistake, it should have been the house next door. They were at my house 20 minutes later to turn my water on and offer profuse appologies. Then they went next door and turned the water off.
The people who own the house next door moved to Florida a year ago and have been renting it out after they could not sell it for what they owed (serial refier’s). They bought a house in Florida and have been carrying two mortgages ever since.
The poor unsuspecting renters could not get ahold of the homeowners and were forced to pay the bill themeselves in order to get the water turned back on. Now they are wondering what the hell happened. We had a conversation about the housing bubble, but since I live in an area that is still appreciating they couldn’t believe something like this could happen. Then we had a short conversation about using the home as an atm and suddenly the light dawned. They are planning to find a new place to rent as soon as possible.
Multiply that by the 100,000’s and we just might see this…
http://www.imf.org/external/pubs/ft/fandd/2000/03/jarvis.htm
The United States of Pyramid Schemery
Don’t be ridiculous. To create a climate more conducive to pyramid schemery in the US, you would have to reduce the financial sophistication of the country by a large amount, perhaps by recruiting millions of less sophisticated buyers and their large extended families and helicopter drop-kicking them into the inflated middle class then…
Um, forget I said anything.
Good article, thanks. (Except for that last upbeat part about the ever vigilant World Bank under Paul Wolfowitz’s successor being there to save the poor fraud victims.)
Make sure you go over and advise them not to make any further rent payments. Let the assh*les sue them for it. Hopefully they can spend another few months at the landlords expense. Two can play the “not paying the bills” game.
I posted this yesterday but I can’t find it. I’ll post it again here.
Here is an analysis from a George Mason University professor on the prediction of housing for the DC area in 50 years….
http://www.wtopnews.com/?nid=30&sid=1153917
Even more frightening is the fact that the numbers are based on the current market, taking into account the trend of home prices generally doubling every 10 years and growing by about 7.2 percent annually.
So, who would take a small period of extraodinary (unsustainable) growth and project that out 50 years? And this guy considers himself an academic.
Notice, “If the current trend continues”. If the trend changes, thats his way out. Beside that in two or three years who is going to remember what this guy said.
George Mason = republican cheerleaders
I know that the housing bubble is an equal opportunity bubble, but you really can’t take seriously anything coming out of George Mason that could possibly be considered boosterism for big business. And remember, researchers need grants. Academic salaries don’t buy McMansions.
From the news story:
Fuller believes the best way to combat the issue is to develop better policies that affect home prices, and gain a better understanding of affordable housing.
If that doesn’t happen, the housing market may get out of hand.
Hehehe… “better policies that affect home prices.” The academic’s solution to a problem is always more policies based on his/her prejudice.
The 8% overnight drop in Shanghai shares is bullish news for U.S. stock market investors. After all, recent experience has taught us that the U.S. headline indexes always go up, especially during the near-term period following precipitous sell-offs abroad. The smart money will pile into U.S. shares during the day today, as stocks love to climb a wall of worry. Higher headline index levels by day’s end are pretty much in the bag.
MARKET SNAPSHOT
Stocks drop after Shanghai stumble
Bond yields approach 5%, challenging the appeal of stocks
By Nick Godt, MarketWatch
Last Update: 10:50 AM ET Jun 4, 2007
NEW YORK (MarketWatch) — U.S. stocks dropped on Monday, as investors took news of another overnight stumble in the Shanghai stock market in stride, but cautiously monitored rising bond yields, which challenged the appeal of risk-taking in stocks.
…
Blasé about Shanghai?
The mild dip in U.S. trading signaled that investors aren’t overly worried about yet another stumble in the Shanghai stock market. In spite of an 8% battering in Shanghai, other Asian markets recovered, including the Hang Seng in Hong Kong and the Nikkei in Tokyo.
A tumble in the Chinese stock market last week was followed by rally on Wall Street the next day. When Shanghai fell sharply in late February, the Dow industrials had plunged 416 points.
http://www.marketwatch.com/tools/marketsummary/
I think the bigger threat (to the bulls) is the 10 yr treasury yield.
The Shanghai composite drop has been priced in already. In fact, people are EXPECTING another 10-15% drop from here. In fact, people are breathing a sigh of relief that the Chinese govt has finally managed to get their stock market under control… hence they can keep their peg.
One problem to the plan: the 8% or so drop was partially that low due to a rule that doesn’t allow any stock to drop more than 10% per day. So it was artificially held at an 8% drop. We’ll see if this continues day after day. If the Shanghai drops more than 15% from where it is now, THEN I can see some concern/contagion occuring.
however, the 10 yr treasury yield is what has all the traders and Squawk box etc all riled up. If it stays above 5%, then we will see an attractive competitor to the equities market. (the bond market). That could do some serious damage to the US Stock Markets… it could collapse the expanding debt ponzi scheme that has taken hold of our economy… this could bring the house of cards down.
If the PPT is as powerful as people claim, they will buy up those Treasuries like no man’s business to raise the price and drop their yield.
A 10 yr yield of 4.75% would fit in with the Goldilocks FANTASY. A sustained 10 yr yield of 5.05% would fit with the Bear’s REALITY.
of course, the real problem with the 5% Treasury yield is that the FCBs are diversifying OUT of Treasuries (thus their price drops, their yield goes up) which is an onerous situation indeed.
it severely hampers the ability of the Fed to DROP interest rates to save housing. If they do, we will have an even more inverted yield curve, and the dollar will tank.
The Fed will of course hold interest rates as long as possible. If they drop, the curve inverts, inflation fears go hyperbolic, down with the economy, and housing isn’t saved anyway.
if they raise, housing tanks, we hit official recession. this is of course what is needed, but the Fed fears deflation.
thus, they will hold. and perhaps buy Treasuries behind the scene… and perhaps try to convince the FCBs to start buying again. One way to do this would be to plead with the Eurozone and the BOE to drop their rates.
“I think the bigger threat (to the bulls) is the 10 yr treasury yield.”
That is the reason I suspect the Fed’s traditional role of only controlling interest rates at the shortest end of the yield curve (Fed Funds Rate = bank-to-bank overnight lending rate) has been extended to the full duration spectrum. If the 10 yr yields were allowed to fully adjust upward to the market’s preferred inflation risk premium, all hell would break loose.
is it FED or is the china etc recycling into treasuries?
the cycle will inevitably break, but when?
“A sustained 10 yr yield of 5.05% would fit with the Bear’s REALITY.”
This is just silly — peanuts, as it were. Look at what happened to interest rates when Volcker took over at the Fed if you want Bear’s REALITY.
why only 5.05? (compare avg S&P yield at ~5.5-6%..of course at the peak earnings right now)
last yr many were predicting 10 yr would cross 6%.. there is manipulation, no doubt..but inevitably bonds will collapse.
“why only 5.05? (compare avg S&P yield at ~5.5-6%..of course at the peak earnings right now)”
That’s my point… all treasury interest rates are at levels which are very stimulative for those who like to play the stock market. This goes hand-in-hand with the conundrumish perception that there is no risk in stock market investments. Why not leverage yourself to the hilt to buy stocks, if it is a no-lose proposition?
“why only 5.05? (compare avg S&P yield at ~5.5-6%..of course at the peak earnings right now)”
sorry, I wasn’t clear enough.
When I said: “A 10 yr yield of 4.75% would fit in with the Goldilocks FANTASY. A sustained 10 yr yield of 5.05% would fit with the Bear’s REALITY.”
I meant that the Goldilocks theory (which is totally fantasy IMO) only can continue if 10 yr yields stay below 5%, specifically around 4.75% which seems to have been the sweet spot of late.
However, if the 10 yr treasury yields go above 5.05% or so and STAY there, then this would create the scenario elucidated by many bears, which I believe to be the true “reality” (again, IMO).
The 5% mark is truly PSYCHOLOGICAL, and that’s why I chose it, not based on fundamentals, but current market psychology.
Psychologically, this is where the bulls (and their parrots at CNBC) have drawn the line of tolerance, 5%. How did I decide that this is the psychological threshold? Simple, they say it 100 times per hour on Squawk box… “the traders are watching the 10 year treasury yields and are worried it might get to 5%”
IMO, The stock market gets slammed if Treasury yields get to then remain above 5.05%. (which could be 5.1%, 6%, 10%, 18%, and so on.
If the PTB can’t keep the 10 yr yields below 5% by whatever mechanism, then look out below.
but again, remember that the rising 10 yr yields are more of a symptom than a cause. They are rising because FCBs and other investors are decreasing their purchasing of treasuries, they are instead diversifying elsewhere (specifically into the stock market). Thus the yield must increase to woo their money. But doing so would take money out of the stock market.
why are they worried? due to our debt levels and trade imbalances and national debt.
See? Fed is trapped.
“Fed is trapped.”
Which is a great reason to sit on those long-term T-bond yields and not let them price in inflation risk (like they would if they were allowed to rise much above 5%)…
http://www.bloomberg.com/markets/rates/index.html
There is a downtrend tops line that began from the 1980-82 interest rate highs. I pointed out to this blog that It was at 5.25% last June and viola the interest rates declined. We are back up to the line which has declined to the 5% area on the 10 year. In my opinion a break of this 25 year downtrend line will be signifigant. It will herald a change in the longer term trend of the 10 year bond.
The Chinese market is toast. It will have a huge impact on America and the world. After the 1929 crash in America the great world creditor nation (USA) started calling in some of its foreign debt. The result was crashes in world markets. China serves the same scredit role in this cycle. A crash in China will result in demands for funds in China. This will result in Chinese sales of foeign bonds (USA) to meet those demands.
What I am saying is that the potential break in the 10 year bond downtrend line probably is associated with the turmoil in China.
Do not expect a 20% decline over there. Look for 50% for starters and it may be fast.
‘Flip This House’ star accused of fraud
http://news.yahoo.com/s/ap/20070601/ap_en_tv/house_flipper_investigation
Follow up from yesterday on Legislation.
Yesterday I posted a comment for someone asking about home rate refinancing and govt. legislation (to see if their neighbor was right about the Fed offering 4% refinance loans in July to those with good credit).
The answer is still, no - very very very unlikely.
To be more precise on the govt. legislation I mentioned:
HR 1852 The Expanding American Homeownership Act of 2007, passed the House Financial Services Committee on May 3rd and isn’t scheduled for discussion and vote in the full House yet (or at least not this week). This bill has to do with FHA reform.
HR 1427 The Federal Housing Reform Act of 2007 has passed the full House on May 22, but only just made it to the Senate Banking Committee on May 24th. This bill has to do with GSE (Fannie and Freddie reform)
As I mentioned, unless there is a lot of legislative wiggle room (and there is some room in the sense anyone who meets current criteria can get a loan) in order to allow new Federal bailouts both the House and Senate must agree, and Bush has to sign off on it. I sincerely doubt that the gov would go for a fixed rate of 4%, more likely and index, and there would be several criteria for offerin g such a loan… foremost among them the ability to pay it back. If you couldn’t afford the mortgage to begin with according to standard 28% or so rules, you would still be screwed… but I digress, as promised here’s the more precise info and, again, your neighbor is wrong about any federal bailouts in July. States are a different matter, but as they see their cut of the housing market dry up, they aren’t too likely to want to spend a ton of money bailing out hopeless cases. For most FB’s state actions will probably just delay the inevitable.
How many people could use a 4% loan? (Mine is almost 5%.) Since I use credit mostly for convenience, perhaps I should join the economist planning to default on his mortgage to qualify if they make the bailout irresistable. Given the forgiveness of credit history one might expect once most people are blemished…
At 4%, I could “lose” my job, default, refinance from 15 years to 30 years, drop my P+I by half and even with Texas property taxes, live like a king in the third world on the rent - PITI.
What I wants to know is:
1) Will Greenland have a bubble? and
2) If this is true, how come no one in Florida is yelling about the beaches disappearing?
http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2007/06/02/MNG4VQ6A0B1.DTL&type=printable
The Oregon House could vote as soon as this week on a bill that would increase scrutiny of lenders and brokers who make subprime and other risky home mortgages.
The proposal, Senate Bill 965, gained momentum last week when the House Consumer Protection Committee amended it, mainly to address concerns of the mortgage brokerage industry.
As amended by the House committee last week, the bill would:
Allow mortgage brokers to use automated underwriting software approved by Fannie Mae or Freddie Mac. Using such software, or a customized version approved by state regulators, would protect brokers from potential lawsuits from aggrieved borrowers.
Prohibit mortgages from imposing prepayment penalties for more than one year. After that, a borrower could sell a home or refinance without paying penalties, which often equal several months or more in interest.
Exempt banks and credit unions from the new oversight. Backers said the state already has the authority to scrutinize their business.
http://www.oregonlive.com/business/oregonian/index.ssf?/base/business/118076796011810.xml&coll=7
Arrgh, my comment seems to have gotten lost… ok, here it is again, in short.
Here’s a follow-up, as I said I would double check, on a housing legislation comment I made yesterday to someone saying that their neighbor insists that the federal govt will offer 4% refiance bail outs in July.
In short, no, it’s almost impossible for something like that to happen in July.
HR 1852 the Expanding American Homeownership Act of 2007 passed committee on May 3rd, but isn’t yet scheduled for the full House (or at least isn’t on this week). This legislation would reform FHA… it’s the somewhat controverisal bill that calls for allowing gov. no downpayment loans.
HR 1427 the Federal Housing Reform Act of 2007 passed the full House on May 22nd, but has only been with the Senate Banking Committee since May 24th. This bill reforms Fannie and Freddie and would lift their limit from 417K in places.
Neither bill has passed both House and Senate, any bill forwarded to the President for signature (becoming law) would require that the House and Senate versions match… and that takes time.
So no to July. Possibly no, never. If you are interested, check out the bills online and contact your legislators’ offices.
States are a different matter, but with the drying up of their cut of the housing boom, they are unlikely to offer anything but stop gap measures that stretch out the deflation of the bubble. FBs waiting for a govt buyout are likely going to have a long long wait for something that will in all likelihood not come.
“FBs waiting for a govt buyout are likely going to have a long long wait for something that will in all likelihood not come.”
Perhaps continued hopes for taxpayer-funded cargo drops from DC will be enough to keep prices from plummeting back to affordable levels?
I am reading a book on john law. in it there is a reference to the south sea bubble. so many people were making money on the stock an observer called everything they bought as “south sea.” south sea jewels, south sea homes, south sea carriages and south sea vacation homes.
how funny? how many realtors have you seen fly around in their south sea SUVs? wear south sea watches. south sea vacations. south sea boats.
Ah, thanks for finding that idiotic “study” from George Mason University about how housing prices will just keep on doubling every 10 years in the DC-Maryland-NOVA area forever. A friend of mine brought that up over the weekend and I just wanted to scream. Are our salaries going to keep doubling every 10 years? Of course not - we barely get COLA’s anymore. But “housing only goes up!” and I guess in this future fantasyland, everyone makes millions of dollars per year flipping houses, or maybe only rich people live on the coasts of the US or something…. argh!
Had a positive experience on the rental price front this weekend. One of my sons shares an off-campus 3-bedroom apartment with two other guys. One of them has decided not to renew the lease. I asked the manager if they could switch to a two-bedroom. She immediately offered for them to stay in the 3 bedroom, two bathroom apartment for the price of a two bedroom, one bathroom, next year. I asked why, and she told me that half of her tenants are not renewing their leases and she’s worried about getting enough tenants for next school year. Needless to say, I’m pretty pleased about that. If they can find a third roommate, we’ll enjoy a rent decrease next school year.
Went to look at a grand piano yesterday being sold by a family who are selling their home. The wife says that they are moving to a smaller house that has no room for the piano. She said that they’ll “probably” move in about a month. Zillow says that they bought it for $526K in 2005; it’s on the market now for $5K more. Their neighbors were having an open house - they’re asking $479K. They are selling the piano for less than it’s worth. I’m wondering if I should lowball them, knowing how desperate they probably are.
Get it before they decide to “forget” it in the house when they move out to make the sale…
The more I think about it, the more I think the media is at fault here. The “study” was not from someone in the economics department but instead from a professor in the public policy department.
To give the guy the benefit of the doubt, I think he very well may have been giving a hypothetical - if housing increases at it’s current rate then we will have a huge affordability problem and we need to look at it.
I haven’t read the study but my guess is he was not making a real economic prediction. (I could be wrong and the guy is indeed a idiot of mega proportions.)
This brings me to two points:
1. Why the heck do people in public policy act as if they’re experts at everything.
2. I think the media here totally missed the point and acted as if this guy was really making a prediction. The more I watch the more I think journalists are simply liberal arts types who are good writers but don’t understand a darn thing about the technical issues they’re writing about.
JJ wrote: “The more I watch the more I think journalists are simply liberal arts types who are good writers but don’t understand a darn thing about the technical issues they’re writing about.”
They are at best (professional) hobbyists like I am studying to be about HBB topics. The difference is that I know that I haven’t studied the fundamentals of the subject properly, and how important an adequate grounding in the fundamentals are in any subject.
When I went to engineering school, I had to spend thousands of dollars worth of credit hours on “distribution” classes to make me a better more well rounded and humanity-ized engineer. I could take appreciation of Spanish Literature but not study the Spanish language. There were many more odd requirements on how I could choose those credits, seemingly intended to make them useless for “practical” purposes.
I don’t recall ever meeting a liberal arts major taking Mathematics or Physics for their “distribution”…
the Secretary of Housing and Urban Development provided some interesting comments today. in prepared remarks to the National Press Club, he said “there is no reason to believe we can’t reignite the [housing] market.”
it’s a little unclear to me, and i’m sure most of you, why the government’s official policy should be an attempt to “reignite” the housing market so that it goes back to the pace of the last few years. here it is with a little more context, and the article is on marketwatch here: http://www.marketwatch.com/news/story/jackson-urges-reforms-help-subprime/story.aspx?guid=%7BF053F8B8%2D334B%2D4CC1%2D9BCC%2D4C6AA380A00E%7D&dist=hplatest
“I think the subprime-loan problem has given Congress the impetus to pass this legislation,” he said. “A red-hot housing market couldn’t generate heat forever. There had to be a return to normalcy or balance, and corrections needed to be made. But there is no reason to believe we can’t reignite the market.”
There is a huge natural incentive for current elected officials to burn the legs of the chair on which the U.S. economy sits in order to generate heat, and let it be the next administration’s problem to figure out how to run the economy while sitting on the hard, cold ground.
So sadly true.
That article is seriously disturbing. Not sure what Barney Frank is up to, since he’s the one who wanted to reform Fannie Mae (to reduce portfolio sizes and have better oversight).
Stuff like this makes me sick.
sounds to me like they had a good look at Europe and what happened there over the last years: with enough free credit you can save even the biggest housing bubble from collapsing under its own weight, at least for a few more years. Around 2001 many insiders thought the EU housing bubble was finished after a runup of 5-10 years and steller gains (even then already bigger than those in the US). They were wrong, never underestimate the power of central banks to distort the economy.
Housing in Europe is still bubbly everywhere and there is no sign of a credit crunch. The news reported yesterday that the Dutch building industry is so ‘red hot’ that many current projects will not be finished or even started, and builders are raising prices every month because they can get away with it (and because of higher cost for materials, but no … ‘there is no inflation’). While people are struggling to afford a home at 10-20x income, builder profits and profits for RE investment funds all over Europe are through the roof. So much for the ‘free market’ doing its work.
This is so 1999. LOL, these guys have their hands in the till the second they get a chance:
http://www.thestreet.com/_tscfoc/newsanalysis/technetworking/10360562.html