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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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Out of touch? What is it about a persons home that keeps them from noticing what’s going on with the market around them. I really don’t understand this. I have “owned” several houses in my life, but was never so attached that I couldn’t see the forrest for the trees.
http://biz.yahoo.com/cnnm/070621/062107_housing_perception_gap.html?.v=1&.pf=real-estate
Real estate always goes up so there’s no need to worry but if it DOES go down they’ll blame the realtor, lender, their Congressman….
You are implying people are more aware of other things going on around them? As far as I can tell, the USofA is really the Uninformed States of Apathy (not to suggest citizens of the USofA have a monopoly on that posture). The behavior around housing is pretty similar to behavior around everything else.
IAT
That’s because you probably put 20% down, had a fixed rate, made sure the house was under 3x your income, had other money stashed away somewhere, and never pulled money out of your home ATM.
Denial runs strong when reality says you are screwed.
This isn’t surprising to me at all, especially considering the way the MSM has been reporting on this issue. Ninety percent of the time their articles on this issue are just a regurgitation of a NAR press release or quotes from their shill, Lawrence Yun. The average homeowner doesn’t spent time on this blog, doesn’t know anything about recent trends, and certainly doesn’t know a thing about the ARM reset schedule. They believe what they seen in their local paper and their local paper will not report the truth and risk losing all that valuable advertisements from Realtors®.
However, I’m encouraged by these past couple weeks. It seems like the MSM has finally start to let some truth eek out, probably because of pressure from their readers. It’s only a matter of time before the average homeowner wakes up from their bubble slumber and start to panic. That’s when this will get really interesting.
Lets start a hedge fund dead pool
Let’s do an over/under on the number of suicides that take place in NYCityBoy’s neighborhood in the next 12 months. Those Wall Street guys walking around always look like useless parasites to me, so it’s hard to tell if they have fear right now. They, like the FBs, all think they are too smart to lose. It will be the guy next to them but never them.
oooooh, perhaps with method? jumpers like 1929? pills? scuttling thier yachts? ah… the amusement could be endless!
I commented on this yesterday. Unlike 1929, there won’t be any suicides. No leapers, no brains on the boardroom wall. You’d actually have to have a concept of personal responsibility, guilt or shame to have a 1929 event. Two things now prevent this from happening:
1) A PPT or FED that puts a floor underneath any plunge, so no real danger.
2) Therapy mints, or meds, which detach many of these hedge fund/Wall Street people, who can afford therapists and various pharmacueticals, from any sense of reality, guilt or shame. In a sense, it makes mini-Jeffrey Dahmers out of them, low level psychopaths who can’t feel much of anything, let alone any sense of personal responsibility. I had this discussion recently with a sibling who dated a fellow taking these meds. Artificially even-tempered and unable to relate to others, even his own family. Cares little about the adverse effects of his own actions on others. But hey, he no longer suffers from guilt or shame.
My candidate for a dead pool would be any hedge fund heavily long the Chinese markets.
You are describing the plot from one of my favorite movies, “American Psycho”. Frickin great movie starring Christian Bale. Adapted from a novel written by Bret Easton Ellis.
Ooo, we can call the housing jumpers flappers.
This part of the thread is really in poor taste. I know someone who committed suicide and the jokes really aren’t funny.
I’d like to see a discussion about where will all these millions ex-FB’s go after foreclosure. Where will they live now?
With record vacancies, they shouldn’t have a problem finding a place to rent.
or squat.
you’ll see cohabitation.
Family living with extended family.
You’ll see multigenerational houses… grandparents, parents and kids all under one roof.
you’ll see a brother and his family move into his sister’s home, and so forth.
nonrelated people will bunk up.
This has been common practice in high density areas like SF for decades, but I think you’ll see it spread to even more sparsely populated areas.
for a while, it will be odd, as the clearing price for homes will be out of reach of the masses… so you’ll have lots of empty homes, and other homes bursting with people.
Eventually, with capitulation (which may take a decade) housing will become affordable (either by income gains or by homeprice drops, you guess which!) and people will move into the old abandoned homes again, and people/house ratio will decrease again.
“You’ll see multigenerational houses… grandparents, parents and kids all under one roof.”
We’re already starting to see that. Especially adults in their late twenties and early thirties still living with or moving back in with their parents.
tons of people in one house alongside tons of empty houses?
We sold our home some time ago and we’re currently shacking up with family. We would love to rent a home in the Phoenix area and wait until this plays out. If we do move into a rental how can we be sure that the landlord didn’t finance the home with some exotic mortgage. I would hate to move into a rental and be evicted three months later because the owner could make up the $800 difference needed to pay his monthly mortgage. Is there anyway to insure that the owner acutually owns the home outright or that he used traditional financing? Just trying to avoid any unpleasant surprises.
Try to get a month-to-month rental with as low a security deposit (I am seeing $300 security deposits, so its possible) as possible. Having a professionally managed rental would also lower your exposure to LLs in trouble.
~Misstrial
More and more “for rent” signs going up around my area. Including the apartment complexes - they seem to be BEGGING for renters.
I am attending the USHomeAuction.com event in Sacramento this weekend. The on-line rules allow the auctioneer to bid against me, up to the seller’s undisclosed reserve price. This is clearly a Shill Auction and the opening bid prices are truly meaningless false advertising. I will report back here on Sunday. Are any other bubble bloggers going in for some Saturday morning entertainment at the Cal Expo Fairgrounds?
You ought to make and where a T-Shirt that reads, “Reserve Auctions are Fraudulent”.
At least where the reserve is higher than the starting bid.
The on-line rules allow the auctioneer to bid against me
So what happens when the auctioneer wins the bid?
They become the winning loser, just like every other “winner”. See http://en.wikipedia.org/wiki/Winner’s_curse
The winner’s curse is a phenomenon akin to a Pyrrhic victory that occurs in common value auctions with incomplete information.
he reels in, baits up and casts it again..
A poll conducted by the Boston Consulting Group found that 55 percent of Americans believe their house would sell for more money now than last year, compared with 59 percent who felt the same way last summer. Eighty-five percent expect their home to be worth even more in five years than it is now.
http://news.yahoo.com/s/nm/20070621/us_nm/usa_economy_housing_dc
People are still in denial!
The contrast of 85% to 55% seems to indicate, at least, that the news about current price declines has reached some people. Most MSM, however, follow the NAR desription of the current decline as a short breather before the “normal” appreciation starts again (10% or so :-)) and many people believe it, because they don’t have other information.
Out of touch with realty reality
http://biz.yahoo.com/cnnm/070621/062107_housing_perception_gap.html?.v=1&.pf=real-estate
I would like to know what people on this blog think about their rent. FBs all think their houses will be soaring again in value. Do people think their rents will be going up or down? Personally, I am the only living soul in New York City that thinks I will be able to pay less for rent when I renew in 2009 than I did for my 2007 renewal. I think the confluence of events of higher interest rates, a lower stock market and a crashed housing market will lead to rents dropping. I believe that is deflation.
I know they are already going down here.
Last year the better half and myself signed a 1-year lease after negotiating down the rent 10%. We were given the option to renew this year at no increase in our rent. This in Mazz, where the press is still reporting skyrocketing rent. Might help that our apartment is one of the higher-end “luxury” apartments but is five years old so it has lost its glamor and glitter to newer “luxury” apartments.
Still, even though we know the Boston Globe to be a complete shill mouthpiece, we expected to have the rent jacked 10% based on Globe articles. Instead we were pleasantly suprised.
Read something in the North County Times (San Diego) a few months back saying that apartment vacancies are up from 2ish, I think, percent to 5ish%. Don’t recall specifics, just jubilation.
Same or down. My rent has stayed constant in nominal terms. In other words when counting inflation or as a percentage of my salary it has gone down.
I rent in a condo building and so many of the units here are empty that I can’t see anything that would justify a rent increase.
I will be posting an extensive message re addendums to rental and lease agreements to protect renters from flippers/specuvestors.
I will also report on my recent rental search here in Lost Causes NM.
~Misstrial
Nothing like renting in Las Cruces. I remember my rental search. Ended up in a CMU wall two-bedroom, one-bath shack with a dirt parking lot and kitchen floor. Yes, the kitchen floor was dirt. And the counter space consisted of the top of the water heater.
I didn’t realize it at the time, but I lived in a S***hole. And I loved it. You’d spill something in the kitchen and just let the dirt soak it up. Heh. Not bad for $375 a block from the university. I can’t imagine the rent being any higher 12 years later.
Hah! Right now there are 500 (five hundred) rentals in LC.
~Misstrial
No kidding. Wow. I remember the panic of it being July 1 and needing to get a lease signed for August 1. There would be a bunch of college students in the rental companies office (I think it was Mather’s Realty?) and they’d just hand you the sets of keys to perhaps three different apartments, tell you to come back in an hour. So you’d come back in an hour and you’d be playing the chance game of trying to decide if the next batch of three apartments would be any better that what you just saw, or if what you saw was the best in the lot.
This place was off Solano on Wyoming a couple houses behind Burger Time.
Can’t wait to hear what it is like now. Thanks in advance for being willing to share (and PS: any word on who is replacing Theus?)
Wow, times have changed (for the better, I must say!) for renters.
Who is Theus?
~Misstrial
Alll Real Estate is local. Despite the woes in the certain parts of the country, Manhattan Real Estate is not entering a swoon phase despite my finger and toe crossing. Rental vacancies are very low. I’m currently watching the misery of a work colleague attempting to locate a 1 bedroom share for $1500/month without any success.
Rentals have become tight as many expect Real Estate to decline and don’t want to be caught manacling themselves to a godawful mortgage based on the peek of the market. All over the city, new buildings are springing up. Prices are static or barely rising.
Will Manhattan Real Estate crash in the face of a health city economy, lots of foreign investors buying up cheap appartments courtesy of our weak dollar and the always existing dearth of space?? 4-5 years ago I would have said yes.
I’m sick of waiting for prices to adjust, however I’m going to continue to wait and see if the huge volume of new residential buildings coming on the market will have an impact on prices
Martin
We just renewed for the same rate. Taxes are going up due to some public works projects and the school budget needed a special override vote. If the budget failed, we would have moved.
I think our landlords like us and would like us to stay and will keep our rent the same. Our next door neighbor expressed real annoyance about the high turnover our house has had. I think during the run-up, many tenants moved out when they bought houses of their own.
My experience with individual landlords is that they rarely raise the rent, unless they don’t like you, since it is time consuming to find new tenants. Apartment complexes seem to raise the rent every year.
In Mass, landlords can now make the water bill the tenant’s responsibility. I have some concerns that they will ask us to pay that in the future. If so, we will probably move.
Alll Real Estate is local. Despite the woes in the certain parts of the country, Manhattan Real Estate is not entering a swoon phase despite my finger and toe crossing. Rental vacancies are very low. I’m currently watching the misery of a work colleague attempting to locate a 1 bedroom share for $1500/month without any success.
Rentals have become tight as many expect Real Estate to decline and don’t want to be caught manacling themselves to a godawful mortgage based on the peek of the market. All over the city, new buildings are springing up. Prices are static or barely rising.
Will Manhattan Real Estate crash in the face of a health city economy, lots of foreign investors buying up cheap appartments courtesy of our weak dollar and the always existing dearth of space?? 4-5 years ago I would have said yes.
I’m sick of waiting for prices to adjust, however I’m going to continue to wait and see if the huge volume of new residential buildings coming on the market will have an impact on prices
Martin
“Do people think their rents will be going up or down?”
when it costs 1800.00 a month to rent a real house in carlsbad/encinitas california thats when the homes prices will be like late 90’s (350K) and you can kiss your bubble prices buhbye.
i will need a total zen garden style home to calm my nerves and get me back on track!
Subprime shivers
But…..But……it’s all contained!!!!!!
http://www.marketwatch.com/News/Story/Story.aspx?column=Indications
Is the Bear Stearns hedge fund situation the begining of the great unravelling?
Yes.
my first succinct post
A minimum use of words is elegant.
Blackstone’s ticker symbol should have been “BS”.
Yes, I’d like to see a topic on the “unwinding”. I’d like people’s thoughts on what will happen and how it will happen.
I’d recommend reading Adam Smith’s The Wealth of Nations. He describes what happened to other nations, and I see very little difference today.
The whole book is 1200 pages. It is definitely worth every page, but you can cherry pick certain parts that directly deal with our situation today.
Coincidentally, he published it in 1776. Our founders used it is a basis, along with other works, for the constitution (1787). It is so enlightening to see how far we strayed, and where we’re headed.
How should we position our 401k investments to protect them as much as possible from the coming disaster?
That’s a GOOD topic!
I agree. I have a limited choice of funds and right now have everything in a stable value with only an information sheet that says it has an average maturity of two years and AA. The investment lists some large money center banks along with insurance funds. I just don’t know where to park it - I’m totally dumb on investments.
Ask for a self-directed account. A lot of companies will let you do that for a small fee.
For a 401k? At my job, we have to use Fidelity Investments. Which is okay in itself, but we only have about a dozen Fidelity funds we can use, rather than the whole Fidelity list (thousands). I don’t believe my employer will let me use anyone else but Fidelity.
Read your summary plan description. They don’t advertise it but a lot of companies will give you that option.
Agree with t-chick. My husband can do self-direct and I choose Vanguard’s Total Stock Market Index Fund. Index funds are good from a tax-perspective, so you may want to look at index funds if they are offered.
However, if all you can do is Fidelity, can you post your choices and I will give you my .02 cents. You can also do a search on fidelity.com and look at the funds’ Morningstar rating (Enter ticker symbol ,click on FastQuote, click on Research, and the rating will come up along with fund info).There are also graphs showing that fund’s performance over various periods of time.
I never invest in any fund with less than 4 stars.
Fidelity Balanced Fund - FBALX - is good (5 Star); Fidelity Contra Fund is good although the Contra Fund may still be closed. The Balanced Fund was closed last year, but it has re-opened, maybe because FBs are having to cash out their investments to stay afloat.
Fidelity has poor performing funds too.
~Misstrial (3rd generation Fidelity investor)
Your plan trustee or administrator is probably someone like Merrill or Schwab or someone like that. Or maybe a TPA who uses them. Usually, the brokerage firm will charge you something like $200/year to set up a self-directed account. They know people won’t do it, and they’ll give you some horsesh**t about how people can’t manage their own money as well as their “experts” can. That’s usually true unless you are willing to put the work in and if you are, you can beat the pants off their experts. Read your plan. You should have that option.
Right, Vanguard TSM or their other index funds are great. You can use a chart or simplified timing system and really gun your returns. You do have to pay attention.
Sorry, should be “chose Vanguard’s Total Stock Market Index Fund” - choose, chose; “looseTM”, lose - I must have caught it from Casey :/
~Misstrial
Nope, I checked both with the plan administrator at my company and with Fidelity. I have no other choices than the 19 funds that my company allows me to pick from the Fidelity list.
Of the funds available, the bond-oriented ones all can have MBS, which I’m not interested in (to say the least). The others are stock funds, and I’m also not interested in the US stock market. So basically my only choice is their one international fund.
That has been doing quite well, but I’d rather have a Treasury-only money market fund to move some of my money into. Unfortunately, none of those is available.
I’ve called the plan administrator to complain. She told me to send her an email and they’ll discuss it at their next trustee meeting. She also said she doesn’t get much feedback from employees.
If it were me, I’d send a letter (addressed to the trustees in addition to an e-mail to her) informing the trustees that you’d appreciate a self-directed option so that you can choose a fund that limits your exposure to certain sectors (like MBS bond funds, for example).
Additionally, let them know that since this is YOUR retirement, you would like the ability to choose no-load funds that would limit your exposure to fees and commissions that would take a big bite out of your hard-earned savings. Factor taxes on top of that and you have fewer dollars saved than you may think.
Both Vanguard & Fidelity have 401k plans that cater to self-directed and to company plans.
Since trustees get so few letters (make yours a formal letter sent via Certified Mail) your may impress them enough to offer this option to all the employees. Let them know that other companies are offering this investment option, such as Lockheed Martin.
Its not fair that there is a company match that equals a pay raise going into Funds that are unsuitable for you. Personally, I also avoid ALL bond funds that have a MBS exposure.
All the best to you,
~Misstrial
My 401K is as safe as you can get….I don’t have one…..
Ditto. When I was at the law firms, I self-directed and they’d let me roll the profit sharing contribution into my IRA every year, which I did.
I spent more time on the partners’ 401k investments in their self-directed accounts than I did on the work I was supposed to be doing
I’m all for this as a topic.
Not just 401k’s but brokerage accounts, Roth’s, savings accounts, etc. What is the consensus about how to manage one’s finances in the coming months, years? I’m not really sure if this is an appropriate topic for a housing bubble blog but I’m sure Mr. Jones will make the right decision about that.
If this is discussed, here are a couple of links for possible discussion.
Robert Shiller’s personal portfolio, see the last question.
http://tinyurl.com/2mqx6k
Doctor Doom’s web site
http://tinyurl.com/238bv5
My company also has Fidelity. I recently parked a decent amount of it in Fidelity2000. I know that fund is designed for people who are already retired (thus the 2000) but I figured that has to be fairly safe. However, I am a little worried about the bond aspect of it. What do you guys think?
I, too, have my 401k managed by Fidelity. I have 100% in the stable value fund, cannot self-direct and the SVF has approximately 30% (THIRTY PERCENT) in MBS. WTF? Even if these MBSs are rated “highly” I feel ill….
I am thinking of peddling back only to the amount they match and save the rest of it myself.
Here’s a realted topic too: pay taxes now or pay taxes later? I would always say defer, defer, defer! This thinking I would have a lower tax rate later. BUT - I am thinking all our taxes will be jacked to the moon in a decade or two. So maybe deferring is not so smart… what say you all????
When will the lenders get serious about selling their ever-growing collection of REO’s. In my neck of the woods, Southwest FL, they’re no better than the most clueless civilian sellers with their “wishing” prices.
anonymous,
Do nto know where ya are in Florida but…Port Charlotte is having the first REO auction i have seen advertised next sat,the 30th. 28 houses/approx 20 lots and a single batch of approx 10 lots. I have a friend at work and his wife is pulling all available info about the properties. I have no desire to purchase yet but i will attend just to see if i can spot any shill bidders. I also want to get a feel for what the public thinks these places are worth…
Chris
Keep us posted…I just moved from FL and it seems to me many don’t understand the reality of what their house is worth in the marketplace versus what they think it worth..I think that some of these auctions will give us a true idea of what the market place is really at…People can’t let go from the “what my house was worth 2 years ago” issue…like I told a friend..you already equity lined out what your house was worth and you still think you deserve more?
Cobradriver, I am down in Lee County. Most of the auctions I have attended or watched online have been a huge waste of time with reserves or shills or seller has the right to accept or refuse the high bid, etc.
I think these phony “auctions” are ultimately going to hurt when the need for a real auction arises and no bidders show up.
I personally dont see auctions doing good for at least six more months.
The guy whose wife is getting the property info owns 17 rentals in North Port. I posted a couple of weeks ago he just bought three more brand new places from a specuvestor form up north. The guy needed out asap. He picked up all three properties for 100k each. He got renters in all three this week but he now figures he overpaid by about 25-35k per property. He will do o.k. because the properties are paid for but it still bothers him a little…
We are at the very beginning of this whole debacle.
Chris
Have you seen the following site:
http://www.123sold.com/
It’s freakin’ hysterical. It trying to be the eBay of South Florida Real Estate. I checked out the site after seen a giant billboard where 595 meets 75 (probably the most expensive billboard in South Florida).
The site is ridiculous and is receiving very few bids, mostly ridiculous lowballs. If you read the rules of the auction site, they have one provision that make the entire website worthless:
” Rule # 4. From the close of auction, the Seller has 24 hours to accept or reject the highest bid.”
How does Rule #4 makes this an auction? It’s just a site to gather bids from people.
“The problem is not what we see happening, but what we don’t see,” said Joseph Mason, associate professor of finance at Drexel University in Philadelphia and co-author of an 84-page study this year on the CDO market. “We don’t know the price of these assets. We don’t know which banks are exposed to this sector. These conditions are the classic conditions for financial crises across history.”
What is it that we don’t see, and don’t know?
How about discussing at what point will it be truly worth looking at an auction to get a deal. Most of the auctions now have high starting bids or low starts with high reserves. Also, their are people who think now is the time to jump in so they end paying only 10% less than what these places listed for originally.
But when you factor in the 10% commission you are back to where you started price-wise. You also forgot to mention the auctioneer’s bidding to rig the price higher, and the bidding shills who pose as genuine bidders.
This whole RE thing stinks! I have never liked it. It has ALWAYS stunk!
Most recently, I tried to rent from a Realtor (TM) in Bowling Green, KY who was a past president of the local Realtor’s (TM) ASSES-iation. What a lying scumbag! Lied about everything about the damn rental! And the people in BG get the privilege of seeing his stupid face every time they push a dang grocery cart!
Got 10% down?
“What a lying scumbag! Lied about everything about the damn rental”
sing it brotha!
I wonder how the wonder boys who run the hedge fund at Yale U. are gonna weather this storm. Much has been written said about their astute business acumen, now we get to find out. Are there any public disclosures these guys have to do periodically? It would be interesting if somebody could kindas start tracking them.
Got 10% down?
“I wonder how the wonder boys who run the hedge fund at Yale U. are gonna weather this storm. Much has been written said about their astute business acumen, now we get to find out.”
The Chimperor is a product of Yale, along with other assorted unsavory types. The AG of the US busily dismantling the legal system is a Harvard grad. So much for the Ivy League, turning out the “Leaders and Captains of Industry of the Future” LMAO! ‘Nuff said.
Let’s do a thread on the long term future of housing prices. First the bubble will deflate. After that, even with a growing population I don’t see the cost housing increasing as a percentage of salary for hundreds of years if ever. There are too many trends working against higher housing prices.
How about discussing Reverse Mortgages. With baby boomers getting ready to head to the exit I’m sure that my kids will get to participate in a forum like this one to discuss the the Reverse Mortgage Bubble.
Here’s a suggestion, a thread on how so far this correction SUCKS because it’s only limited to crappy and newly built areas (San Juaquin Valley, IE, Palmcaster) where no one really wants to live (personally I wouldn’t live there in a house given to me for free), and small houses in WLA/SF are still over a million bucks, down maybe 5% and holding steady, even up in areas. And don’t tell me I’m being impatient because I said so far.
Nothing crazy about that. It’s the same here in the WashDC area. The most desireable locations are going to continue to draw what few interested and qualified buyers are out there, and so will be the last areas to feel the crunch. But look back to the last RE bust. Were there any areas of SoCal that never dropped from their 1989 prices? Doubtful.
In the 1980s, WLA/SM/Venice were just normal parts of the city, any joe shmoe plumber or teacher could buy here, now its trendy and all the rich people want to be here, so it is different this time in that way. Also, the rest of the city, other than parts of the SFV, are uninhabitable now by Americans.
2 other things supporting prices in Silicon Valley:
1. the guideline of 35% of income to housing may not apply for someone making quite a bit more than average. If you take two familes, one makes $100k, the other 200k - the 200k family may not choose to double their expenses on everything. Family A and B may both be satisfied with the same minivan. So the $200k family can spend more on housing if that’s what floats their boat.
2. there’s a lot of Chinese immigrants here. For these folks there is a strong emotional attachment to owning property. So the rent vs buy calculus is different. Someone may say “if renting is
i dunno anything about LA, but in San Francisco the sticker is a simple matter of it’s tiny, geographically limited, thoroughly exploited supply of land coupled to enormous desirability. It’s 750K population balloons by a factor of 4 or 5 on weekdays.
In the ’50’s to ’70’s it was.. i’d guess.. at least 95% working class owned. Now it’s maybe 5 or 10% or less and dropping fast, as the kids inherit and sell off.
Nowadays, it’s a nice place if you’re fairly wealthy, and probably the greatest place in the USA to be homeless in.. but there’s not a lot of excuses to seriously consider living in it otherwise, imo.
I agree with LAIG. I don’t care if houses in Fresno are free, I still wouldn’t live there, and the house prices in santa clara county are still stable to slightly up. One factor is that there’s not been much SFH construction in SF or Silicon Valley other than 3 story places on 2000 ft2 lots. So if you want a 6k-10k lot the supply has been pretty much flat. (excluding the southern outskirts of Santa Clara county, there are new developments there but it’s too far for me). So, stock prices are up, wages for engineers are up, unemployment rate for engineers is 2%, supply is flat… I don’t see continued appreciation but I don’t see a crash either unless there’s a catastrophe or major tech recession. Certainly possible, but is it probable? The tech companies have been chugging along for the last few years, but not booming like in 1999. And as has been pointed out here, giant booms precede giant busts. The corollary could be that lack of giant boom precedes lack of giant bust.
I rent in a desireable area of Sac and I agree that so far prices are holding in the established neighborhoods. However, the bloodbath in the newer suburban neighborhoods is slowly moving inward. I am starting to see listing prices 5 - 10% lower in neighborhoods immediately adjacent to mine. I think we are just at the very beginning of this housing crash and every neighborhood will be affected by the end of the year.
Joseph Mason - hey, a Drexel guy! Cool - nice to see that somebody at my old university has a clue and isn’t afraid to speak his mind.
The rich and wealthy would like to keep everyone out of their “special” areas - you know, ones where one doesn’t trip over hobos or dead bodies on a daily basis, but in the end all prices will come down for the many reasons we’ve discussed before.
I wonder when the real fallout from the crumbling hedge funds will begin… perhaps it has begun? We’ll see…
I’ve been wondering what will spark the decline. The housing bubble hasn’t deflated, it’s just no longer expanding. People remain fudged to their dream prices. Busts are usually triggered by a single event; an event that makes everyone say, “Holy smokes, Batman, the Joker’s been shoving banans in our tailpipe” (that’s a direct quote from Jack Daniels).
My best guess is that the very thing designed to avoid a meltdown will actually spark it. Cheap political points from a potential government foreclosure bailout would focus so much attention on the implosion that people will be jarred out of their denial.
hmm.. a tightrope walker lost his balance and grabbed the wire.. and is hanging on for dear life.
what will “spark the decline”?
time.
Imagine you had to buy a house this month. (I know, I know… just imagine). How would you decide what to offer?
Take the most recent pre-bubble purchase price of home, and add 7% per year that has passed since they bought. They balk, you walk.
7%? Isn’t that rather high for an inflation adjustment? Or are you factoring in something else to arrive at that figure?
Thanks, SLC. Problem is, in my state (Montana) real estate transactions are not public information, so it’s hard to figure out what pre-bubble prices were.
I could use property tax assessments. They are public information (though the most recent ones online are from 2003).
Yesterday I saw a house listed for $310K. In 2003, it was appraised at $170K. Using your 7% per year for reasonable appreciation, the house was really worth $182K in 2005, $195K in 2006, and $208K in 2007. And that’s not even figuring the early years of the bubble from 1997 to 2003…
Today I found out that house prices in Missoula have risen a total of 34% since 2000. When I look at house listings, I usually think about lopping 30% off asking. For this house, that’s in the same ballpark.
I guess another way of figuring how much to offer would be on a per square foot basis. I could determine the average $/SF in 2003 in the neighborhood I like, add 7% per year, and use that as a rule of thumb.
Any other ideas — beyond lobbying the legislature to make real estate transactions public?
In light of the collapse, a buyer should be in a position to make reasonable demands of the seller. If not, the deal is not ready to happen, imo.
so.. why not just ask the seller for proof of what he paid and when..
Like my momma used to say “It never hurts to ask”.. (usually just before she said “No!”.
Wondering about the back and forth we are seeing now between US and China. For years now US MBS have been selling into Chinese hands despite the questionable nature of the underlying loans. For years some, not all, but some of the Chinese exports flowing into the US have been, let’s be diplomatic, less than the highest quality. Now things seem to be worsening. tainted consumables vs deteriorating investments/securitized packages, CDOs, etc.
Is this going to get worse or will both sides figure out that doing things the right way really is better for all involved?
what defensive actions have you taken in the last 6 months or since the subprime mess started?
Brookstreet Securities Corp. I’m curious about the 100 employees laid off. What kind of cars were they driving? What kind of toys did they have? I’m sure some had boats. Where were they living? Obviously they would have higher end salaries and I’m just curious what types of hedging they employed to protect their financial future.